Is Memorandum of Understanding Legally Binding in India
Section 10 of the Indian Contract Act, 1872 sets out the essential requirements of a legally binding agreement or contract: therefore, clauses mentioned in a memorandum of understanding that provide for a standard of performance in the event of a breach by either party confirm that the parties intended to enter into a binding agreement and that a letter of intent with preliminary conditions is therefore not binding, unless a binding agreement between the parties can be decided out of context. The MoU is not legally enforceable in court until the agreement between the parties or two countries has been signed or ratified. In most scenarios, memoranda of understanding are not legally valid, but in a situation where they meet the three essences of section 10 of the Indian Contracts Act, 1872, they are then called legally valid. To determine the validity of a contract, let us look at section 10 of the Indian Contracts Act, which sets out the essence of a valid contract, and the same goes for a memorandum of understanding. In addition, there are a few essential points that must be respected to make a memorandum of understanding valid: The memorandum of understanding has special power when considering that it is an alternative to a legally binding agreement intended to establish a legal relationship between the parties. A Memorandum of Understanding (MoU) has a single authority based on the allegation that it serves as a substitute for a legally binding agreement aimed at establishing a legally binding relationship between the parties involved. When drafting the Memorandum of Understanding, it is important to take into account not only the intentions communicated by the parties, but also the clauses of the document, language and title, as this would not result in a significant financial loss for the parties involved. In Brikram Kishore Parida v. Penudhar Jena (AIR 1976 Orissa 4), the Tribunal held that the objective test was best suited to the intention to establish legal relationships. If a prudent person believes that the promisor intends to enter into a contract, he must fulfill his obligations under the agreement. Therefore, caution should be exercised when drawing up a Memorandum of Understanding, in particular as regards the language, titles and clauses used.
Clauses such as the indemnification clause, the corresponding legal clause and the jurisdiction clause are legally enforceable for the parties to the agreement. A legally binding letter of intent must have a clear intention to compel the parties to the letter of intent to fulfill their obligations set out in the letter of intent. And just like in the Star War universe, the nature of the Force is often misunderstood; In the start-up world, the nature and implications of the MoU are often misunderstood. The different areas of misunderstanding include dimensions such as the applicability of the MoU, the legal nature of the MOU, and the use of MOUs as a simpler substitute for contracts. To clear up this confusion, let`s start with the basics. A distinction must be made between whether the parties intended the letter of intent to be an incomplete informal agreement and simply an agreement, or whether it is a complete contract to which the parties feel bound. If the parties merely register their agreement with a clause for the negotiation and execution of a detailed formal agreement in the future, such an agreement lacks consideration and intention to create legal relations. A Memorandum of Understanding (MoU) is not a legally recognized category under any law in India as such. However, it is widely recognized in legal circles as a formal, non-binding alternative to an unwritten gentleman`s agreement. A memorandum of understanding could be the preliminary document of a more formal contract before the final details are clarified, or it could simply be a sketch of the common intention or common objective if the formal contract is not foreseen. The latter format is widely used in non-profit circles.
[i] (Note: The MOU is often used as a synonym for a letter of intent.) [ii] In Jyoti Brothers v. Shree Durga Mining Co. (A.I.R. 1956, Cal. 280), the court concluded that a contract for entering into a contract is not considered a valid contract at all. However, the same is inconclusive. The tribunal will rely on the degree of importance of such an understanding to the parties, depending on whether any of them acted on the basis of such an agreement. A Memorandum of Understanding (“MOU”) is generally a preliminary agreement between the parties to a contract prior to the conclusion of a formal agreement. It is a document that highlights the intention of the Parties and can also be called a letter of intent (“Letter of Intent”). The MOU is usually executed to create consensus between the parties for future contracts and is not generally said to have created obligations for the parties.
First of all, it must be understood that a letter of intent is non-binding and legally unenforceable and is only an “agreement to the agreement” and highlights the business relationship likely to result in a contract or formal agreement between the parties. However, a letter of intent may create an obligation for the parties if a binding agreement is derived from the terms of the letter of intent […].
