Memorandum Of Understanding (MOU) Is Not A Binding Agreement(Contract). Daily Law Tips (Tip 502) by Onyekachi Umah, Esq., LLM. ACIArb(UK)
Agreement(Contract) is very different from a Memorandum of Understanding (MOU). There are never the same and as such it is very dangerous to misuse/misunderstand them. Their relevance, powers, binding nature and even acceptability in courts and business transactions vary.
AGREEMENT (CONTRACT) is a BINDING understanding between two or more persons while a MEMORANDUM OF UNDERSTANDING is mere compilation of wishes of two or more persons, which they may later turn into a binding AGREEMENT (CONTRACT). While an AGREEMENT(CONTRACT) is binding on all parties, MEMORANDUM OF UNDERSTANDING (MOU) is not binding on parties, except where parties relying on such have taken serious steps varying their positions. So, MEMORANDUM OF UNDERSTANDING is a mere starter/step towards making a binding AGREEMENT/CONTRACT. “MOU is merely a preliminary move in negotiation which may lead or may not lead to a definite offer being made by one of the parties to the negotiation.”
“… it is clear that a memorandum of understanding or letter of intent, merely sets down in writing what the parties intend will eventually form the basis of a formal contract between them. It speaks to the future happening of a more formal relationship between the parties and the steps each party needs to take to bring that intention to reality. From the definition given above, notwithstanding the signing of a memorandum of understanding, the parties thereto are not precluded from entering into negotiations with a third party on the same subject matter.” Per KEKERE-EKUN ,J.S.C ( Pp. 20-21, para. B )
“In several human relations, parties intending to enter into a contract or an agreement may first declare that intention in a document which they wish to guide them subsequently when they are ready to sign a legally binding contract or an agreement. Such a document expresses the preliminary understanding of parties who plan to enter into a contract or some other agreement. The contents of such a document serves to fix in memory the desire of the parties which is to serve as the basis for a future formal contract of deed. It is my understanding that such a document is usually referred to as Memorandum of Understanding, ‘MOU’ for short. It is not the real agreement but a document guiding the future agreement. Its status is something less than a complete contract.… As I had expressed earlier, a Memorandum of Understanding cannot be anything more than a document which contains the preliminary understanding of parties willing to enter into a contract or an agreement subsequently based on those conditions contained in that document. That is my own understanding of the term “Memorandum of understanding.”
Per OKORO ,J.C.A ( Pp. 18-19, paras. A-B )
References;
Judgements of the Supreme Court of Nigeria and then the Court of Appeal, respectively;
1. BPS CONSTRUCTION & ENGINEERING COMPANY LIMITED v. FEDERAL CAPITAL DEVELOPMENT AUTHORITY (2017) LPELR-42516(SC)
2. STAR FINANCE & PROPERTY LTD. & ANOR v. NIGERIAN DEPOSIT INSURANCE CORPORATION (2012) LPELR-8394(CA)
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Feel free to reach the author, ask questions or make inquiries on this topic or any other legal issues via onyekachi.umah@gmail.com or +2348037665878.
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