A Memorandum of Understanding (‘MOU’) is a document between two or more entities that sets out the terms of the relationship between them. MOUs are generally not legally binding, however this depends on the content of the specific MOU. This uncertainty often causes questions about the process of how you can terminate a memorandum of understanding. This article will explain which MOUs may be legally binding and how they can be ended.
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Is a Memorandum of Understanding legally binding?
MOUs are generally not legally binding. However, documents are legally binding if they include all the elements of a binding agreement or contract. This principle applies regardless of the name given to a document. This means that an MOU may be legally binding if it includes all the fundamental elements of a contract. An MOU will probably not be legally binding if it does not include all of these elements.
Exchange of Promises
For an MOU to be legally binding it must include an exchange of promises between the parties. Each party needs to promise something of value to the other party. An MOU is not legally binding if it only consists of promises from one party to the other.
Intention to be bound
For an MOU to be legally binding it needs to be clear that the parties intended this. MOUs often include clauses clearly stating that the document is not legally binding. In this case it is clear that the parties did not intend the MOU to form a legally binding agreement. However, the intentions of the parties in signing an MOU are not always this clear.
The words and context of the MOU need to be considered. The specific words used and the context need to be considered to determine whether the parties intended for an MOU to be legally binding.
Complete Agreement
An MOU may be binding if it is clear that the parties have come to a complete agreement but haven’t yet signed a formal contract. An MOU won’t form a complete agreement if there are important aspects of the agreement that still need to be finalised. Additionally, an MOU will not form a complete agreement unless it satisfies all the fundamental legal requirements of a contract.
If it’s not legally binding, either party can terminate a memorandum of understanding by notifying the other party. Generally, in this scenario, neither party will be subject to any legal liabilities or obligations. However, if an MOU is legally binding, there may be things that need to be satisfied to end the agreement. In this case the parties may be subject to legal liabilities and obligations under the agreement. These liabilities and obligations may continue even after the MOU has been terminated.
Where an MOU is not legally binding, either party may terminate the agreement at will without incurring any legal liabilities or obligations.
Conclusion
A Memorandum of Understanding, whilst not a contract itself, can be legally binding if all the elements of a legally binding contract are present. Due to this, it’s important to check that your Memorandum reflects your intentions. For further advice, it may be worth getting in touch with a business lawyer.
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