Memorandum of Understanding

MOU

It's the kind of agreement you draw up when you're a tad

concerned that your country might be obliterated by nuclear
warheads. It's also the sort of document you might scrawl on
a bar napkin, outlining a far-fetched business plan after an
evening

of

few

too

many

White

Russians.

It's

memorandum of understanding, a legal term that holds

major implications for both international and domestic law
(and maybe even a few cocktail-stained napkins, too).
A memorandum of understanding (MOU) is, concisely, a
written agreement. An MOU is sometimes confused with
other, similar jargon, such as letter of intent or memorandum
of agreement. For most legal purposes, however, all three of
these terms amount to basically the same thing.
MOUs are very common and are used for domestic purposes
and agreements between nations. Some are general and
concise. Others are long-winded and extremely detailed.
No matter their length or complexity, MOUs specify mutuallyaccepted expectations between two or more people or

organizations as they labor together toward a common

objective. And here are two other touchstones of MOUs -generally they're not legally binding, in part because neither
party wants to deal with the ramifications of a binding
agreement, and they don't involve the exchange of money.
You might think that memoranda of understanding sound
suspiciously similar to contracts, but there are actually
significant differences between the two. A contract is a
written, private agreement between two parties that is legally
binding and can be enforced by a judge.
Contracts spell out the nitty-gritty obligations of each party
which, if breached, can spell dire consequences for the entity
that breaks it. Contracts are necessary when there is any sort
of exchange of money because they help to protect the
interests of both parties and ensure trust.
MOUs are less formal than contracts, and typically include
fewer details and complexities, but they are more formal than
handshake

agreements,

sometimes

called

gentlemen's

agreements. All sorts of entities use MOUs to create

guidelines for each party as they contribute their efforts and

resources toward important projects. But ultimately, the
reason that parties opt for MOUs is because they are simpler
and more flexible than contracts.
Well-written MOUs reflect diplomatic savvy and creative
analytical thinking. They also provide a mutually beneficial
framework that both entities can work within to achieve
shared goals. On the next page, you'll see why memoranda
of understanding are virtual celebrities in the legal world.
Memoranda of understanding are often implemented in
private law and international law, and often between both
government and non-government agencies and companies.
Basically, an MOU is an expression of the intent of
negotiating parties.
MOUs are fundamentally an agreement that two parties
create before a negotiated document is finalized. That's right
-- it's an agreement before an agreement. It's a collection of
vital points of accord between two or more entities that
intend to establish a working relationship of some sort.

You may wonder why two parties would go to the effort of

putting together an MOU, especially considering that it's not
an enforceable document. In some cases, a party is legally
required to create MOUs, such as when housing authorities
negotiate with tenants.
But MOUs hold a lot of potential power because of the time
and energy they take to plan and write. They require the
parties to come to some sort of mutual agreement, and in
order to do that, they have to take stock of their needs and
wants and put them to paper.
In these kinds of situations, an MOU is an appealing option
because it's simple and direct, without the kinds of complex
and combative standard terms and conditions of contract law.
In other words, MOUs don't require either side to "lawyer up"
and prepare for hard-core, hairsplitting contract talk.
Although each side must put some thought into the MOU, the
process for creating one is pretty straightforward. Generally,
each party starts in a planning stage to determine what they
want or need the other party to provide, what they have to

offer, what they are willing to negotiate, and the rationale for
an MOU. Perhaps most important, the MOU spells out the
parties' common objectives.
After the initial draft is written, representatives for the parties
meet in person to negotiate and haggle over the MOU's finer
points. Many MOUs spell out communication details, such as
descriptions of both parties' capabilities and how they related
to each other's' interests. The MOU may also document
contact information for each party's representatives, set
dates for performance reviews and create processes for
dispute resolution.
Other specific terms of the agreement are usually included,
too, such as when the agreement begins, how long it lasts
and how one or both entities can terminate the MOU. An MOU
can also have disclaimers and restrictions, as well as privacy
statements. Once they come to an agreement on those
details, both parties sign the MOU.
All of these might sound like elements that would appear in a
contract, but remember that MOUs are not legally binding.

Well, not usually, anyway. This being law, there are always
exceptions, and as you'll find out on the next page, if one or
both parties aren't paying close attention, contract-flavored
memoranda of understanding can leave behind a very bad
taste.
You've already seen the kind of information that's normally
included in MOUs. This information often resembles the terms
of a legally binding contract, but MOUs typically are not
enforceable. However, there are exceptions and stipulations
that can spell serious legal consequences for parties who
break memoranda of understanding.
For example, if the content of the MOU is exactly like a
contract in language and intent, then a court is likely to call it
a contract, no matter what title might appear on the front
page.

This

issue

arises

often,

as

parties

attempt

to

manipulate the language of an MOU to resemble a contract

without the risks of actual contractual obligations.
In another instance, although MOUs aren't binding, they may
include provisions that are, such as privacy or nondisclosure

agreements. If either party violates such provisions, they may

be held liable.
There are standards for determining whether an MOU might
be binding. A judge reviewing one would look for four key
elements

that

normally

define

contract:

an

offer,

acceptance of the offer, an intention to be legally bound, and

consideration (the benefits that each party bargains for as
part of a contract).
A judge weighs such factors when determining whether the
MOU is actually an enforceable document. If the MOU's terms
are clear and coherent, and reinforced by consideration, then
a judge would likely find the MOU to be a binding agreement,
no matter what it's called. In short, if the parties intend for
the entire document to be binding, they should probably opt
for a contract instead.
It might sound kind of amusing, or perhaps just redundant,
but in many situations, parties are very careful to make sure
their MOU can in no way be interpreted as a contract. They
do so by including disclaimers and phrases such as "This

memorandum is not intended to and does not create any

contractual rights between these parties."
Regardless of how cautious the authors might be, MOUs pose
risks. In a business environment, these informal agreements
lack the formalities and standardizations of a contract that
would protect both parties during the project. As a result,
legal remedies might be nonexistent in the event of nonperformance or a lack of adherence to the MOU.
Those are some of the reasons that a lot of lawyers don't
really

like

MOUs.

Without

standards,

memoranda

of

understanding are often ambiguous, legally fuzzy documents

that can lead to confusion and contentious appearances in
court [source: McCormick]. Still, in spite of a lack of love from
lawyers, MOUs come in handy in a lot of situations, such as
skirting bureaucracy and skillfully limboing under massive
amounts of red tape.