What Is MoU???
Very often in newspapers, we see the pictures of heads of nations signing an MoU. Or a large company concluding a landmark MoU with another company. With increasing levels of intra-organisational complexity. Further, the need to diversify by engaging in agreements with other businesses, the role of a Memorandum of Understanding is significant. In this post, we examine relevant legal, technical, and procedural aspects. It is of what goes into making and implementing a Memorandum of Understanding.
Meaning of MoU??
A Memorandum of Understanding, in general terms, is a consensus or understanding of certain common parameters. Nations, institutions, companies, partnerships, individuals, or any other association may conclude a Memorandum of Understanding with another party to delineate its expression, limits, and knowledge for collaborating in a specific area of mutual interest.
MoU versus Agreement – What is the difference?
Since the MoU is a preliminary sketch of understanding between the two parties, it is not as a legally binding document. Once further discussions hold the shape of each party’s specific roles and obligations, an agreement can be concluded.
What are the basics that a Memorandum of Understanding format should contain?
Purpose and Scope
Both parties should mention their intentions, goals, vision, and purpose which they perceive as important to the MoU. A business entering into an MoU with hiring or advertising company may list the service intended as the purpose of the Memorandum of Understanding.
Background of the parties and the project
This is where both parties may describe their organisational structure, values, and how they align with the essence of the MoU.
Each party may provide their specific objectives behind the MoU, or may jointly have a set of core objectives that would guide their conduct during the operation of the Memorandum of Understanding.
Parties may choose an effective date when the Memorandum of Understanding would come into operation. They may also provide an end date for concluding the MoU or completion of specific objectives.
Roles and Responsibilities of each party
Each party’s responsibilities under the Memorandum of Understanding should have a clear explanation. Since this forms a fundamental part of the understanding. Proper care should be there to ensure that necessary omissions and ineffectual inclusions do not take place.
This part of the MoU should contain clauses that would generally cover the understanding reached between both parties, such as amendment in the MoU. If a change of circumstances for either party necessitated a change in understanding, how would one party communicate with the other? How will these changes be discussed and when would they come into operation.
Sometimes, the clauses specifying roles, obligations, and responsibilities of each party may be construed as legal obligations by the court. To avoid the risk of legal repercussions, a clause can include in the Memorandum of Understanding. Further, specifying the Creation of a non-legal relationship. This can be by stating that the MoU does not intend to create any legally enforceable rights or obligations in respect of either party.
The validity of MoU India
Pointers to note to save yourself from a legal battle
In India as well as in most other countries, a memorandum of understanding is at the initial stage of discussion between parties that enter into a contract. It incorporates discussions between both the parties and communicates their positions. Therefore, it is commonly seen as a non-legally binding document. However, this may form the basis of the agreement with which the parties will get to work. In certain scenarios, a memorandum of understanding may consider to be legally equivalent to a contract and therefore held enforceable. Here, the Indian Contract Act of 1872 may come into play. This typically includes a memorandum of understanding that contain one or more of the following –
Details of financial obligations – such as one party forming an act and the other party providing remuneration for it.
Providing for a jurisdiction – A MoU isn’t intended to be legally admissible and normally, disputes are resolved by parties themselves. However, if the MoU consists of a clause that specifies a forum. Additionally, as a district court in a specific city to have the ability to decide a dispute. It falls like an enforceable contract.
Providing for laws applicable to the understanding – If an MoU between parties specifies what specific law governs their roles, responsibilities, and obligations, it could be construed by the courts as an MoU. Broad references, to all governmental regulations on civil construction between two builder companies, may not be a contract.
Including clauses on indemnification in the MoU – Indemnification refers to making good any loss caused by one party to the other. If the MoU provides for indemnification clauses such as compensation, it creates a right and an obligation relationship. This can then become legally enforceable.