Misunderstood: Understanding memoranda of understanding (MOUs)

A Memorandum of Understanding (MOU) is generally used to record the basic terms of a transaction, in advance and in anticipation of more detailed and legally binding terms and conditions.

An MOU is not usually legally binding, however, it can be binding if it satisfies the six elements of a contract, set out below:

1. Offer and acceptance – a contract is formed when an offer by one party is accepted by the other party;
2. Intention to create legal relations – the parties to the agreement must intend to enter into a legally binding agreement;
3. Consideration – consideration is the price paid (not necessarily money) for the promise of the other party;
4. Legal capacity – not all people are completely free to enter into a valid contract (eg people with a mental impairment, minors);