A recent report by the United States Justice Department indicates that an impressive 97% of civil cases in the country are literally being won and lost away from the court corridors.
In fact, the report shows that in 1992 more than 22,451 civil cases went to US courts. A decade later, in 2002, only 11,908 cases reached the same courts.
Drawing from these statistics, it is clear that using the right strategy, you can win a court case long before the trial happens. This can be either by avoiding litigation outright, or confronting the adversary with a compelling, watertight case.
Significantly, the same principle can apply with regards to the making of Memorandums of Understanding agreements, which are commonly sealed with one or more parties.
How can you craft a legally impregnable Memorandum of Understanding document that can figuratively win a court case, long before it starts?
Here are the precise steps on how you can do this successfully:
Crafting a Legally Impregnable MOU
You should take some deliberate steps to create a memorandum of understanding document that will withstand the test of fire. The first thing to do is, ask: Before signing the ready document, was the final agreement reached?
To make your MOU is legally binding in the fullest sense of the term, you should tie up all the loose ends. Remember that, when push comes to shove, a court of law will first determine whether the parties to the MOU actually reached a final agreement before signing.
Was the deal conclusively sealed, or certain elements were left pending? Is it possible that by the time the MOU was signed, certain aspects of the agreement were literally left in limbo? Find out and fix that.
The parties in the deal must have reached a complete agreement for the MOU to be legally binding. Essentially, this means they must have signed a formal contract-of-sorts, sealing the deal. As noted, an MOU cannot be considered to be a complete agreement if some essential aspects have not been finalized. Further, an MOU cannot be deemed as complete unless it meets the fundamental requirements of an ordinary legal contract.
Do not leave anything to chance.
Make sure the prescribed MOU is conclusive. In other words, make sure a final agreement is hammered by the time you append your signature to the document. Moreover, you should make the MOU watertight, to the extent that the document can stand any legal scrutiny and survive.
The wording on the document should make this clear. Do not leave matters to the vagaries of legal intrigues and court tussles.
Seal up the essential terms.
These are generally the terms that the parties in the MOU need to conclude before a court can declare the agreement as enforceable. Moreover, leave nothing to doubt; all the parties must agree about the document’s time-frame. This is essential to the enforceability of the MOU.
Certainly, if the time has elapsed in which specific elements of the MOU were to be implemented, the agreement will become, in legal parlance, null and void. You should, therefore, ask yourself whether the MOU is packed with adequate information to hold the parties legally responsible for every letter of the deal.
Ensure the MOU Contains Clear Promises
Remember that to make the memorandum of understanding binding, each of the parties must have promised something that is of benefit to their counterparts. The parties usually promise this in exchange for a benefit they also crave.
So, ask: Was there a clear exchange of promises in the agreement? Note that an MOU is not legally binding in a situation where only one party makes promises to the other. The promises must be mutual.
One common trap that you must avoid is the tendency to outline the expectations and goals of the parties in the agreement. Many MOUs notoriously use forms of language which leave room for too much discretion of performance.
This can be dangerous.
In line with this, avoid legally vague terms like ‘the parties may.’ Instead, say: ‘the parties will.’ Be assured that when the signatories of an MOU use the kind of language that suggests they can choose whether to comply with the articles of the MOU, the agreement is not legally enforceable.
Indeed, in a legal sense, such an MOU is as dead as a dodo. Moreover, you should ascertain what the parties have promised and how certain the promises are, in practical terms.
Beware of other common pitfalls in the making of MOUs.
In some cases, the parties have no intention to participate in the execution of a formal contract. How can you know this? Such agreements usually incorporate the use of phrases like: ‘subject to a formal contract,’ ‘subject to a contract,’ or ‘non-binding.’ Indeed, this is one of the most regular features in many MOUs.
The parties that use such terms in an agreement are usually intent only on expressing a commitment to proceed with the agreement, even though they know it is not legally binding. In actual sense, they have no intention to be bound in the agreement unless a formal contract follows the MOU.
Take appropriate action to deal with such hidden traps.
This means you need to discern the actual motivation driving your partner(s) to make the MOU. Then, in response, you must act accordingly.
Ensure the Intent is Legally Binding
Another crucial element that is necessary to make a memorandum of understanding legally binding is the overall intent. For this agreement to withstand scrutiny, there must be a clear suggestion to the effect that all the parties expressly intend to be accountable for what they promise.
How can you determine this is cared for?
Consider whether the MOU stipulates the consequences for participants who breach the agreement. In a situation where there is too much at stake, it is quite likely that the signatories intend to enjoy some kind of legal protection in the making of the MOU. Make sure to include specific clauses stating explicitly that the parties intend to have the law to be binding.
