A Memorandum of Understanding (MoU) is a document in which two or more parties declare that they agree on a common course of action. It is formal agreement and is not legally binding on its parties. To be legally operative it should clearly lay down the name of the parties, object of the contract and summarise the important terms and conditions. They are usually less time consuming and avoid the legal implications as involved in a contract. This is because a legal agreement contains the risk, warranties and indemnifications because of the nature of the contract involving the exchange of money or other considerations to validate it. MOU provides a roadmap to a non-binding agreement signaling effective negotiations between the parties involved to achieve a shared goal.
1) To produce an MOU, the participating parties need to reach a mutual understanding.
2) In the process, each side learns what is most important to the others before moving forward.
3) The process often begins with each party effectively drafting its own best-case MOU through a professional skilled in the process.
4) It considers its ideal or preferred outcome, what it believes it has to offer to the other parties, and what points may be non-negotiable on its side.
As it can be appreciated, time taken for contract drafting depend largely on the complexities of the subject matter covered. But on an average, we conclude the process within 02 to 04 working days.
1) Names of the parties.
2) Specific points of understanding between both the parties considering the subject matter.
3) Description of the project/understanding; which is the subject matter of the agreement.
4) Details outlining each parties’ roles and responsibilities.
MOUs aren’t legally binding per se. MOUs are mere understandings between two parties that are legally documented but are not binding on the parties. However, if an MOU is drawn up for the exchange of money, it becomes legally binding due to the presence of consideration.
MOUs, usually, are not affixed with a stamp duty, however, a stamp duty paid document is considered as having evidentiary value and is hence admitted in the court. Therefore, if an MOU is drawn with respect to immovable property or money as consideration, having stamp duty paid on the document is advisable.