Memorandum Of Understanding (MOU) Is Not A Binding Agreement (Contract)

Daily Law Tips (Tip 502) by Onyekachi Umah, Esq., LLM.
ACIArb(UK)

MEMORANDUM OF UNDERSTANDING (MOU) IS NOT A BINDING
AGREEMENT(CONTRACT)

Agreement(Contract) is very different from a Memorandum of
Understanding (MOU). There are never the same and as such it is
very dangerous to misuse/misunderstand them. Their relevance,
powers, binding nature and even acceptability in courts and
business transactions vary.

AGREEMENT (CONTRACT) is a BINDING understanding between two or
more persons while a MEMORANDUM OF UNDERSTANDING is mere
compilation of wishes of two or more persons, which they may later
turn into a binding AGREEMENT (CONTRACT). While an
AGREEMENT(CONTRACT) is binding on all parties, MEMORANDUM OF
UNDERSTANDING (MOU) is not binding on parties, except where parties
relying on such have taken serious steps varying their positions.
So, MEMORANDUM OF UNDERSTANDING is a mere starter/step towards
making a binding AGREEMENT/CONTRACT. “MOU is merely a preliminary
move in negotiation which may lead or may not lead to a definite
offer being made by one of the parties to the negotiation.”

“… it is clear that a memorandum of understanding or letter of
intent, merely sets down in writing what the parties intend will
eventually form the basis of a formal contract between them. It
speaks to the future happening of a more formal relationship
between the parties and the steps each party needs to take to bring
that intention to reality. From the definition given above,
notwithstanding the signing of a memorandum of understanding, the
parties thereto are not precluded from entering into negotiations
with a third party on the same subject matter.” Per KEKERE-EKUN
,J.S.C ( Pp. 20-21, para. B )

“In several human relations, parties intending to enter into a
contract or an agreement may first declare that intention in a
document which they wish to guide them subsequently when they are
ready to sign a legally binding contract or an agreement. Such a
document expresses the preliminary understanding of parties who
plan to enter into a contract or some other agreement. The contents
of such a document serves to fix in memory the desire of the
parties which is to serve as the basis for a future formal contract
of deed. It is my understanding that such a document is usually
referred to as Memorandum of Understanding, ‘MOU’ for short. It is
not the real agreement but a document guiding the future agreement.
Its status is something less than a complete contract.… As I had
expressed earlier, a Memorandum of Understanding cannot be anything
more than a document which contains the preliminary understanding
of parties willing to enter into a contract or an agreement
subsequently based on those conditions contained in that document.
That is my own understanding of the term “Memorandum of
understanding.”
Per OKORO ,J.C.A ( Pp. 18-19, paras. A-B )

My authorities are judgements of the Supreme Court of Nigeria
and then the Court of Appeal, respectively;

1. BPS CONSTRUCTION & ENGINEERING COMPANY LIMITED v. FEDERAL
CAPITAL DEVELOPMENT AUTHORITY (2017) LPELR-42516(SC)
2. STAR FINANCE & PROPERTY LTD. & ANOR v. NIGERIAN DEPOSIT
INSURANCE CORPORATION (2012) LPELR-8394(CA)

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