Difference between MOU and Contract

Dear Readers,

MOU is a common term and we deal with it almost daily in our work life. Contracts and procurement professional regularly draft new MOU’s to records the mutual promises of parties. Also, they keep on referring/interpreting existing MOU to administer it or to know the duties of parties. So what is the relevance of this term with respect to the agreements made by the parties? In this blog, I shall try to explain meaning & significance of document and its relationship with Agreement and Contact

In this post we are going to discuss briefly the followings topics;

  1. What is a Memorandum of Understanding
  2. Difference between Memorandum of Understanding and Contract
  3. Relationship between Memorandum of Understanding and Agreement

1) What is a Memorandum of Understanding

The word memorandum means: a written message or a written note or a written report prepared for future use by parties or intended recipients. The term understanding means: agreement or mutual consent or in depth knowledge of a subject matter. Understanding is said to be reached when both parties agree something in the same sense (meeting of mind) and have full clarity of their own and each other’s promises

From the above, we can define Memorandum of Understanding as a written document describing an understanding and/or agreement between two or more parties. Parties signing the MOU assures each other to act as per agreed terms but do not intend to be legally bound for such terms. So, MOU expresses the promises made by the parties to achieve a common goal but such promises are not enforceable by the Law. Hence, MOU seems to be a more formal alternative to gentlemen’s agreement, but, lacks the binding power of a contract

If you wish to read what is a Contract and/or Agreement, please click on below link



2) Difference between MOU and Contract

Above points demonstrate how MOU is different from a Contract

3) Difference between MOU and Agreement

There is no major difference between MOU and Agreement and both terms have almost similar meaning because;

  • Both documents emerge from the promises made by parties to fulfil a need or to have certain benefits or common goal
  • MOU and Agreement reflect the intentions or understanding between the parties
  • Both Terms differ from Contract in term of enforceability by law
  • Parties signing MOU/Agreement are responsible for each other for fulfilling their promises but without legal binding


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