During the course of doing business, business organizations often enter into various agreements. In order to develop a grand alliance with other potential business collaborators, vendors, joint ventures, or agents, these companies usually enter into an agreement with them. There is some ambiguity surrounding whether the memorandum of understanding is legally binding.
What is a memorandum of understanding?
In a nonbinding contract, a memorandum of understanding describes the intention of two people or businesses to work together. Indians also refer to memorandums of understanding as letters of intent. The mere fact that the contract is called a memorandum of understanding does not automatically make it nonbinding. Terminology of the agreement in India is undoubtedly irrelevant.
Contracts are not created by agreements, according to the Indian contract act 1872. Legally binding contracts can only be enforced by contract law.
Does a Memorandum of Understanding have legal force? Here’s everything you need to know about the legal binding of MOUs.
What is the function of a memorandum of understanding?
Memorandums of understanding are ideal expressions of agreement. Once the parties reach an understanding, they will be able to move forward. It is one of the most severe declarations of imminent contract, even though it is not legally binding.
Virtually, the memorandum of understanding, letter of intent, and memorandum of agreement can be distinguished. In addition to a desire to see the agreement through, they communicate about it on a mutual basis. Memorandums of understanding mainly communicate the expectations of the parties. A common reason for their popularity is that they differ from treaties, which can be produced quickly and secretly.
In India, can memorandums of understanding be registered?
In order to register a MoU in India, you must know everything about it. Two or even more parties are just making a promise in this agreement. It is stated that it is a simple agreement and a legal value that can be used to establish any contract, even if it does not have any legal binding.
In what ways do memoranda of understanding serve a purpose?
Formal contracts are generally formed through a Memorandum of Understanding. The memorandum of understanding is not legally binding, but is considered one of the most serious documents. For an agreement to be enforceable and non-binding, it must contain both binding and non-binding terms. Everything in the agreement must be specified as non-binding. Parties eventually accept understandings and terms as expectations.
In the memorandum of understanding, there is a legal position of dispute
Indian law governs memoranda of understanding primarily through the Indian contract act of 1872. The intention of the parties to enter into the binding agreement or obligation that leads to the formation of a contract is one of the most obvious characteristics of the contract.
It is likely that the clauses in the memorandum of understanding that specify the enforcement standards in case of a breach by either party confirm that the parties do not intend to enter into a binding contract. Unless the critical understanding between the parties can be determined from any given context, a memorandum of understanding that contains vague terms is nonbinding.
It is mentioned that there is a dispute resolution clause, but if there is a breach, it can be resolved, and for that, the essential requirement is that the parties resolve the dispute in good faith. If the dispute cannot be resolved within 14 days, then the provision will be applied.
Is it a good idea to register your memorandum of understanding?
A memorandum of understanding must be registered by mentioning some statements and documents.
- Put some enforceable clauses in your contract to protect your interests.
- Other things, such as the consequences, the timeline, etc., should also be mentioned here if necessary.
- You should also include termination clauses in the memorandum of understanding.
- To protect the interests of the parties, any monetary exchange must be registered.
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- The agreement mainly describes the parties involved
- Projects that are generally agreed upon by the parties are described in it. The next step is to determine the scope of the document during the term of the agreement.
- All parties are outlined in terms of their roles and responsibilities.
- Despite the fact that they are not legally enforceable or binding under Indian law.
- A valuable consideration can be exchanged for money.
- All indemnification clauses are included in it.
- The joint undertakings and responsibilities are outlined.
- Termination clauses are also mentioned for other parties.
- As well as the dispute resolution clause, there is a clause on arbitration.
The Indian contract act 1872 allows the court to declare a memorandum of understanding invalid if it does not meet the contract’s conditions. It is only when the doctrine of estoppel comes into play that the enforceability of the memorandum of understanding is considered and enforced. As stated in the landmark decision, the Supreme Court stated that the doctrine of promissory estoppel is the principle involved by equity to avoid any type of injustice.