Avoid using any terms that may loosely suggest that the parties have no intention to be legally bound by the details included the MOU. Further, do not accept any suggestion to the effect that the parties will not be bound by the MOU unless an explicit contract is made.
Remember that both MOUs and contracts are tools that work to map out a roadmap for the parties in an agreement. Avoid crafting MOUs that are too general in nature or one that contains incomplete terms.
This might suggest that the signatories have no intention to have the agreement legally binding. If you want your MOU to be legally binding, ensure that the document signed contains all the elements rivaling a contractual agreement.
Beware: The Courts Cannot Enforce a Legally Powerless Agreement
Also note that, basically, the theoretical differences distinguishing a contract from a memorandum of understanding are always clear. However, the practical differences between the two agreements will still be limited by the intent of the signing parties.
Moreover, any type of agreement usually becomes enforceable only when the evidence expressly suggests that the parties in the deal planned to come up with a legally binding document.
To this extent, the enforceability status of an MOU relies solely on the intent of the parties. In no way can the courts enforce a document whose authors never intended to be legally binding. Nevertheless, if the opposite is true, regarding the intent of the parties, then the courts can rule that the MOU has the force of a contract.
Undoubtedly, from this deduction, the mere fact that a document is called an MOU does not guarantee that the courts will enforce such an agreement as legally binding.
If you wish your MOU to bear legal force, you have some work to do. The agreement document should be carefully crafted to express such a desire by the parties. If you fail to do so in the process of making the MOU, be prepared to suffer some undesirable consequences.
Avoid Hidden Traps in the Making of MOUs
Yes, the decision on whether you will be bound by the articles of the current memorandum of understanding, or whether some later arrangement will carry more force, usually depends on the specific terms of the MOU or whatever future provision the parties agree to.
It cannot be overemphasized that one of the most important considerations in determining this is the language used and terms employed in the agreement drafting stage. You must always be alert to all kinds of traps that may subtly exist in the making of MOUs.
For example, unless you are careful, you may discover, too late, that only a few parts of the agreement are legally binding while most of the parts are not. Knowledge is power.
Take advance action to avoid these booby traps.
Another covert complication that might lurk in the contents of the MOU is the fact that the agreement may include a verbal agreement existing alongside the supposedly legal MOU.
Adversarial partners can craftily use this to gain undue advantage. Make sure there are no parallel agreements hidden alongside the ‘genuine’ document. It is wise to remember that all agreements don’t need to be made in writing.
Some verbal agreements may be used to wreak havoc on the future of the current MOU. To counter this, seek counsel from a qualified professional to discern the subtle terms of the MOU and determine its legal effect.
Double-Check the Clauses Wholesale Before Signing
A perfect way to avoid issues with your partners in the future is to make things clear from the outset about the nature of the relationship between the parties. You should ensure this is fully documented and recorded in written form. The partners must also be clear on the binding or non-binding nature of the document.
In case some parts of the memorandum of understanding are binding and others are not, this should be clearly stated in the agreement and understood by all parties. Of course, you don’t want to find yourself in a situation where you were strongly convinced the crafted document was legally binding only to discover some gaping loopholes in court.
Again, whenever you are in doubt, seek the help of a professional before agreeing to clauses in the deal or signing the agreement.
Avoid Rendering the MOU Void
It is significant to note that the different types of memorandums of understanding can fall into one of these categories: Legally binding, non –binding, or a mongrel-type, that is, partly non-binding and partly binding.
It depends on the parties’ intentions and the specific wording incorporated in the document. In the context of a legal document, avoid any uncertainties in the clauses and wording of the MOU. Keep off these like the plague.
Always keep in mind that a poorly-crafted document that lacks the binding provisions can later haunt the signatories in the court corridors. Sometimes the main reason is that the substantive agreement was not duly signed.
Do not allow yourself to fall into such a trap. If you do, it will be particularly challenging to negotiate or raise in court any new points that were not part of the earlier document.
In such a scenario, it will be an arduous task to make the MOU legally binding when it matters most. If you sign an MOU where the essential terms are not clear or present at all, a court of law will undoubtedly declare such a document as too vague to withstand scrutiny. Yes, in the legal sense, your MOU will be, for all intents and purposes, null and void.
Should it be determined that the MOU is not legally binding, it is clear that any of the parties in the agreement will be free to terminate the engagement. All they need to do is formally notify the other parties and, voila! They are legally out of the deal, scot-free. In such circumstances, none of the parties will be held legally liable or obligated to the previous articles of the agreement.
If, on the other hand, the MOU is determined to be legally enforceable, there will be a few issues to deal with before the agreement is considered consummated in a legal manner. In this context, there will be certain obligations and liabilities to reckon with, especially for the partner or signatory who lost the case in court.
