What is a Memorandum of Understanding (MoU)?

A Memorandum of Understanding (MoU) is a written, non-binding document that outlines the preliminary understanding between two or more parties who intend to enter into a formal contract. It signifies a mutual agreement on certain terms, objectives, and goals. Essentially, the MoU serves as a tool for establishing clarity on the intentions of the involved parties before formalizing a contract.

Act Governing Memorandum of Understanding (MoU)
In India, MoUs are governed by the Indian Contract Act of 1872. Although MoUs are not explicitly defined under the Act, they can be seen as preliminary agreements or contracts. In many cases, an MoU represents the initial stage of forming a formal contract.

Legal Binding of Memorandum of Understanding
An MoU can become legally binding, depending on the intent and object of the agreement, as well as the circumstances of the parties involved. The enforceability of the MoU will be determined by the court based on the specific conditions outlined in the document and the parties' intentions.

Enforcement of Memorandum of Understanding
The enforceability of an MoU relies on the parties' intentions and whether the document meets the criteria set out under the Indian Contract Act. Additionally, the principle of estoppel can support the enforcement of an MoU. The MoU’s validity and enforceability depend on the nature of the agreement made between the parties.

Privacy/Confidentiality in Memorandum of Understanding
MoUs typically include a confidentiality clause, often referred to as the "Survival Clause," which ensures that any confidential information shared within the MoU remains protected even after the agreement's termination or completion.

Advantages of Memorandum of Understanding

Comprehensive Coverage of the Relationship
An MoU encompasses the entire relationship between the parties involved, addressing all potential aspects of the contract that may emerge. It serves as a useful tool to establish clear terms before entering into a long-term partnership or business relationship.

Time Efficiency
By providing a clear framework, an MoU streamlines the negotiation process, allowing parties to avoid the need for repeated discussions of the same terms for similar agreements. This helps to expedite the decision-making and contract finalization process.