MoUs, or Letters of Intent as they are known in India are simply legal agreements that are between two parties. When two parties agree to enter into a contract, but the details (such as terms and conditions) of the contract are still being negotiated, they sign up for a Memorandum of Understanding. An agreement draft describes the relationships between two or more parties, their rights, and obligations, in a clear and concise way.

The purpose of these agreements is not to give either party any rights, but rather to gauge the intention of both parties prior to a formal contract being signed. Parties to the agreements can decide to keep them confidential. It is true that a non-legally enforceable memorandum of understanding can serve as a useful agreement between departments within one public entity but is not a legally binding agreement.

MOU characteristics:

Memorandums of Understanding should include the following:

  • It is necessary for signed memoranda of understanding to contain details about the parties involved.
  • In order for a memorandum to be effective and useful, it should state its goals and purposes.
  • Establish a schedule that outlines the meetings to be held between the parties. Let us say that the parties would like to meet twice a year.
  • Each of the parties should specify the amount of the capital contribution they will make.
  • The document should also mention the person tasked with approving large financial transactions.
  • Also, financial records for the assignment/program should be maintained.
  • In the memorandum, there may be a designation of the people in charge of the daily operation of the program. Make sure to include their responsibilities and compensation.
  • When an MOU has been drafted and agreed upon by all parties, all parties involved need to sign and date it.
  • A memorandum should specify the length of time this type of agreement will last between the parties, that is, when it starts and when it ends. There must also be explicit information about how the Memorandum of Understanding will be terminated.

BASICS OF A MEMORANDUM OF UNDERSTANDING – MOU

An MOU is usually created during the early stages of discussion between two parties. There were several types of discussions that are going to be incorporated into the Memorandum of Understanding:

  • Agreements between the parties and their understandings
  • These MOUs turn into formal contracts at a later stage when they become part of a formal agreement.

The material provisions provide a means of deciphering MOU content. As a result, the parties intend that the Memorandum of Understanding be reviewed and approved in accordance with their intentions. Therefore, when it comes to MOUs, they have a legal basis, based on the rights, duties, and obligations they bind upon each of their parties.

MEMORANDUM OF UNDERSTANDING – LEGALITY:

MOUs in India:

The Memorandums of Understanding are not legally binding on either party. In it, the parties or businesses indicate that they intend to work together through a non-binding contract.

In the case of a written agreement that has been drafted for someone’s consideration, like money exchange, etc., then this document is binding, whereas if it is not, it is not binding. From the content and the material provisions of this MOU, it is easy to determine the intent of the parties. The jurisdiction clause, law application clause, and indemnification clause are all binding clauses on the contract. As described earlier, MOUs are governed by the rights, duties, and obligations that they impose between the parties.

Just because something is called a Memorandum of Understanding does not mean that it automatically means that it is a nonbinding agreement under Indian law.

The lawfulness of Memorandum Of Understanding:

MOUs are governed by the Indian Contract Act of 1872, and if conditions are met, the Specific Relief Act of 1963 may be invoked to ensure their performance in the absence of monetary compensation.

It is important to note that the MOU will not be regarded as a legally valid contract if certain conditions are not met in accordance with the 1872 Indian Contract Act. Even with promissory estoppel and equity, the agreement can still be enforced by a court of law.

Signing the MOU:

Most Memorandums of Understanding do not have to be stamped in order to avoid paying stamp duty. There are times when you may need to show it to a court, and if the MOU includes an agreement to buy a movable property worth over Rs.100/-, then you will need to have it stamped.

When the evidence document has been taxed, it is given the evidentiary value. Any document that is not stamped correctly will not be admissible in court.