Memorandum of Understanding – MOU

An MOU is a formal written document specifying the mutually agreed terms and conditions between two individuals or organizations seeking to achieve a common objective. It is also known as Letter of Intent or Memorandum of Agreement. MOU is different from contract containing lesser complexities and fewer details whereas a contract is a binding agreement involving an exchange of money. MOU does not entail rigidity or exchange of money at the time of breach of agreement. MOU can be framed for both domestic and international purposes.


 

Need of having an MOU:

 
To frame an effective MOU it is required to chalk out the diplomatic strategies and put them down in creative words. It is used at the time of negotiation between the two parties to achieve a shared objective.

An MOU is simple and direct and doesn’t involve the terms and conditions as laid down in a legally binding contract. Due to the informal yet seriousness of MOU, a lot of time and sincere attention is devoted to frame an effective MOU in order to arrive at a mutual agreement for eg: what is one party’s need could be another party’s expense, what one party needs and how much the other party is willing to offer etc.   

Binding nature of MOU:

MOU are usually non binding formal agreements, yet they invite legal implications depending on the language used in framing an MOU. If the language of the MOU pertains to that of a contract then it shall attract legal formalities. For eg: use of offer , acceptance and consideration in an agreement leads to creation of a binding contract. In order to avoid such a situation MOU’s contain disclaimers stating that that it shall not be enforceable in the court of law. However, in the event of infringement of the privacy policy mentioned in the MOU, legal action can be taken against the defaulting party.

Advantages of framing an MOU over legally binding agreement:

MOU’s are non binding written agreements specifying the roles and responsibilities of the parties involved in the agreement. They are usually less time consuming and avoid the legal implications as involved in a  contract. This is because a legal agreement contains the risk, warranties and indemnifications because of the nature of the contract involving exchange of money or other considerations to validate it. MOU provides a road map to non binding agreement signaling effective negotiations between the parties involved to achieve a shared goal.

Disadvantages of MOU over legally binding agreement:

When MOU gets scrutinized in the event of discrepancy between the parties, maximum attention is given to the language. The language of an MOU must indicate a non binding agreement avoiding all contractual formalities. This is because the parties often try to manipulate the language in order to benefit from the loosely drafted contract alike language. Another drawback of MOU is that if the language is too strict, it might give an impression of a binding contract.

 

Conclusion

In today’s fast paced business environment, partnerships with shared objectives and responsibilities play a major role in predicting the future. MOU’s are a means to achieve an end through smooth negotiations.

 

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Sanjna

Legal Consultant

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