MOU (Memorandum of Understanding)

CS Shirish Bhootra
Dec 12, 2022
3 min read

Written by CS Shirish Bhootra

Students pursuing CS also pursue CMA. Courses of CS and CMA both have many common subjects, and to make it easy for students, the institute of CS and CMA signed MOU, thereby allowing exemptions to students. Now, students who clear either CS or CMA need not appear for subjects that are common in both courses.

Memorandum of Understanding [MOU]: Meaning

A Memorandum of Understanding is an agreement nonbinding in nature that discloses the intentions of each party to take action, conduct a business transaction, or form a new partnership. It is also known as a letter of intent (LOI) or Memorandum of Agreement (MOA).

MOU: When to draw or execute?

To initiate a transaction with another relevant party to business, the MOU is considered the first step towards such a transaction. MOU is the first step toward a formal agreement via a binding contract. It defines with clarity how the parties will work together and outlines the expectations and responsibilities of parties to the contract. It is focused on the goal of achieving a mutual understanding of the partnership, proceeding further, and executing an enforceable contract subject to the satisfaction and confidence of all relevant parties to the contract or agreement.

MOU Meaning in the Context of Government Agencies and International Relations:

The definition of an MOU differs in public affairs and other countries. International law considers MOUs under the treaty category and must have registered as such with United Nations. In the United Kingdom, an MOU is often used in the context of agreements that pertain to the government.

Benefits and drawbacks of MOUs:

A Memorandum of Understanding is not considered an enforceable contract as there is no presentation of offers, and no transactions are made or executed. This could be a drawback for parties who have already cemented the details of the transaction and are ready to commit legally.

An MOU is considered one step up from the informal, unwritten “gentlemen’s agreement.” If casual, verbal comments are the most concrete artefacts of a potential partnership, a solid next step might be to elevate your conversations with an MOU.

That is a way to establish a paper trail and have negotiations moving forward. All relevant parties have the opportunity to review the terms of the agreement, have resolutions of disputes or misunderstandings, if any, and have amendments to the agreement before signing on the dotted line.

Image Credit: Memorandum of Understanding (adobe.com)

MOU: Key Contributors

MOU is drafted and designed as per parties’ requirements, and therefore all MOUs are different. However, a good rule of thumb is to use MOU as an agreement to agree, not as the final word. It should comprise whatever terms are considered necessary for the establishment of a mutual agreement about the common line of action that parties to the agreement would follow. This often includes:

Partnership Purpose.
Goals of All [ parties]
Duties of All [ parties]
Deadline
Confidentiality [clause in this respect]
Dispute resolution mechanism

MOUs: Legality

Though MOU is not considered a legal document however certain elements of an MOU could make it a legally binding and enforceable document in a court of law. According to the Four Corners Rule, a legal doctrine that courts use to determine the meaning of a contract, if an MOU comprises one or more of the following elements, it could be deemed contractually binding:

An offer
An acceptance of that offer.
Intention [ motive to be legally bound]
Consideration (an exchange involving either payment or money)

Image Credit: Memorandum of Understanding (adobe.com)

Conclusion:

MOU plays an important role in prospective business transactions. It discloses all aspects with clarity, thereby avoiding conflicts among the parties involved.

References:

Adobe, Memorandum of Understanding (adobe)