The Enforceability of Memorandum of Understanding In Nigeria.

The Nature of an Memorandum of Understanding.

“Black’s Law Dictionary equates a Memorandum of Understanding to a Letter of Intent and defines it as:

“A written statement detailing the preliminary understanding of parties who plan to enter into a contract or some other agreement; a noncommittal writing preliminary to a contract”.

‘A memorandum of understanding is a type of agreement between two or more parties. It expresses a convergence of will between the parties, indicating an intended common line of action.’ Sourced from https//www.businessdictionary.com

‘Memorandum of Understanding is an agreement between two or more parties outlined in a formal document. It is not legally binding but signals the willingness of the parties to move forward with a contract.’ Sourced from https://www.investopedia.com

‘Memorandum of Understanding is a document that records the details of an agreement between two companies or organizations which has not yet been legally approved.’ Sourced from https://dictionary.cambridge.org

Considering the definition of MOU as contained in the Black’s Law Dictionary, the Supreme Court held in BPS Construction & Engineering Co. Ltd v. Federal Capital Development Authority SC. 293/2011 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. Thus, taking into consideration the elements of a valid contract, an MOU is merely a representation of the intention of the parties, subject to the execution of a formal agreement”.

Furthermore, in the case of Star Finance & Property Ltd. & Anor. v. Nigerian Deposit Insurance Corporation (2012) LPELR  8394 C.A., the Learned Justices of the Court of Appeal described an MOU as a document entered into by contracting parties to declare their intention to contract and to guide them subsequently when they are ready to sign a legally binding contract. According to the Learned Justices, the contents of an MOU serve to fix in memory the desire of the parties which is to serve as the basis for a future formal contract; as it is not the real agreement but a document guiding the future agreement, and its status is something less than a complete contract.”

Is an Memorandum of Understanding capable of creating a Binding Contract in Nigeria?

To appropriately answer this poser, it is pertinent to explore the elements that make up a valid and binding contract in Nigeria. Under Nigerian Contract law, certain elements must be present in an accord or arrangement for it to constitute a binding and enforceable contract. These elements are as follows:

1. An Offer: For a Contract to be validly created between two or more parties, there must be a proposal of terms presented by one or more of the parties for the other to accede to. This proposal is referred to as an Offer and it must be positive, direct and unambiguous so that the party or parties to whom it is presented are capable of understanding the terms proposed to them and therefore capable of accepting them.

2. Acceptance: this is where the party or parties to whom an offer has been made agrees to or accedes to that offer. Upon this agreement, that party is deemed to have accepted the terms proposed and agrees to be bound or obligated by them. Acceptance must be unequivocal; there must be a plain indication of concurrence with the terms of the offer.

3. Consideration: This simply means what one party is giving or has agreed to give in return for what the other party is giving or has agreed to give. For instance, in a sale of goods contract; the purchase price a buyer is paying is his consideration in return for the goods the seller is transferring. The purchase price is the buyer’s consideration while the goods being transferred are the Seller’s consideration.

Consideration need not always be monetary or indeed tangible. It can be forbearance, an undertaking or whatever valuable and adequate recompense in exchange for what the other party is offering. But Consideration must not be vague; it must be clearly ascertainable from the parties’ agreement.

4. Capacity to Contract: Under Nigerian law, save for some exceptions, only persons who are of contractual age and mental capacity are legally recognized as able to enter into a valid contract. Except for some variances in respective State Contract Laws, the contractual age in Nigeria is 21 years; any person below 21 is deemed a minor who is unable to legally enter into a contract for himself/herself except through his/her guardian or next friend who is of contractual age.

5. Intention to enter into legal relations: It must be clear from the parties’ agreement that they intend to be bound by the terms of the agreement either immediately, at a certain date or upon the occurrence of a contingency or event. Furthermore, a mere social or domestic arrangement may not pass for a valid contract if it is not clear that the parties intended to be obligated by the terms of their arrangement.

Where all of the foregoing elements are present in any arrangement, written or unwritten, same amounts to a valid contract which is binding on the parties and enforceable (Orient Bank of Nigeria Plc v. Bilante International Ltd (1997) 8 NWLR (Pt. 515) 37 at 76; Ojo v. ABT Associates Incorporated & Anor (2014) LPELR-22860(CA) )

Iguh JSC, in the case of Alfotrin Ltd. V AG Federation & Ors (1996) 9 NWLR (PT. 475) 634 at 656 stated that for a contract to be enforceable, “there must be a concluded bargain which has settled all essential conditions that are necessary to be settled and leaves no vital term or condition unsettled”.

In the case of BPS Construction & Engineering Co. Ltd v. Federal Capital Development Authority (Supra), the Appellant and Respondent had executed an MOU for the provision of infrastructural facilities at designated locations. The MOU was made subject to signing a formal agreement by the parties, which was contemplated to occur within 14 days of the execution of the MOU. However, and before the execution of a formal agreement by the parties, the Appellant had incurred costs for the execution of the project based on the reliance on the promises, assurances and representations of the Respondent that a formal agreement will be executed in line with the MOU.

In determining if the MOU represented a binding and enforceable contract between the parties, the Supreme Court differentiated what constitutes a valid contract in contrast to an invitation to treat, and held that for a contract to be binding, it must contain the basic elements of offer, acceptance, consideration and capacity to contract or intention to create legal relationship, as opposed to an invitation to treat which is not an offer that can be accepted to lead to a contract.

Following from the above, it is clear that a Memorandum of Understanding is generally nonbinding and unenforceable. However, the courts will enforce a Memorandum of Understanding that contains all the requirements of a valid contract i.e. offer, acceptance, consideration and intention of the parties to be legally bound. Furthermore, in deciding its enforceability, the court will take into consideration, the intention of the parties which will be interpreted from the terms of the MOU and the conduct of the parties after its execution.

Conclusion

Under Nigerian Law, parties are given the wide latitude to contract as they deem fit in so far as same is done within the bounds of the law. Parties are therefore free to call/tag their contractual arrangement whatever name they so please provided that the arrangement comprises all the elements of a valid contract under Nigerian Law. Accordingly, where the contractual or commercial arrangement is documented in an MOU fulfills the 5 contractual requirements discussed above, it creates a valid, binding and Contract/Agreement in Nigeria; it is that simple.

REFERENCE:

1. https://www.mondaq.com/nigeria/contracts-and-commercial-law/757492/memorandum-of-understanding-mou–the-one-size-fits-all-document
2. https://sololaakpana.com/site/2021/01/04/the-legal-effect-of-documenting-contractual-arrangements-through-a-memorandum-of-understanding-in-nigeria-much-ado-about-nothing/

Caveat:

The information above is solely for educational and information purposes and is not meant to serve as legal advice.