The High Court in Singapore recently made an earth-shaking decision; it ruled that a memorandum of understanding can be a fully enforceable, legally-binding document, just like a formal contract.
In the historic case involving Rifaat El Gohary vs. Bassatne Mohamed, the judges made a ruling on the poignant question: Is an MOU legally binding?
The verdict was unanimous.
The MOU in question, they ruled, was fully legal and entirely binding to all the parties.
What was the primary basis for this shocking decision by the Singapore court?
The facts in the MOU demonstrated that the language used, the surrounding evidence, as well as the conduct of the parties in the agreement all proved that the document had potent legal force.
Before signing an MOU document, have a checklist.
Take careful stock of all the facts in the document.
Here are 8 crucial elements in the ideal checklist of a workable MOU document that can save you from such needless legal tussles.
Check The Details of the parties in the MOU
When crafting a memorandum of understanding document, one of the most important elements to include is the identification of the parties involved in the agreement. Ensure to check the following essential details in the MOU:
- Full names
- Registered addresses
- Identification numbers
- Contact numbers
- Company registration numbers
- Registered addresses.
- Contact numbers
As noted, the parties may include the personalities or organizations involved in the agreement, as long as all sides agree on the intent of the agreement.
An ideal MOU should outline the responsibilities and roles of each party as well as the scope of those responsibilities. This depends on individual expertise.
The MOU should also identify the party tasked with making final decisions. Either, everyone can be involved, or one individual can represent the entire group as a sign of goodwill.
Moreover, the MOU should include a conflict resolution mechanism. This will be useful in case things go wrong, and a dispute erupts.
Check whether everything is in order.
Ascertain the Purpose and Intent of the MOU
This is the primary reason why the memorandum of understanding is being made. The document must detail how the parties in the agreement will utilize the enhanced capacity guaranteed by the MOU.
Often, the drafters can use a sample MOU obtained through a simple online search. Master the example sentences so you may draft a unique purpose statement. Do you intend the MOU to have legal effect? Do you expect otherwise? As noted, this can have significant implications on the future of the MOU.
Generally, a memorandum of understanding intends to ensure that each party in the agreement concurs with the details and terms of the document.
Further, the MOU should outline the identity of the parties and the roles of everyone. It can include the terms and limits of the agreement. In a business deal, the MOU might even detail the nature of the profit that each person is expected to make.
It is essential to outline the purpose of the MOU. This is because it always helps to put down the goals of the negotiation on record. Yes, make sure that everyone who matters to the agreement is actually reading from the same page.
From the beginning, each of the parties should clarify about their perception of the intended legal significance of the MOU. In case the parties do not intend the agreement to have legal effect, this should be explicitly stated in the MOU, using clear language.
It may only be something to this effect:
‘The contents of this MOU awaits a formal and final contract. The parties in this agreement cannot, therefore, be deemed to carry outstanding obligations to anyone for failure to accept the terms of a formal and final contract.’
Know the Details on the Parties’ Responsibilities
A memorandum of understanding usually sets out the skeletal structure of the initial phase of negotiations. This being the case, an MOU should naturally incorporate the scope of work of the parties in a deal.
One element that needs to be included here is the timing and frequency of meetings, along with other responsibilities that have specific relevance to the transaction in question.
This section of the MOU is significant because it outlines the essential duties and responsibilities of each party. It is usually more effective to describe every party’s obligations separately.
In most MOUs, this section is often the most detailed and lengthy. The best MOU must always clarify such responsibilities. Indeed, this is the primary purpose of every written agreement worth its salt.
Examine the Duration and termination Details of the MOU
Make sure the beginning and end dates of the memorandum of understanding are properly outlined. Further, ensure that, inside the MOU, the specific mechanisms on how the agreement may be terminated, in case the need arose, is clear. In particular, check whether the details on the mode of termination and notice period are clearly explained.
An MOU should always set realistic goals. The section touching on the duration of the agreement should naturally include short and long-term goals.
Moreover, the dates for performance reviews, as well as the overall evaluation of the progress, should be decided in advance.
Further, the MOU should have specific dates that outline precisely what follows when one or both parties choose to terminate the MOU or pull out.
Ensure the Disclaimers in the MOU are Intact
Each memorandum of understanding is inherently unique, just like a unique business partnership. It is, therefore, quite reasonable to include disclaimers in an MOU. Such disclaimers should be particular to the specific agreement.
Indeed, it is always a great idea to include a disclaimer in an MOU for legal protection.
In essence, a typical disclaimer might state that the MOU is not intended to be legally binding and, therefore, no party is under legal obligation.
Ensure that, while drafting, the MOU contains one or more disclaimers. It may be worth your while to disclaim what the agreement is not intended to do, create, or guarantee.
Guarantee the Non-Disclosure Details Exist in the MOU
Just in case, at some point, the negotiations fail, it is prudent for the parties in a memorandum of understanding to include strategic confidentiality and non-disclosure clauses in the MOU, right from the outset.
Such a measure serves to protect them in case either of these parties is tempted to act dishonestly. It will work, for instance, to dissuade one party from disclosing information relating to the other party.
Indeed, such non-disclosure and confidentiality clauses are essential components of an MoU agreement. It is important to state, not only that the parties have accepted to maintain confidentiality, but also the nature of the protected information and the non-disclosure duration.
Scrutinize the Details on Finances in the MOU
Even though at the time a memorandum of understanding is being laid out, no exchange of money takes place, the details regarding the financial conduct of the deal should be included in the document right from the word go.
It is best for the MOU to include detailed information on issues like payment of services or goods, and other related matters. Further, it should include the details on the persons with the authority to make financial decisions and receive payments.
Lastly, the person or persons vested with the authority to make crucial decisions on investment issues should also be clearly identified in the document.
Prove the Validity of the Dates and Signatures in the MOU
Once everything is ready, it is time to sign the MOU. Each party can assign a representative who is vested with the authority to bind the organizations contractually. Each party should get a copy of the duly signed agreement.
In case one or more of the parties are companies, the signatories may be the director, CEO, departmental chair, or another executive of the company. He or she will, reasonably, sign the MOU on behalf of the corporation.
While at this, you should realize that an MOU is essentially a contract. For this reason, before signing the MOU, the document should be approved by a qualified attorney before the designated representative signs.
Take your time.
Peruse the MOU to make sure that your values and interests are adequately protected. Yes, make sure that you are not unwittingly giving yourself away in the desire to forge forward with the partnership.
Once the MOU is signed and dated, the document takes effect immediately.
Drafting a perfect memorandum of understanding that ensures your interests are protected while keeping the spirit of the agreement alive is a science. Fortunately, doing so is not rocket science. We can all learn to do so.
As Atul Gawande, the renowned surgeon at the Johns Hopkins Hospital said in his famous book, ‘the Checklist Manifesto’, a checklist can literally be lifesaving. According to the surgeon, within just a year of the introduction of a simple 5-step checklist at the hospital’s operating room, the result was remarkable;
The checklist was credited with preventing 43 million infections and 8 deaths. The procedure also saved the hospital a whopping 2 million dollars!
Yes, use a simple checklist to steer clear of legal issues while enjoying the benefits of drafting an efficient MOU.