How Memorandum of Understanding (MOU) differs from a contract?
Category: Corporate Laws
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How Memorandum of Understanding (MOU) differs from a contract?
Abstract
A MoU is a very significant document which gives certainty to enter into an agreement; it is not enforceable by law unless some essential elements are present in the MoU which creates legal obligations.
Introduction
A Memorandum of Understanding (hereinafter to be referred as MoU) is a document which explains the consensus of the parties to enter into a contract. An MoU is basically entered before entering into contract. MoU is often entered into by parties to a contract and even between countries.
Essentials of an MoU
An MoU must contain certain essential elements, it is very important to mention intent of the parties who intend to enter into the agreement, this helps to fulfill the consensus ad idem (understanding the same things in the same sense) which eradicates ambiguity. The second element of a MoU is date and time of the initiation and ending of the MoU. Furthermore, clauses which talk about allocation of risks and dispute resolution may also be mentioned in the MoU. Further clauses relating to termination of the agreement can also be enumerated under the MoU.
Legal Implications of MoU in the Indian Legal System
Eventually the MoU is not enforceable under law unless the clauses mentioned under the MoU expressly create legal obligations on the parties. When the contents of the MoU comply with Section 10 of the Indian Contract Act, 1872, (Essential elements of an contract ; “Offer and acceptance”, “free consent”, “lawful consideration”, “competency to contract”) can be enforceable and binding over the parties.
Conclusion
It can be concluded that the MoU is nothing but a document which mentions intention of the parties of an agreement. An MoU is more often signed by countries who intend to work with each other in a one or more specific areas. Further an MoU is not enforceable by law if it doesn’t includes legal obligations of the parties. In India it is considered with importance, for which the stringent framework to ensure that the process is ethical, transparent and maintain the protection of each people’s well-fare. Also the Online Legal Query here has participates to help the aggrieved through the experienced senior advocates and legal team to be able to guide in the proper path to meet with their ultimate fairness.
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