What is the difference between an agreement and MOU?
13-Jul-2023 (In Civil Law)
Agreement and memorandum of understanding are both commonly used legal instruments that help define the legal relationship between parties entering upon a legal transaction. Although it is a common misunderstanding that an agreement and memorandum of understandings are identical in nature, the two legal instruments are very distinct from one another with a few similarities.
An agreement is essentially a concordance between two or more parties arrived upon after negotiations to be bound by its terms. On the other hand, a memorandum of understanding is a unique from of instrument which lays down an arrangement and records an understanding between two or more parties.
What is an Agreement?
An agreement is the outcome of negotiations between parties and records the proposal of one party and the terms of its acceptance by the other. In essence it records the promise between parties on the same thing, to be performed in the same manner to achieve the ends of the mutually agreed outcome. An agreement is a form of legal instrument that is enforceable in a court of law i.e., the parties to an agreement are accorded the right to approach the courts to enforce the performance of the terms of such agreement. Thus, an agreement gives birth to mutual right and obligations of parties to such agreement which are binding in the eyes of law.
Agreements are of various kinds and can be both oral or in writing. Certain classes of agreements recognised in law are:
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Conditional agreements – agreements, the performance of which is hinged on certain conditions being met
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Express agreements – a mutual exchange of promises to which the parties to the agreement agree to be bound
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Implied agreements – an agreement implied by the nature of a transaction or relationship between the parties which is not expressly recorded in writing
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Executed agreements – an agreement which has been signed by the parties which agree to be bound by its terms and enter upon a contractual relationship
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Executory agreements – an agreement carrying continuing obligations of performance by both parties, the terms of which are fulfilled on a later date
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Void agreements – agreements which are unenforceable in the eyes of law
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Voidable agreements – agreements which are revokable at the option of one or more parties to the contract but enforceable against the rest
What is a Memorandum of Understanding?
A memorandum of understanding is essentially a legal document which records the terms of an arrangement arrived at between two or more parties thereby creating a bilateral/multilateral agreement between its signatories.
A memorandum of understanding clearly records the terms of such understanding and is required to be reduced in writing. Its terms must be unambiguous, thereby giving a definite objective to the agreement. A memorandum of understanding differs from an agreement, since it is not a legally enforceable instrument, however it gives rise to a right to seek redressal from a court of law, if the acts of one party have caused the aggrieved to incur some loss. Thus, the principle of estoppel operates in a memorandum of understanding to bind the parties to the common understanding.
Difference between Agreement and Memorandum of Understanding
Where an agreement is a document that creates mutual rights and obligations, a memorandum of understanding on the other hand does not accord any rights to its signatories. Agreements for this reason are legally enforceable documents, the performance of which can be enforced through a court of law. However, memorandum of understanding is not an enforceable instrument and only grants a right to sue in case of breach of the principle of estoppel.
An agreement between parties is therefore a binding document while a memorandum of understanding is only binding upon the parties if it is entered upon in exchange for some monetary consideration. Similarly, the two legal instruments differ in the sense that agreements create mutual rights and obligations, while the same is not true for a memorandum of understanding. Another distinguishing factor is that agreements can be both oral or in writing but a memorandum of understanding is legally required to be reduced to writing. Similarly, where an agreement can be implied in nature, a memorandum of understanding can never be implied.
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