Enforcement of a Memorandum of Understanding

In the last week of May 2023, Agripalm, a division of Premium Edible Oil Products Limited signed a Memorandum of Understanding (MoU) of ease of doing business with its host communities in Edo State. Also, Kwara state signed a Five Hundred Thousand Pounds (€500,000) MoU with a French
consulting firm, BRLingenierie (BRLi), to develop the livestock value chain in the state. While these are commendable efforts by state governments to ensure its policies are directed towards  strategies that guarantee food security, availability, and affordability of food to the citizens, here are a few things you need to know about an MoU.

Under the Nigerian Law, an MoU is regarded as an incomplete contract or Agreement, the Supreme Court in the case of BPS CONSTRUCTION & ENGINEERING CO. LTD V. FCDA held that from the definition of an MoU and Letter of Intent in Black’s Law Dictionary, 8th edition at page 1006, it is clear that a memorandum of understanding or letter of intent, merely sets down in writing what the parties intend will eventually form the basis of a formal contract between them. It speaks to the future happening of a more formal relationship between the parties and the steps each party needs to take to bring that intention to reality.

The Court of Appeal in HIGH PERFORMANCE DISTRIBUTION LTD. v. SAMSUNG ELECTRONICS COMPANY LTD & ANOR relying on BPS Construction & Engineering Co Ltd.’s case held that “…Of course, it is appreciated that a Memorandum of Understanding (M.O.U.), generally, is a prelude to contract, or letter of intent for parties to enter into a formal contract spelling out the basis for such relationship…” From the above judicial authorities, it can be deduced that a Memorandum of Understanding is not a complete contract or Agreement, it presupposes that it cannot be placed on the same pedestal with an agreement or a contract. The implication is that its content cannot be
enforced.

However, there are certain circumstances in which a Memorandum of Understanding will be binding on Parties. In ORAKA v. ORAKA & ANOR the Court of Appeal stated that an MoU is not binding as a contract but on the principles of estoppel since the Appellant has made a promise of intention to
enter into a contract. Where there is a show of intention which can be manifestly seen in the arrangement, and where either of the parties have performed his duty sequel to the understanding, then the court will look into the intention and may rule on the understanding in favour of the party that has performed his duty.

Other instances where an MoU can suffice and be binding include, Charitable Works, situations where entering into a contract is not in sight, where all the conditions of a valid contract is existent, (i.e., offer, acceptance, consideration, intention to be bound by the terms of the contract) and where the parties are at the preliminary stages of the understanding and seek to clear all ambiguities. However, where the parties are at the definitive stage of the understanding, an agreement is proper, except all the conditions of the contract are stated and it lacks any form of ambiguity, else, it will fail. To avoid ambiguities in interpretation, it is important that professional advice is sought before going into any contractual agreement, to ensure that proper documentation that is fit for the arrangement is drafted.