A Memorandum of Understanding (MOU) is a short written statement outlining an agreement between two or more parties who agree to do or not to do certain things moving forward into the future. Disclaimer: An MOU isn’t legally enforceable! It is just a written record that often acts as the first step in creating a formal contract.
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In this guide, we detail the differences between MOU’s and other business agreements, how to scrutinize one and when to use one.
Common Uses
Individuals and organizations use MOU’s in a variety of situations including:
- Creating a payment schedule: especially if the contract does not specify one.
- Explaining intentions: Organizations may use an MOU to detail their intentions and purpose related to a contract.
- Outlining conditions of transactions: Companies may use MOU’s to serve as an addendum to a legal contract.
Another form of MOUs used in business and for personal reasons include an information memorandum. This document explains the information that the parties have related to whatever situation or project they’re involved in. It may also be called a memorandus.
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The Fans and Opponents of MOU’s
MOU’s are popular among certain industries and less so among others. We lawyers, ok some of us who are Contract Law specialists, generally do not like MOU’s because of their legal ambiguity. Government bureaucrats, on the other hand, like MOU’s because they are informal and allow them to avoid the red tape and extended timelines associated with formal contracts. I do not need to fill you in on how the Narc Kenya and the Jubilee Party MOU’s have been such a waste of time and money.
MOU vs A Contract
An MOU is not a contract. It is technical something that would qualify as informal written communication. It’s more formal than a verbal agreement, but they’re not legally binding like a contract. The key difference between an MOU and a contract is how enforceable it is.
An MOU, in other words, articulates an agreement that isn’t legally binding. It serves as an outline of expectations. A contract, on the other hand, establishes a series of legally binding obligations. If the obligations in the contract aren’t met, the party that was injured by the unfulfilled contract generally have the right to sue.
The Components of an MOU.
Because an MOU can be used in practically any situation where the involved parties don’t want to enter into a formal contract, they’re fairly easy to draft provided that you understand the primary components:
- Date of Agreement: located at the top of the contract, the date of agreement indicates the month, day, and year in which the agreement is made and takes effect.
- Introduction: the introduction should provide an overview of the agreement, identify the purpose of the document, parties involved, and why the involved parties are entering into the agreement. The introduction should also offer details about each party involved.
- Purpose of MOU: this is reason the MOU is being created. It should detail how the parties involved will use the increased capacity provided by the MOU. To get a better understanding, run an Internet search for a sample MOU. Read the example sentences so that you may draft your own purpose statement.
- Scope: lists agencies and jurisdictions included in the agreement and their relationship to the parties involved. This includes end users, the level of command/government.
- Terms of collaboration: this section should detail which activities the project will involve. The activities typically fall within two categories:
- Cooperation: the activities performed and which partners will perform them.
- Resources: the funds and other resources that each partner brings to the agreement.
- Disclaimer: a general statement indicating that all activities that take place under the MOU must be in compliance with both state and federal law.
- Conditions of alteration or Exit Clause: this section clarifies the conditions and terms under which the MOU can be terminated, altered, or amended.
- Signatures: each party then signs the MOU. If one or more of the parties involved are companies, the CEO, departmental chair, director, or other involved executive of the companies must sign on behalf of the corporation.
How Do You Write a Memorandum of Understanding?
Like any other agreement, MOUs have a unique drafting process. At Adelante Legal Network, we observe these steps;
- Planning Phase: each party involved determines their wants and what they’re willing to negotiate on.
- Drafting Phase: parties then draft the initial MOU.
- Negotiating Phase: the MOU typically outlines guidelines that govern the mediation process.
- : Once negotiations are completed, parties establish a timeline for the MOU to take effect, when it expires, and any rules regarding termination.
- Restrictions: finally, each party adds any restrictions, disclaimers, privacy statements, etc., and sign the final MOU.
Legal Considerations of an MOU
In order to be legally binding, MOUs must include the following:
- Identification: all parties involved are listed by their legal name, address, and business (if applicable).
- The MOU must also identify itself as an MOU, not a contract.
- Intention: the MOU must clearly identify the purpose of the agreement. Furthermore, there should be separate sections for the intentions and goals of each party.
- Consideration: this section should detail financial obligations–who will keep track of finances, what methods must they use, etc.?
- Acceptance: All involved parties must sign the MOU.
With each of these sections in place, if the language of the MOU clearly outlines the terms of the agreement and is backed by consideration, the MOU may be treated like a contract and MAY (in some situations) be legally binding.
If you are worried about accidentally making a legally binding MOU, include a statement like this:
“This memorandum is in no way a legally enforceable contract between the aforementioned parties.”
If, however, you want a legally binding MOU, be sure to use clear and specific language.
The best way to create an MOU that is also cost efficient is to use our services! Write to us legal@adelante.co.ke or Call us for guidance +254 100 100 138.
The Breaking of an NDA or Privacy Agreement
MOUs often contain legally binding clauses, such as non-disclosure agreements or privacy agreements. These types of clauses are always legally enforceable. You could face legal consequences if you break one. It should be noted that the presence of a legally enforceable clause in an MOU does not make the entire document legally enforceable. Here is an example of a legally enforceable clause:
The aforementioned will not, unless so authorized or required by the duties mentioned within, reveal or divulge to any person or entity any information concerning the affairs of Adelante Group LLC or the affairs of its subsidiaries.
This restriction is unlimited and will only cease to apply to information that becomes public domain.
Language
Language is the key factor that determines whether an MOU is binding in the eyes of a court. If the language clearly outlines the terms of the offer and is backed by considerations, the MOU will function like a legally enforceable contract even though it technically is not a contract. However, there are statements that can negate the enforceability of an MOU.
Only clear, specific language will make the terms of your MOU stand up in court. So, if you’re creating an agreement in which you want a legal edge without incurring any edges against your own interests, gear the terms in such a way that they absolve you of potential blame, and try to insert whatever binding clauses you deem necessary.
Remember: MOUs do not always involve the exchange of money. Any MOU that does involve the exchange of money is almost always considered a legal document.
We look forward to legally protecting your Organizations itinerary. Write to us legal@adelante.co.ke or Call us +254 100 100 138 for our immediate assistance.
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