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Contracts and deeds are legally enforceable documents that have a vital role in transactions, relationships and commercial dealings. This is because they allow parties to rely on the terms of the document, given that a court can enforce them if either party refuses to comply with the agreement. However, many people now sign contracts and deeds online, which can create issues around their enforceability. Additionally, sometimes parties to a contract will draft a pre-agreement before signing the final contract together. This agreement is called a Memorandum of Understanding (MoU). This article will explain what a business agreement MoU is and how you can sign it online in New Zealand. 

What is a Memorandum of Understanding?

A Memorandum of Understanding is a legal document that you can use to set out the terms of a transaction or commercial deal. It is sometimes referred to as a Heads of Agreement as it establishes a specific partnership with another party by outlining what the contract will entail. This written agreement must contain key details relating to the commercial transaction so that your contracting party can decide whether they are willing to contract on these terms. 

A business agreement MoU will likely include the key provisions of a transaction. For example, it could contain provisions relating to the:

  • cost of the deal;
  • length of the deal;
  • names of the parties;
  • objective of the partnership; and
  • rights and responsibilities that each party will have under the contract.

How Can You Sign a Business Agreement MoU Online?

Like any legal document, you can sign a memorandum of understanding online. The best way to do this is for one party to send the document to the other party. If they are happy with its terms, then the party receiving the document can sign it. Many computer programs now have signature tools that allow both parties to clearly display their signature on the document. Consequently, this can strengthen the legal enforceability of an online MoU.

Issues with Contract Enforceability 

The intention of the parties and the wording that you use in the agreement can determine whether an MoU is enforceable. This is because both parties must have a mutual understanding that they want a binding agreement. Otherwise, a party to an MoU may not think that what they are signing is enforceable in court but is instead a precursor to the main agreement. Therefore, they would not need to follow the terms of the agreement. 

Consideration

Additionally, an MoU must also have consideration moving from both parties if it were to be legally enforceable. This means that each party receives either a benefit or a detriment due to the contract. A contract without consideration is known as a gratuitous promise and is not enforceable. 

Completeness

An MoU will also only be binding if it contains all the essential terms of the transaction that you are outlining. If the MoU is not a comprehensive legal document, the courts will find that it does not contain the necessary terms to be legally binding. 

Mistaken Belief

In most cases, parties do not intend for an MoU to be enforceable, but rather are using it to outline what the parties will agree on in the future. This means issues around enforceability may only arise where one party believes that the memorandum they sign is legally binding.

For instance, an online agreement might be less likely to be binding as the parties may see the agreement as less formal. This is because you will generally sign legally binding contracts and other formal agreements are in more formal conditions, with lawyers likely to be present.

Key Takeaways

A business agreement memorandum of understanding is a type of document which indicates that a party intends to enter into legal relations through the use of a contract. An MoU in itself is not usually legally binding unless the parties intend for it to be binding when it is signed. The MoU must also contain the essential terms of the agreement, and there must be consideration from both parties. An MoU that is signed online does not change its enforceability. However, it may be less likely to be legally binding.

If you need help with managing your contracts, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions

Can a Memorandum of Understanding be legally enforceable?

A memorandum of understanding can only be legally enforceable if it contains all the elements of a binding contract, including the intention of both parties for it to be binding.

Do I have to enter into a memorandum of understanding before I enter into a contract?

No, there is no legal requirement to enter into a memorandum of understanding. However, they are useful to outline what the terms of a contract will be. 

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