An agreement is an expressive consent. It shows that the parties have reached an agreement and are making progress. Although not legally binding, it is a serious explanation for the impending treaty. In other words, a document conditional on the subsequent implementation of an agreement is only a preliminary step in the negotiations, which may or may not lead to a formal contract. In UBA Ltd V Tejumola – Sons Ltd5, Obaseki, JSC stated: “If a contract is subject to a contingency, that contract becomes enforceable only when the event has occurred or the eventuality has occurred.” If the text of the agreement is such that the conditions envisaged by the parties are ultimately the basis for a formal contract between them, it cannot be considered binding on the parties. It follows from the above that a letter of intent is generally non-binding and unenforceable. However, the courts will apply a statement of intent that contains all the requirements of a valid contract, i.e. the offer, acceptance, consideration and intention of the parties to be legally bound. In addition, in the decision on its enforceability, the Tribunal will consider the intent of the parties, interpreted under the terms of the agreement and the conduct of the parties after their execution. A bit like in cases where the judge advises a lawyer, in the middle of a cross-examination, to limit his questions to the facts alone; I am sure they must now ask themselves why we are taking this walk down the memory path of the basics of the interpretation of statutes, where, ideally, we should decipher the validity of a memorandum of understanding; in this article.
Well, with all my humility, I want to assure you that the correlation will end pretty soon, so you are kind enough to stay with me. A Memorandum of Understanding (MOU or MoU) is an agreement between two or more parties, which is described in a formal document. It is not legally binding, but it indicates that the parties are ready to move forward with a treaty. Generally speaking, an agreement is a non-binding agreement that constitutes legal applicability and can therefore be interpreted as a “letter of intent” between two or more parties who intend to enter into a contract at a later date. If I may point out for a moment the essential elements of a valid contract, one of the main reasons is the intention of the parties to establish a legal relationship. Since neither party intends to establish a legal relationship in an agreement; applicability cannot in principle be desired. As by a bank of the Supreme Court of Monnet Ispat and Energy Ltd. v. Union of India and Ors., MOUs are not a contract and are therefore neither binding nor enforceable. In the case of BPS Construction – Engineering Co.
Ltd v. Federal Capital Development Authority (Supra), the complainant and the respondent had reached an agreement to provide infrastructure at specific sites. The agreement was conditional on the signing of a formal agreement between the parties, which was envisaged within 14 days of the implementation of the agreement. However, prior to the implementation of a formal agreement by the parties, the complainant had to face costs associated with the implementation of the project, based on the respondent`s commitments, assurances and statements that a formal agreement would be executed in accordance with the agreement. In light of the above, an agreement, as indicated by its name, is a document that reflects the understanding of the parties; which do not necessarily have to be the final position of the contracting parties. It is, by its very nature, a preliminary document that involves a pre-designed transaction and can therefore be described as an “agreement of agreement” or “negotiation agreement”. It is not binding and the parties are generally not bound by their terms. Parties wishing to establish a commercial relationship are in the habit of documenting their preliminary understanding and intent in an interim agreement.