A Gentleman's Agreement: Analysis

Saptaparni Raha
Oct 1, 2022
2 min read

Written by Saptaparni Raha, Lawyer

Introduction:

A Gentleman's Agreement, commonly known as the Memorandum of Association, is a preliminary agreement between parties entering into a contract before they reach a formal agreement.

Purpose of Memorandum of Association:

It works as an outline or framework for the forthcoming negotiation.
Parties can decide or commit to the project through this agreement.
This agreement set up the key commercial terms before an actual contract.
Third parties can understand the gist or essence of the project.
Merger Clearance or the Foreign Investment Review Board approvals are done after the Memorandum of Association is entered into.

Elements to Constitute a Memorandum of Association:

The Memorandum of Association helps to identify the true intent, purpose, and scope of the parties.
This agreement specifies the parties who are involved in the MOU.
It mentions the starting and ending duration of the agreement.
The Memorandum of Association mentions the roles and responsibilities of the parties.
An MOU also talks about what is excluded, what is not guaranteed, and what the project is not going to abide by.
In this agreement, there are all details regarding payments or any other financial matters clearly specified.
It also allocates risk and resolves disputes.
It mentions the circumstances when parties can terminate this agreement.

Enforceability:

The Indian Contract Act and the Specific Relief Act govern the Memorandum of Association. The Memorandum of Association which is enforceable through the Specific Relief Act needs to fulfill the conditions prescribed in the Indian Contract Act.

Essential Clauses for Memorandum of Association:

The first clause is the Identification Clause which identifies the parties entering into the contract.
It also identifies whether the MOU is legally binding or not.
The following clause states the conditions for completion or points out the key commercial terms.
One of the clauses conducts due diligence and related projects.
The next clause is lockout or exclusivity, which makes the agreement binding or non-binding as the case may be.
There would also be a Confidentiality Clause as per the Terms and Conditions of the project.
The next clause allocates the costs related to various projects when the agreement is binding.
The last clause is to identify the governing law and the jurisdiction with respect to the agreement.

Conclusion:

Parties to this agreement need to be aware of the legal and practical implications while entering into an agreement.

Reference:

Shubhanker Jhingta.(2021). Everything you need to know about the Memorandum of Understanding, retrieved Everything you need to know about a Memorandum of Understanding - iPleaders
M.Arjun. (2020). Essentials of Memorandum of Understanding: A guide. retrieved from Essentials of Memorandum of Understanding: A guide - iPleaders