When two entities decide to agree on some terms of their legal relationship, then it’s backed and confirmed via MoU or Memorandum of Understanding.
Assume that there is business A, which sells mangoes via retail channels, and there is business B, which provides logistics services for fruits from one corner of India to the other. Business A has asked business B to ship five trucks of mangoes, within three months. This agreement can be enshrined and confirmed via MoU between business A and business B.
But the question is if a Memorandum of Understanding or MoU between two parties is legally enforceable or not? And what is the difference between MoU and MoA?
In this article, we will inform you of What is Memorandum of Understanding and provide the content of a Memorandum of Understanding, usually applicable in India, which will help you understand how to write an MoU. But first, What is a Memorandum of Understanding?
What is a Memorandum of Understanding?
A Memorandum of Understanding is a bilateral agreement between two parties, agreeing to a decision. The nature and purpose of an MoU are very much similar to a letter of intent, with some minor differences.
In the world of business and legalities, a Memorandum of Understanding is a promise, a way to reach a decision between two parties.
Often, the fine details of that agreement are not mentioned in the MoU, and the signing of an MoU only implies the intentions of the two parties to reach an agreement over a decision.
Sometimes, an MoU is the first step towards initiating negotiations and outlining the terms and conditions of that agreement.
What is the Content of the Memorandum of Understanding?
The content of a typical Memorandum of Understanding depends largely on the purpose of such an agreement, and the nature of the business involved.
As ‘Understanding’ is a keyword here, the content of the MoU is finalized after due deliberation from both the parties involved and after agreeing to the general outline.
As per legal experts, a standard draft of the MoU between two parties should have:
- Names of all the parties involved in creating such MoU
- Addresses of all the parties involved in creating such MoU
- The purpose of creating and entering this MoU
- Specific roles and responsibilities of all the parties involved in the MoU
- Terms and conditions of the MoU, as agreeable to both the parties
- The goal of the MoU, and expectations from all the parties who are entering into the MoU
- Resources which will be contributed by every involved party in the creation of the MoU
- A clause of Severability can be included, assuming the worst-case scenario
- A clause of Confidentiality can be included if all the parties involved agree to it
- Duration and tenure of the MoU
- Signatures of all the parties who are agreeing to enter into this MoU
If your question is how to write MoU, then these standard pointers will help you to draft the MoU, but you need to involve all the parties involved in this and take them into confidence.
The key to the success of any MoU is understanding and trust between the parties involved, and that’s the very purpose of signing an MoU.
Are MoUs Legally Enforceable In India?
No, MoUs are not legally enforceable in India, since their usage is normally non-binding in nature, which describes the intention of the parties involved for making a decision.
At the same time, if the MoU signed and agreed between two parties have clauses on money exchange, or has a jurisdiction clause with applicable laws, indemnification and other such legalities, then it becomes a binding contract.
In such cases, the involved parties can initiate a legal case if the understanding or any clauses are broken a party.
In India, MoU is governed by the Indian Contract Act, 1872. In case the conditions of the Indian Contract Act are met via clauses and pointers signed in an MoU, then the clauses of the MoU can be legally enforced under the Specific Relief Act, 1963.
If the conditions and clauses of the MoU are not met as per the Indian Contract Act, 1872, then the MoU is non-binding, but still, can be challenged in the Court based on principles of promissory estoppels and equity.
Difference Between MoU and MoA
While MoU is a Memorandum of Understanding, MoA is a Memorandum of Agreement, and there is some difference between these two terms.
We have described the nature and purpose of an MoU as an agreement between two entities in India to reach a formal decision, and it’s non-binding in nature unless the Indian Contract Act, 1872 covers the clauses.
In legal parlance, MoU is a gentleman’s agreement between two or more than two parties overreaching a decision.
MoA is a Memorandum of Agreement is also an agreement in writing between two or more than two parties to reach a decision, with several clauses and points of action mentioned in the document.
But MoA is binding in nature. This means that if one party fails to fulfill the obligations as agreed upon and signed via MoA, can approach the Court and challenge the action of the other parties.
The very nature of MoA is to make the agreement legally enforceable and binding in nature for all the parties involved. And thus, the provisions and clauses in an MoA are intentionally drafted in a way that they come under the purview of the Indian Contract Act, 1872. And in case the promises and assurances are broken, then the other party can approach the Court.
Hence, we can say that the legality and binding nature of MoA makes it different from MoU
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