In general, memorandum of understanding (MOU) is a record or document containing agreements, understandings, commitments, guidelines and principles which have been made by two or more natural or legal persons to govern their cooperation, engagements and transactions.
Under the principle of private autonomy in Article 3 of the Civil Code of Cambodia, whether MOU is binding depends on the intention or determination of the parties thereto. Accordingly, MOU is either binding or non-binding agreement. We can say whether MOU is a binding or non-binding document by reviewing the content of the MOU itself. That is why, MOU should be carefully drafted to truly reflect the real intention or determination of the parties thereto to avoid any contrary interpretation or dispute.
In practice, business organizations, non-profit organizations including associations and non-governmental organizations, governmental organizations tend to use MOU for either binding or non-binding document. Mostly, MOU is used for transactions, engagements, cooperation or arrangements in which parties do not intend to bind themselves to any obligation. Furthermore, there are cases where parties enter into non-binding MOU before they enter into a binding agreement.
Regarding the content of the MOU, in the cases where the parties do not wish to bind themselves to the MOU, they often include the clause on legality and effect of the MOU. They would clearly state that the provisions or clauses of their MOU are not intended to create any legal or contractual obligation and that MOU is just basis for their further discussion and consideration for the official and binding agreement in the future. The binding agreement will be concluded in another separate contract or document if the parties can reach agreements after conclusion of feasibility study, due diligence and negotiation. The language used in the MOU should be carefully selected to avoid any wordings which cause the MOU to be deemed as binding agreement.
There are also cases where the parties intend to bind themselves only to certain obligations, provisions or clauses of the MOU. For example, the parties may agree to bind themselves to the confidentiality clause in the MOU since they wish to protect their confidential information from authorized disclosure or use by the parties during the process of negotiation, due diligence or during the implementation of the MOU. Other than confidentiality clause, there are cases where the parties also agree to bind themselves to other clauses as deemed necessary, such as clauses on governing laws and dispute forum.
If the parties fail to mention about clauses that this MOU is not binding, the legality and effect of MOU depends on the examination and judgement whether the parties have agreed to enter into binding agreement. Under the Civil Code of Cambodia, in particular Article 311, a contract refers to action of two or more persons who have agreed to create, revise and cancel the obligation. Pursuant to Article 308 of the Civil Code, obligation is legal relation that binds two or more persons by requiring one of the parties (obligor) to perform certain obligations towards the other party (obligee). Accordingly, if the content of MOU details rights and obligations of the parties thereto, we can say that the MOU is a binding agreement. (Read more What is a contract?)
In conclusion, MOU is either binding or non-binding document depending upon the intention of the parties. Their intention should be clearly stated in the MOU.
This text is not legal advice.