Introduction to MOUs

A memorandum of understanding (“MOU”) is a document that contains a collection of tenets between two or more entities that intend to establish a relationship. Often MOUs act as placeholders until the parties negotiate and prepare a definitive agreement.

Binding or Non-Binding

MOUs are often incorrectly assumed to be legally binding or not legally binding:

  • Binding means that the parties are obligated to carry out the terms of the MOU;
  • Non-Binding means the parties are not obligated to carry out the terms of the MOU. Non-binding is ideal when the parties are still determining if their relationship is viable; if it turns out that the parties cannot come to an agreement on key terms after the MOU is signed, a party can just walk away without legal consequences.

However, whether an MOU is binding depends on the circumstances:

  • Did the parties intend to be bound by the obligations?
    If so, then the name of the document is irrelevant—an MOU may still be binding.
  • Are the obligations clear enough to be legally binding?
    If so, then the name of the document is irrelevant—an MOU may still be binding.

A document can be called an MOU but the terms may be so specific that the document is in reality a binding agreement. For this reason it is important that the parties are clear in their intentions by including language such as:

“This MOU is non-binding”
“…the parties do not intend to be legally bound by the terms of this MOU”
“…intending to be legally bound, the parties agree as follows”

When should an MOU be utilized?

  • If you want to provide a framework for the parties to negotiate a final contract;
  • If you want to record key terms agreed to date;
  • If you want to detail a party’s commitment for the benefit of third parties;
    (ie: funding agency needs to see an MOU between UT and community partner before providing funds)

What should an MOU include?

  • The proper names of the parties, including the University’s:
    “The Governing Council of the University of Toronto”
  • The subject matter of the agreement and its objectives;
  • Statement of intent to be legally binding or not legally binding;
  • Essential terms including start date, end date, termination, etc;
  • Signatures (authorized).

Consider whether the MOU should be binding or non-binding and prepare the MOU with that intention in mind. If the intent is to create a non-binding MOU, the terms can be high-level and vague (ie: the parties will cooperate to create global awareness of …) but need to make sense.

If the intention is to create a binding MOU, the obligations need to be clear and concise in order for them to be enforceable (ie: each party will contribute $X,XXX.XX annually during the term of this MOU to support the activities listed in Schedule “A”). The potential for enforcement requires that careful consideration be given to the language included in a binding agreement.