The Legal Status of a Memorandum of Understanding

By Taiwo Hope Alabi

Memorandum of Understanding (MOU) from its direct translation speaks of a parole agreement between the parties involved.  It is also called letter of intent[i]. In all transactions, it is expedient that there must be an agreement to cement an already agreed arrangement, irrespective of the nature of the transaction. In this context, an MOU, as it is fondly called, is a less formal agreement between parties in a transaction that shows an intention to enter into a legally binding agreement.   Black’s Law dictionary defines a letter of intent to be a written statement detailing the preliminary understanding of parties who plan to enter into a contract or some other agreement[ii]. Therefore, does an MOU fits all weather?

ELEMENTS OF AN MOU

1. Parties’ clause: It has to show the details of the parties involved.
2. Date
3. The terms of the contract
4. The intention of entering into a legally binding contract
5. The signatures of the parties

From the above, it has been established that an MOU is a mild agreement between the parties in a transaction; it speaks of a later agreement. A legally binding agreement, on the other hand, simply, is an arrangement between the parties that is documented, prepared by a legal practitioner, most advisably, a solicitor, evincing the terms of the understanding and showing the intentions of the parties to be bound by the terms of the agreement, as well as the penalties for its breach. This is more acceptable even in the courts of law. An MOU is more like a gentleman agreement.

COURTS’ APPROACH

It has been established and a trite law that courts will not interfere in agreements between parties. However, where situations demands that the court should, it will adjudicate on the subject matter before it and with reference to the agreement between the parties.

The Supreme Court in BPS CONSTRUCTION & ENGINEERING CO. LTD v. FCDA[iii] held that, an MOU or a letter of intent sets down in writing what the parties want to form the basis of a formal contract between them.

The court held in ORAKA v ORAKA[iv], that an MOU is not a contract or an agreement … but rather an intention to enter into a contract later. It has no binding force of a contract. It is to fix in memory what the parties want to achieve in the future contract, in fact, it need not state all the terms in it[v]. It is at best a show of intention to enter into a legally binding agreement. The Court of Appeal of Nigeria held in HIGH PERFORMANCE DISTRIBUTION LTD V SAMSUNG ELECTRONICS COMPANY & ANOR[vi], that, an MOU is a prelude to a contract, or letter of intent for parties to enter into a formal contract spelling out the basis for such relationship.

IS AN MOU OUTRIGHTLY BAD?

An MOU is not bad and can still be enforced at the extent it can by law. Though, ignorantia juris non excusat, that is, ignorance of the law does not excuse, but where there is a show of intention which can be manifestly seen in the arrangement, and where either of the parties have performed his duty sequel to the understanding, then the court will look into the intention and may rule on the understanding in favour of the party that has performed his duty.

Should the binding effect of an MOU be brought before the court, the courts will find that commitment has been made[vii], but may not enforce it.

Also, the MOU, but for the principle of estoppel, would be a mere moral obligation on the party that executes same but not a legal duty[viii].  The doctrine of estoppel explains that where the parties have signaled an intention to do a thing, they are heretofore estopped from doing otherwise.

CAN A PARTY NEGOTIATE WITH A THIRD PARTY ON THE SUBJECT MATTER?

A party to an MOU can absolutely negotiate with a third party on the subject matter, because there is no legal contract restraining the party from doing so[ix].

INSTANCES WHERE AN MOU CAN SUFFICE AND BE BINDING.

1. Charitable Works: Where a party wants to help some set of indigents or some persons with a gift of money or whatever money’s worth, the party can prepare an MOU, but, it is better to create a deed of gift.
2. Situations where entering into a contract is not in sight.
3. An MOU can be binding where all the conditions of a valid contract is existent, i.e., offer, acceptance, consideration, intention to be bound by the terms of the contract[x].
4. Where the parties are at the preliminary stages of the understanding and seek to clear all ambiguities[xi]. But, where the parties are at the definitive stage of the understanding, an agreement is proper, except all the conditions of the contract are stated and it lacks any form of ambiguity, else, it will fail[xii].

CONCLUSION

Therefore, no matter the situation, whether a capital project, education support, an environmental project, a loan transaction or whatever it is, an MOU does not create a legally binding agreement. Parties should resist the urge to quickly draft an MOU because of the urgency of the situation thinking it will suffice for a formal contract. It is always advisable to enter into a contract or engage the services of your solicitor to draft a legally binding agreement that will be enforceable, even, in the courts. Legal Practitioners should as well do well to professionally advice their clients to walk in the right path just to protect their interests.

TAIWO HOPE ALABI is an associate at Abegunde and Abegunde Chambers, Ekiti State, with interests in contracts, tax advisory, corporate and commercial matters, civil and criminal practice, and property transactions.

He can be reached via +234 706 111 5452; OR taiwoalabi06@gmail.com

REFERENCES

1. Black’s Law Dictionary, 8^th Edition at page 1006.
2. BPS CONSTRUCTION & ENGINEERING CO. LTD v. FCDA (2017) LPELR-42516(SC)
3. ORAKA v ORAKA (2019)LPELR-47675(CA)
4. HIGH PERFORMANCE DISTRIBUTION LTD V SAMSUNG ELECTRONICS COMPANY & ANOR (2021) LPELR-52708(CA)
5. Oladele Oladunjoye and BIsola Oguejiofor, NIGERIA: Memorandum Of Understanding (MOU) – The One Size Fits All Document?, GreyChapel Legal, Mondaq, November 22, 2018. Also find in, https://www.mondaq.com/nigeria/contracts-and-commercial-law/757492/memorandum-of-understanding-mou-the-one-size-fits-all-document accessed July 6, 2022.

NOTE THAT THIS ARTICLE DOES NOT SUFFICE FOR A PROFESSIONAL LEGAL ADVICE, BUT A MEANS OF CONTINUOUS LEGAL EDUCATION. KINDLY CONSULT YOUR SOLICITOR.

[i] See, Black’s Law Dictionary, 8^th Edition at page 1006.

[ii] Ibid.

[iii] (2017) LPELR-42516(SC)

[iv] (2019)LPELR-47675(CA)

[v] See, Oraka v. Oraka & Anor (supra)

[vi] (2021) LPELR-52708(CA) per ITA GEORGE MBABA, JCA,

[vii] Black’s Law Dictionary, 8^th Edition at page 1006.

[viii] See Oraka v Oraka per Ebiowei Tobi, JCA.

[ix] See BPS CONSTRUCTION & ENGINEERING COMPANY LTD (supra)

[x] Oladele Oladunjoye and BIsola Oguejiofor, NIGERIA: Memorandum Of Understanding (MOU) – The One Size Fits All Document? GreyChapel Legal, Mondaq, November 22, 2018. Also find in, https://www.mondaq.com/nigeria/contracts-and-commercial-law/757492/memorandum-of-understanding-mou-the-one-size-fits-all-document accessed July 6, 2022.

[xi] Ibid.

[xii] Ibid.

Source: DNLLegaland Style