An Analysis of the Legal Standing of Memorandum of Understanding.

By Oyetola Muyiwa Atoyebi, SAN FCIArb. (U.K)

INTRODUCTION

The term “Memorandum of Understanding” (MoU), as the name suggests, refers to a verbal agreement between the involved parties, often referred to as a letter of intent.

In any transaction, it is essential to establish an agreement that outlines the terms, regardless of the transaction’s nature. In this context, a Memorandum of Understanding (MoU), is a less formal agreement between parties indicating an intention to enter into a legally binding agreement. 

The court has defined an MoU as “a prelude to contract, or letter of intent for parties to enter into a formal contract spelling out the basis for such relationship’’. 

This article shall delve into the role a memorandum of understanding plays in contracts, and its key elements, while also looking at the enforceability of a MOU.

ROLE OF MEMORANDUM OF UNDERSTANDING

Memoranda of Understanding (MoU) often prove useful in situations where there are no legal requirements for formal contract creation, such as collaborative research projects between organizations or diplomatic negotiations among governments. In these instances, an MoU serves to clarify expectations, delineate roles, and specify the responsibilities of each participating party. 

In this case, it was emphasized that the enforceability of an agreement should be determined by examining the intentions of the parties through the terms of the agreement. If the parties intend for the agreement to be legally enforceable, regardless of its form, it will be considered equitable under the maxim “Equity looks at the intention, not the form.” There are other cases where the court has enforced a contract under a memorandum of understanding, which will be further discussed under the sub-heading “Enforceability of Memorandum of Understanding” in this article.

In Safe-Trust Savings and Loans Ltd. v. Government of Ekiti, the court determined that a memorandum of understanding is not legally binding but serves as written evidence that can be utilized to draft a formal contract in the future. Similarly, in Kener v. Hughes Tool Co., the memorandum of understanding was deemed to be less than a complete contract and merely serves as evidence of an agreement. However, some judicial authorities have taken a different stance on this issue, as seen in Star Finance & Property Ltd. Anor v. NDIC In this case, it was emphasized that the enforceability of an agreement should be determined by examining the intentions of the parties through the terms of the agreement. If the parties intend for the agreement to be legally enforceable, regardless of its form, it will be considered equitable under the maxim “Equity looks at the intention, not the form.” There are other cases where the court has enforced a contract under a memorandum of understanding, which will be further discussed under the sub-heading “Enforceability of Memorandum of Understanding” in this article.

 In analyzing the distinctive features of memorandums of understanding, one might question what sets it apart from other forms of commercial agreements and imbues it with a sense of uniqueness. This distinguishing characteristic creates clarity and uniqueness, differentiating it from other agreements.

The Key elements of a memorandum of understanding (MoU) typically include:

1. Parties Clause: This section outlines the details of the parties involved in the agreement.
2. Date: The date on which the MoU is executed.
3. Terms of the Contract: The specific terms and conditions agreed upon by the parties.
4. Intention to Create Legal Relations: A statement indicating whether the parties intend for the MoU to be legally binding.
5. Signatures of the Parties: Signatures of all parties involved to signify their agreement to the terms outlined in the MoU.
6. Review by Legal Counsel: To enhance the legal standing of an MoU, parties should seek legal advice and have the document reviewed by legal professionals before execution.
7. Compliance with Applicable Laws: The MoU should comply with Nigerian laws and regulations. Any provisions that violate the law may render the MoU unenforceable.

From the aforementioned elements, it is evident that an MoU represents a preliminary agreement between parties in a transaction, often signaling an intention to formalize a later agreement. Conversely, a legally binding agreement is a documented arrangement prepared by legal professionals, typically solicitors, which clearly outlines the terms of the understanding and demonstrates the parties’ intentions to be legally bound by those terms, including any penalties for breach. Such legally binding agreements carry more weight in legal proceedings, whereas an MoU is often viewed as a gentleman’s agreement.  

