What a MoU is
A Memorandum of Understanding (MoU), as the term is being used now, is a written declaration by two or more parties. It expresses their common or mutual intention in regard to a project.
A MoU looks like a contract. It is a less formal document than a contract. A contract is legally binding and enforceable. But a MoU is not a legally binding one in India. A MoU acts only as the foundation document. It indicates that a contract is imminent.
What makes a MoU a Contract?
As per the Indian Contract Act 1872, every agreement is not a contract. Only those agreements which are legally binding are contracts. They are enforceable by the court of law.
In order to make a MOU a binding contract there must be well-defined legal elements in the text of the MoU. The required elements are offer and acceptance, consideration, and the intention to be legally bound. It must also be written on non-judicial stamp paper of proper value as well. In such a scenario, it is better to call the MoU a contract.
Nomenclature of a contract or an agreement or a MoU is not an index to determine the legal validity or invalidity of it. Terming an agreement as a MOU does not make such a contract non-binding.
A MoU prepared for family settlement is binding
A MoU prepared so as to denote the division of property already made and delivered orally as part of the family settlement among the concerned parties in the past, is binding on all the parties.
MoU is prepared on plain paper
A MoU is usually prepared on plain paper but not on non-judicial stamp paper. It does not require revenue stamp to be pasted on each page, as well. If the parties want it to used as a legally binding document that should be made on stamp paper of proper value.
Conclusion
If a MOU satisfies the conditions of a contract as laid down under Section 10 of the Indian Contract Act, then it would be legally binding and enforceable in law. If so, it should be treated as a contract as defined in section 2(h) of the act.
Mere heading of any agreement or MoU shall not be used as an indication to conclude whether it is legally binding or not. The construction and use of words in it determines what type of agreement it is and what are its legal consequences of it.
