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What Happens if a Memorandum of Understanding is Breached?

What Happens if a Memorandum of Understanding is Breached?

Is the memorandum of understanding a legally binding document? If so, what happens when a memorandum of understanding is breached? Find out more here.

4th December 2019
Reading Time: 2 minutes

A memorandum of understanding is typically not legally binding. Its purpose is mainly to act as an agreement to enter a contract, perhaps even instead of a contract. Despite this, courts view it as an important legal supportive document. Read on to find out what will happen when a memorandum of understanding is breached.

What is a memorandum of understanding?

A memorandum of understanding is an initial agreement to express intention to enter a contract at a later time. Useful when there are time pressures or still some uncertainty about the job. As long as the document doesn’t discuss any specific details, it can remain a memorandum.

Is it legally binding?

As mentioned, this is not usually a legally binding document. However, in some cases it can accidentally become binding. If a clear intent to exchange money is stated, it can become a legally binding document. Basically, the more vague the document is, the less legally enforceable it is.

Furthermore, if the document clearly mentions that a contract will be signed at a later time will also eliminate its legality.

How to avoid breaching it?

While the document itself isn’t legally binding, you can still breach it in a different way. Especially if you’re in a legal case, and the court sees that you’ve already breached a non-legally binding document. This can be very unfavourable for you. To avoid this, keep to your promises and what was agreed.

Consequences if a memorandum of understanding is breached

The most common consequence is alternative dispute resolution options. All of which are less formal than a court hearing, faster and more cost effective. Negotiation is the easiest option because it’s the most informal method. Since it’s not a legally binding document, there is no need to make it a formal or complicated matter. Therefore, court cases for this type of breach are unheard of.

If the memorandum of understanding became a contract it will incur the same consequences of a normal contract. Upon the breach, you could be sued, ordered to pay the other party damages or reimburse their legal costs.

You require legal advice if the situation escalates further than anticipated. It is also good practice to be proactive and know your standing before any situation arises. This allows you to avoid the breach better and know what to look out for.

Conclusion

Basically, when a memorandum of understanding is breached there are not really any legal consequences. Unless the document has become legally binding through being too specific on certain areas. This is the only circumstances that would incur a significant consequence.

Don’t know where to start? Contact us on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest lawyer marketplace.

Author
Taeisha Dou

Taeisha is a Legal intern at Lawpath. She is a Law student at Macquarie University, previously completing her Commerce degree. She has an interest in Commercial Law.