Have a Legal Mind While Drafting the MOU
As noted, it is clear that the specific words in the memorandum of understanding, put in the right context, need to be considered to determine the legal status of the agreement. Of course, the law is built by words. Most likely, in case of a dispute, a court of law will consider the letter and spirit of the language used in an MOU to make a final determination as to whether the document is legally-binding or not.
While drafting the MOU, and before signing, it is essential to take the time to study the impact of the language used in constructing the various articles of the document. Make sure that what you sign is essentially a legally-enforceable contract that incidentally assumes the name of an MOU.
While still in the process of constructing the MOU, ensure that a legal mentality pervades the length and breadth of the document in the making. The catchword here is ‘law’ and ‘legal’ every mile of the way. You want the legal gurus to give a nod of approval every time they read a sentence in the agreement.
In this way, whenever a dispute erupts, you will be well-protected by the MOU document itself. Make the MOU legally potent and impregnable so-to-speak.
Hire a Lawyer to Troubleshoot the MOU
Ensure the memorandum of understanding is clearly-worded, clearly written, and that it perfectly reflects your wishes and aspirations. It is wise to consult a qualified lawyer who is experienced with matters associated with MOUs. Such a legal expert can tear through the document, identify weaknesses therein, and make recommendations as to any adjustments necessary.
This should work perfectly well for you if it is done before you append your signature on the paper. Do not give too many concessions to the other parties in the agreement. In particular, be aware that some partners in such deals can be crafty and have a few trap-like articles entrenched in the document for devious purposes. Of course, this is where a sharp legal mind comes in handy.
Use Legal Contracts as the Yardstick
As noted, a properly-written memorandum of understanding that withstands the legal test should rival a contract in its form, content, and language. It is interesting that, in determining disputes associated with such agreements, quite a few law courts, in various lands, have reached a verdict that an MOU has equal standing with a legal contract.
For this to happen, however, the articles in an MOU must be definite and the intentions explicit. This fact is crucial for both the signatories and courts of law. It is what makes the MOU watertight, in the legal sense. Essentially, this is what wins or loses a court battle.
Ask Pertinent, Self-Guiding Questions
How can you recognize the elements that make for a legally-binding memorandum of understanding?
To ensure your MOU carries legal force, ask yourself: Have all the parties in this agreement expressly accepted this deal, not just in words, but also succinctly in writing? What is the tone of the agreement? Is it sufficiently formal and articulated? Indeed, does this document clearly state that it is a legally enforceable agreement with consequences for all signatories?
What about the identification details? Are the signatories properly documented, using their legal names and addresses? Are the signatories financially obligated to care for aspects of the agreement? What processes will be used to enforce these obligations? Finally, does the MOU clearly identify the objectives and purposes of the deal?
Once satisfied, you can be sure you are now on the right track. A sound deal should be in the making.
Insert Clear, Explicit Clauses
For your memorandum of understanding to be legally binding, it must contain the terms and conditions of the agreement as they apply to all participants, the signatures of the parties or participants, and other relevant details relating to their formal identity.
Further, ensure the MOU incorporates enough details on other vital elements, including the organizational roles of the parties, procedures in case the MOU is breached, and payment and service delivery matters.
Yes, to be enforceable and valid, your MOU needs to be a virtual replica of the typical legal document.
To make the MOU binding, you should insert some explicit clauses to this effect:
’… This MOU is a legally binding contract that is made by the following parties…’ If applicable, you may include some specific clauses touching on confidentiality and privacy issues. Should you do this, the clauses should expressly declare that these are legally binding and intended as such.
Whereas most MOUs are regarded as not legally binding, the existence of such explicit clauses in the document will likely make the MOU more legally binding in a court of law.
Freely Use the MOU Title
It is not mandatory to title a memorandum of understanding with the formal heading: ‘Memorandum of Understanding.’ Instead, the legal nature of the document is not directly determined by the letters on the title.
You can always be confident that your diligent efforts to make the document legally enforceable will not be in vain. If the content and language used in the MOU mirrors that of a contract, a court of law will, most likely, call the MOU a contract, regardless of what the title or the first page of the document suggests.
What matters is the actual written content, including the elements of language, tone, and statement of intent. For this reason, be advised: The mere title or heading of the MOU will do little to deprive the document of its true nature, whether legal or otherwise. Indeed, it may be inconsequential.
There are some set standards to determine whether an MOU is legally binding or not. A court of law will generally examine four essential elements that commonly characterize contractual agreements. These are an offer, the acceptance of the offer, an intention to be legally bound, and the consideration. The latter implies the benefits that were bargained for by each party while making the agreement.
If the judge finds that the terms used in the agreement are clear, coherent, and bolstered by consideration, he will likely find that the MOU is legally binding. This would be the verdict, notwithstanding all other factors.