ENFORCEABILITY OF A MEMORANDUM OF UNDERSTANDING (MoU) IN NIGERIAN COURTS

When disputes arise regarding the terms of a Memorandum of Understanding (MoU), parties often turn to legal recourse to seek remedies. Nigerian courts typically undertake a thorough examination of the circumstances surrounding the MoU to ascertain its enforceability. Several key considerations shape this legal analysis:

1. Specific Performance: Nigerian courts may order specific performance if the terms of the MoU are clear, certain, and the party seeking enforcement can demonstrate that the breach would result in irreparable harm. This entails compelling the defaulting party to fulfill its obligations as stipulated in the MoU.
2. Presence of a defined and concluded agreement: Iguh JSC, in the case of Alfotrin Ltd. V AG Federation & Ors stated that for a contract to be enforceable, “there must be a concluded bargain which has settled all essential conditions that are necessary to be settled and leaves no vital term or condition unsettled.” Also, Adekeye JSC in the case of BILANTE INTERNATIONAL Ltd. . v. NIGERIA DEPOSIT INSURANCE CORPORATION stated that “It is trite that before any contract or agreement can be said to have come into existence in law, there must be an unmistaken and precise offer and unconditional acceptance of the terms mutually agreed upon by the parties thereto. In other words, the parties to the agreement must be in consensus as regards the terms and conditions freely and voluntarily agreed upon by them’’.
3. Quantum Meruit: In cases where one party has fulfilled its obligations under the MoU while the other party fails to reciprocate, the performing party may seek compensation based on quantum merit. This refers to the reasonable value of the services provided.
4. Evidence of Intent: Courts closely scrutinize the language used in the MoU and surrounding circumstances to ascertain the parties’ intent. If the document explicitly disclaims legal enforceability, its enforceability may be compromised. Conversely, if the language implies an intention to create legal relations, the court may uphold its enforceability.
5. Fraud or Misrepresentation: Demonstration of fraud, misrepresentation, duress, or undue influence in the formation of the MoU may render it voidable and unenforceable by the court. In Oraka v Oraka & Anor the presence of fraud, misrepresentation, or lack of voluntariness makes the agreement unbinding and unenforceable on the parties.
6. Statute of Frauds: Nigerian law mandates certain contracts, such as those concerning the sale of land or an interest in land, to be in writing for enforceability. Failure to comply with this statutory requirement may render the MoU unenforceable. In Ankama & Anor v. Nzeoji & Anor, the court held that commercial agreements passing legal interest shall be in writing and signed by the parties, for it to be legally enforceable.
7. Waiver of Legal Advice: Courts may consider whether parties knowingly waived their right to legal advice when entering into the MoU. If a party can show that they were coerced into signing without adequate legal advice, the court may scrutinize the fairness of the agreement.

RECOMMENDATION AND CONCLUSION:

In light of the analysis presented, it is advisable for parties engaging in transactions governed by the Memorandum of Understanding (MoU) to exercise caution and diligence. While MoUs serve as valuable tools for outlining preliminary agreements and signaling intentions to enter into formal contracts, their enforceability in Nigerian courts can be subject to various factors and legal principles. To enhance the legal standing of an MoU and mitigate risks, parties should ensure clarity in terms, seek legal counsel for review and guidance, and carefully consider the language used to indicate the intent to create legal relations. Additionally, parties should endeavour to settle all essential conditions and ensure consensus Ad idem to establish a valid and enforceable agreement. Ultimately, while MoUs offer flexibility and expediency in formalizing agreements, parties should be mindful of the potential limitations and take proactive measures to safeguard their interests and uphold the integrity of their transactions. 

KEYWORDS: 

memorandum of understanding (mou), parole agreement, letter of intent, legally, binding, agreement, specific performance, quantum meruit, evidence, intent, fraud, misrepresentation, waiver, legal advice, enforceability, legal, principles, legal counsel, clarity in terms, consent, consensus ad idem, risk mitigation

SNIPPET 

In any transaction, it is essential to establish an agreement that outlines the terms, regardless of the transaction’s nature. In this context, a Memorandum of Understanding (MOU), often referred to as an MOU, is a less formal agreement between parties indicating an intention to enter into a legally binding agreement.

AUTHOR: Oyetola Muyiwa Atoyebi, SAN FCIArb. (U.K)

Mr. Oyetola Muyiwa Atoyebi, SAN, is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).

Mr. Atoyebi has expertise in and vast knowledge of Corporate Law and Practice, and this has seen him advise and represent his vast clientele in a myriad of high-level transactions.  He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.

He can be reached at atoyebi@omaplex.com.ng   

CONTRIBUTOR: Cyril Dandison

Cyril is the team lead of the Corporate Department at OMAPLEX Law Firm. He also holds commendable legal expertise in Corporate Law and Practice.

He can be reached at cyril.dandison@omaplex.com.ng