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If in an MOU it is written that "party A will provide [xxxx]", if later it transpires party A did not fully provide xxxx and party B suffers a loss due to this, can this case be viewed as misrepresentation, or are MOUs purely used for agreements in good faith?

  • it can be assumed that the MOU does not contain any requirements that make it a contract. – Sam Palmer Nov 1 '16 at 11:13
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    Clarification should be incorporated into the question. You can do this yourself by clicking the edit link below the question text. – Nij Nov 1 '16 at 18:56
  • @Sam Palmer As I explain at greater length in my answer, this assumption is probably not a reasonable one and your statement that an does not give rise to a contract probably reflects a misunderstanding on your part concerning what is necessary for a binding contract to arise. – ohwilleke Nov 3 '16 at 2:38
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The term MOU for Memorandums of Understanding is most often used as a way to memorialize a mediation agreement and usually in that context it would have the full force of a contract. Less often, but not infrequently, an MOU is entered into by parties (usually, but not always businesses) outside of a legal dispute, to set forth the principal terms of their contractual agreement.

Often a non-litigation MOU is made with the expectation that the agreement may later be committed to a formal detailed and formal document the negotiations of which would be subject to the covenant of good faith and fair dealing implied in every contact to perform discretionary acts under an agreement in a manner consistent with the intent of the parties to the agreement. But, usually, if such an MOU never ends up being reduced to a more formal contractual document and the parties start to carry out its terms anyway, the MOU will still have the legal effect of a contract and a court will have to decide how to reasonably resolve any ambiguities in the agreement that it has in its less detailed MOU form.

It would be quite unusual for an MOU not to have the effect of a contract because the word "Understanding" is a synonym for an "Agreement" and an "Agreement" is almost always a "contract" and is generally binding.

Sometimes an MOU is subsequently made an order of a court in a lawsuit where an MOU is reached by mediation or through settlement negotiations, in which case violations of the MOU could also be enforced under circumstances and by procedures applicable to court orders that are violated (such as a contempt of court motion brought in the case).

Moreover, even if the MOU (or more plausibly, a "Letter of Intent" that expressly states that it does not have contractual effect and is not intended to constitute an agreement of the parties) itself did not suffice to constitute of contract by itself, it would often be evidence that could be used in connection with other evidence to prove the existence or terms of an oral contract, of a contract "implied in fact" from the actions of the parties, or to prove a claim for "promissory estoppel" (which is like a contract claim but supported by reasonable reliance upon a promise rather than by consideration for the performance of the promise) which is also sometimes called a "contract implied in fact".

If failure to perform caused the non-performing party to obtain an unfair benefit from a situation and the MOU is not a binding contract, it may also be possible to sue to deprive the breaching party of that benefit in a claim for "unjust enrichment" sometimes also called in certain situations "restitution" or "quantum meruit".

If in an MOU it is written that "party A will provide [xxxx]", if later it transpires party A did not fully provide xxxx and party B suffers a loss due to this, can this case be viewed as misrepresentation, or are MOUs purely used for agreements in good faith?

Generally a statement about acts to be performed in the future, such as a promise that someone "will provide" something cannot provide a basis for a misrepresentation claim. The law distinguishes between actionable in a fraud suit arising from misrepresentations about presently existing facts and breaches of promises enforceable in the manner that I describe above.

There is a narrow exception to the rule that promises about future acts cannot constitute misrepresentations if it is established that the person making the statement knew or believed at the time that the statement was made that the promised act would not be performed. (In practice, this is usually either almost impossible to prove if the defendant denies doing so, or is patently obvious from a confession of the person accused, or from repeated pattern and practice of conduct.)

Even then, if the statement was made with this intent at the outset not to perform, the person suing for non-performance would also have to show that the statement was made with an intent that it be relied upon by the person who was harmed, that it was reasonable for the person who was harmed to believe and rely upon the statement under the circumstances, and that the harm suffered was caused by the non-performance in a manner that the perform harmed could not reasonably have mitigated.

If the document makes clear on its face that it is not a binding agreement (which is pretty much the only way that an MOU would not be a binding contract) then it would probably by definition be unreasonable to a person reading it to rely upon and the misrepresentation claim would fail.

  • Fantastic thank you so much for taking your time! This clears up my understanding! – Sam Palmer Nov 6 '16 at 20:34

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