To succeed in crafting a legally enforceable MOU, strive to make sure that the constituting clauses in virtually the whole document are binding. In such a case, you do not need to follow through with a formal contract. Armed with a legally binding document in the name of the present MOU, you are certainly good to go.
Formally Register the MOU
It is always advisable to register a memorandum of understanding. This can give your document much legal force in case of a dispute. To safeguard your interest, ensure to include as many favorable clauses as possible in the MOU, which can be enforced. For once, self-interest may be excused here. It is the name of the game.
Moreover, as advised, while registering the document, check whether the MOU outlines clear consequences for breach of the agreement applicable to all parties. This is always the clearest indicator that the document you want to register is legally enforceable.
You may also insert some relevant termination clauses in the MOU before the registration process commences. Among the most important matters to keep in mind while registering an MOU is, of course, the finances associated with the agreement. Especially if the deal involved some kind of financial exchange between the parties, it is imperative to register the MOU as a viable safeguard of the interests of all participants in the deal.
Note that The Existing Facts Affect the MOU’s Status
Many people consider memorandums of understanding to be non-binding in a legal sense simply because most of these agreements are often incomplete and subject to the power of a written contract. In this context, MOUs are typically regarded as a minor agreement before the major agreement or contract.
Moreover, the element of this perceived incompleteness is widely deemed to signal the parties’ intention to abstain from forming legally-binding unions. It is assumed that MOUs are only made pending the enforcement of a later formal contract or agreement.
Regardless, a court of law, may go ahead and conclude that an MOU is a final, binding contract and a complete legal document taking into account the existing facts relating to a specific document. In the historic Singapore High Court case: Rifaat El Gohary and Bassatne Mohamed, for instance, the verdict was clear. The court concluded that an MOU is a legally binding contract.
The label attached to the MOU document, purporting that it is non-binding, did not deter the court. Instead, the authorities carefully examined the language used in the document as well as the surrounding facts and evidence to reach a conclusive verdict.
A Quick Checklist of Essential Elements in a Legally-Binding MOU
To distinctly identify the parties participating in the MOU, it is essential to outline some essential identifying details. These include:
- Full names;
- Contact numbers;
- Identification numbers;
- Registered addresses.
- Transaction Clauses
One of the useful terms that should, ideally, be included in a business MOU is the general transaction overview. In an MOU involving industrial entities, for instance, it is advisable to include essential details like prices, set deadlines, and third-parties involved in the agreement. This is what makes a potentially legal document.
The MOU is essentially meant to present the framework of the phases of negotiations. For this reason, a legally-enforceable MOU should, of necessity, include the parties’ general scope of work. The MOU should, for instance, indicate the timing and frequency of negotiation meetings, and other responsibilities relating to the transaction at hand.
You must clearly set out the purpose and objective of the MOU. This is essential as a record of the negotiation goals. It also ensures that all the parties read from the same page. The parties in the agreement should openly state their intentions and expectations on the MOU’s legal effect. This should be done right from the outset.
To create a legally enforceable document, it is essential to state clearly that the contents of this MOU are not necessarily subject to a formal and final contract. Moreover, the signatories and parties must understand that they always carry outstanding obligations for any failure to reach a consensus on the finer details of the agreement. Again, the language used must reflect this understanding, making it crystal clear to all and sundry.
There are times when negotiations may fail. In case this happens, the participants in an MOU should wisely include confidentiality, good faith, and non-disclosure clauses in the MOU.
This is an excellent provision for the parties to insulate themselves should any of the partners be tempted to act dishonestly with regards to the letter and spirit of the agreement. Such a situation might involve either of the parties willfully disclosing the confidential details of information relating to the partners.
A workable MOU is expected to indicate the MOU beginning and end dates. It must also outline how the MOU could be terminated if the need arose. This means it should include the mode of termination and notice period.
Dates and Signatures
Once the parties have agreed on the finer details of the MOU and ascertained that it reflects their aspirations, it is time to sign and date the document accordingly. The action of signing and dating the MOU should be done by duly authorized representatives of the parties in the MOU.
Consequently, the MOU should take immediate effect. If the procedures as laid down above are carefully and meticulously adhered to, you should now be carrying a legally enforceable document right there in your hands.
Considering the facts above, we can authoritatively conclude that the binding nature and enforceability of a memorandum of understanding depends first on the nature of the agreement, the content, language, and intention of the signatories to the deal.
In case the MOU exists in the nature of a contract, thus fulfilling all its essential elements, the MOU is generally considered to be legally enforceable. A significant factor in determining whether an MOU is binding involves a consideration of the parties’ intentions while executing the MOU.
While endeavoring to prepare a legally enforceable MOU, keep these factors in mind.
Leave nothing to chance.
Whenever you decide to enter an MOU with other parties, ensure you craft a robust agreement that is legally binding, and that can stand the test of legal scrutiny in a court of law.