MEMORANDUM OF UNDERSTANDING
- 217 Tanvi Khatri
- Sep 30, 2023
- 3 min read
What is a Memorandum of Understanding?
In India, a memorandum of understanding (MoU), also known as a letter of intent, just acts as a method for two parties to reach an agreement. When parties agree to engage in a contract but the formalities (such as the contract's terms and conditions) have yet to be discussed, they may choose to enter into a Memorandum of Understanding, or MOU, agreement. It is formed when two or more parties begin preliminary negotiations concerning the agreement's parties' rights and duties. It is intended to ascertain the parties' intentions before the signing of a formal agreement and grants neither party any rights. If the parties to an MOU so want, they may keep it secret. This non-legally binding memorandum of understanding may be beneficial as an agreement between two or more departments within a single public institution, but it does not represent a legally enforceable duty.
Therefore, A memorandum of understanding, or MOU, is a nonbinding agreement in which each party expresses their desire to take action, undertake a commercial transaction, or create a new partnership. This agreement is also known as a letter of intent (LOI) or memorandum of agreement (MOA). All three are nearly interchangeable under US law.
MOU characteristics include.
The features listed below should be present in a Memorandum of Understanding.
1. The parties between whom the memorandum of understanding is being signed should be identified by name and other relevant information.
2. The reason and objectives for which the memorandum is being signed should be made clear.
3. It must include details about how the parties' meetings will be scheduled. E. g. The parties have the option to agree to meet at least once every three months.
4. The capital contribution that each party will make should be outlined in the memorandum.
5. Additionally, it ought to identify the decision-maker for important financial matters.
6. It is also important to maintain the project's financial record-keeping.
7. Management: The memorandum might specify who will be in charge of running the program daily. It's important to mention the position's duties, responsibilities, and compensation.
8. The MOU should be signed and dated by the authorized representatives of each party or organization after it has been prepared and approved by all parties.
9. The duration of such an agreement between the parties should be stated in the memorandum. The memo's start and end dates are specified. It should also specify the conditions under which such a memo will be terminated.
In India, a MOU is valid legally.
A Memorandum of Understanding (MOU) does not constitute a legal obligation. It is commonly used for a non-binding agreement that communicates the willingness of the parties or enterprises to work. If a memorandum of understanding, for example, for the exchange of money, has been written for consideration. Otherwise, the agreement would be non-binding between the parties. The MOU's wording and substance elements provide an interpretation of the parties' intentions. The implications of a clause on the agreement, such as the jurisdiction clause, relevant law, and indemnity, are binding. The legal character of an MOU is defined by the rights, obligations, and duties that it generates between the parties. Simply calling a contract a Memorandum of Understanding does not imply that it is non-binding under Indian law because the nomenclature of an agreement is irrelevant. By the law, the memorandum of understanding is enforceable.
MOUs are governed by the Indian Contract Act of 1872, and if the conditions of the Indian Contract Act are satisfied, the execution of an MOU may be enforced under the Specific Relief Act of 1963, which allows for specific relief where monetary compensation cannot be decided. If the prerequisites are not satisfied, the MOU is not regarded as a legitimate contract under the Indian Contract Act of 1872. However, the concepts of promissory estoppels and equity allow it to be enforced in a court of law.
The Legality of Memorandum of Understanding.
While an MOU is not a legal document, some parts of it may make it legally binding and enforceable in court. Before submitting or signing an MOU, speak with an attorney about the language you want to use. According to the Four Corners Rule, a legal tenet used by courts to assess the meaning of a contract, an MOU may be considered legally binding if it incorporates one or more of the following elements:
· A proposal
· An offer's acceptance
· Willingness to be legally bound
· Consideration (a payment or monetary transaction)
Stamp Duty on an MOU.
On MOUs, there is typically no need to pay stamp duty. If you must present the MOU in court, it must be stamped if it contains a commitment to buy real estate worth more than Rs. 100. A document that has been paid stamp duty gains admissibility as evidence and is allowed in court. Inadequately stamped documents are not allowed into court as evidence.
Reference
1. https://www.investopedia.com/terms/m/mou.asp
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