How to write an MOU or Letter Agreement?

By The Law Office of Yoel Molina.
 
Do you recall the saying, "Get it in writing"? However, a formal agreement or memorandum of understanding (MOU) would better serve to safeguard your interests when it comes to specific commercial arrangements, such as teaming up with your brother-in-law to purchase a boat or purchasing a costly item that cannot be taken home right away.

If both agreements are signed by both parties and contain the main provisions of the agreement, including the parties' intention to be bound by these terms, they will both be considered legally binding. The framework of a letter agreement and a memorandum is where they diverge most from one another.
 
A Letter Agreement: What Is It?
An agreement between two or more parties is recorded in a letter agreement, also known as a letter of agreement or an agreement letter. The agreement is formatted like a letter, with distinct paragraphs, a dateline, and spaces for signatures at the bottom. The letter is just as valid and enforceable as a document created by an attorney's office as long as it outlines the key parameters of the agreement includes a declaration of binding intent and bears the signatures of the parties.

The lawyer's version is likely to be 17 pages long, contain a lot of legal ("Whereas so-and-so wishes to..."), use Roman numerals to identify paragraphs, and include a lot of clauses that are basically unnecessary. However, the essential query for each style is the same: Will it be upheld as binding if answered and scrutinized by a judge? When parties want to document their agreement but don't want to spend the time and money consulting with an attorney, or when they simply feel better using a presentation that's less imposing than a memorandum, they often employ letter agreements.

Both documents ought to have the same clauses. Therefore, if you and your brother-in-law decide to purchase a boat together, you may verbally agree on such things as how much you'll pay for it, the days you'll each use it, how you'll handle repairs and maintenance costs, how to handle situations where one of you wants to sell the boat and other issues that may come up. You can avoid misunderstandings and safeguard your rights in the event that one (or both of you) feel the other is treating the arrangement incorrectly by putting those verbal arrangements in writing with a letter of agreement.
 
Writing a Letter of Agreement:
You can make a letter of agreement as long or as short as is necessary to cover the things you want to cover, but you should be as detailed and clear as you can with the terms. An example of a letter agreement using the aforementioned example would be:

- The address and name of your brother-in-law are at the top.
- The agreement's date
- A salutation
- A description of the agreement in the letter's body, outlining all the things you've agreed to, and
- A signature block followed by the phrase, "My signature confirms that I have read, understand, and agree to the terms stated above."
- Dated and signed by you.

Online resources also include templates for MOUs and letter agreements.
 
What Is an MOU, or Memorandum of Understanding?
Similar to a letter, an MOU can be used in the same circumstances and expresses an agreement. Whether it contains the essential provisions of the agreement, a declaration of binding intent, and signatures determines whether a court would enforce it (just like the test for a letter agreement). An MOU, however, is formatted similarly to a contract; it is slightly more formal than a letter but not quite a formal legal document.
 
Steps for Writing an MOU:
Your MOU would typically begin with a title like "Memorandum of Understanding Between Jane Smith and John Doe," each party's address, and the date of the agreement, then have numbered parts like "Section 1: Introduction" and "Section 2: Scope and Purpose."

Each party's obligations under the agreement are outlined in the following clauses:
 - The purpose of the agreement
 - A description of the agreement's terms
 - The obligations of each party to carry out the agreement
 - Miscellaneous clauses relating to choice of law, jurisdiction, waiver of jury trial, costs and attorney's fees, notices, assignment, amendments, and counterparts.
- A block of text containing your signatures, the date, and the words "Acknowledged and Agreed" after it.
 
When ought one to use letters of understanding or MOUs?
Not all expensive transactions call for a contract or MOU. As an illustration, if you buy a pricey original piece of art at an art market, you'll pay the agreed-upon amount, leave with the painting and a receipt for your purchase, and you won't need any more paperwork.

However, suppose the piece of art you want to purchase has a sold sticker on it and the dealer tells you that the gallery has another work by the same artist that is similar. The dealer informs you that although the gallery intends to put the artwork up for auction, it will be held so you have time to view and make up your mind about buying it.

You should likely draft a letter of agreement or an MOU in this circumstance that contains the following:
- A description of the piece that includes the creator, its dimensions, and other information
- A declaration granting you the right to buy the artwork for the agreed-upon price
- The required deposit
- The deadline by which you must complete the purchase, and the dealer's assurance that it won't be put up for auction or for sale until that date has passed
- Your right to decline to complete the purchase for any reason (in the event that you can't make it to the gallery by the deadline or find another painting you like better), and the dealer's assurance that, if you do decline, they will return your deposit in full.
 
Who drafts the MOU or contract?
A letter of agreement or MOU may be written by either side. Typically, the work goes to the party that requests a written agreement, the side that wants to control the terms of the agreement the most, or the side that makes an offer. Given that you are the one making the offer to purchase the painting and putting down the deposit in the aforementioned artwork example, it makes sense for you to compose the letter. Additionally, it allows you greater control over the particular conditions you want to be included in the letter or MOU.

You can sign the letter of agreement or memorandum of understanding separately or jointly, but it's a good idea for each participant to have a completely signed copy for their records.
 
Do Memorandums of Understanding and Agreement Always bind the Parties?
How to write either document in a way that is legally binding was covered in this article. However, you can write a nonbinding letter or MOU if you're using it to document ongoing discussions with the intention of finalizing the details later; if you plan to execute a formal contract with a lawyer later and are still considering your options; or if you're using it to record ongoing discussions with the intention of finalizing the details later. Make careful to declare in very explicit terms that the agreement or MOU isn't legally binding. This language could be described as follows: "My signature does not reflect my intention to be bound by the preceding terms; my signature indicates that the foregoing are only preliminary considerations."
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On the other side, you can be sent a letter or MOU without any indication of its legal force. Don't let your carelessness land you in hot water. Make sure to include a declaration to that effect before signing the agreement if you don't want to be held to its terms. And if you do want the agreement to be legally binding, be sure to include language that makes the parties' intentions explicit, such as the phrase indicated above.


If you have any questions about this article or similar matters, please contact our office, the Law Office of Yoel Molina, P.A., at fd@molawoffice.com or 305-548-5020, option 1