What is Memorandum of Agreement
A Memorandum of Agreement (MOA) is a formal instrument embodying the goodwill, intent and opinion of the parties to it. An MOA is usually less comprehensive than a contract and is used to signify a convergence of interest between the cooperating parties, each of which is deemed free to do so independently. A MOA does not create legally enforceable duties upon the parties, as is the case with a contract; however, a MOA may be deemed a contract for the purpose of specifically enforcing a provision of the MOA. A MOA, therefore, does not usually confer upon the parties any enforceable legal obligation and is usually just a non-binding "gentlemen’s agreement", although that is not necessarily required . An MOA is also known as a letter of intent, letter of understanding, letter of agreement, memorandum of understanding, memorandum of understanding, memorandum of negotiations, green paper and white paper.
A MOA is most commonly used in businesses to get the formalities between two or more parties out of the way before proceeding with the rest of the legal formalities in business. It acts as a handshake agreement or closed deal and can sometimes be legally binding. In many cases, a MOA is not regarded as a binding agreement. It usually describes the general idea of a complex project signed by two or more parties. Once signed, the MOA would be followed by a contract, if necessary.
What is a Contract
Over the years, the differences between a Memorandum of Agreement and a contract have become less distinct as parties have come to recognize the advantages of each document. To put it succinctly, both a Memorandum of Agreement and a contract are legally enforceable agreements entered into by two or more parties.
What exactly is a contract? A contract is a legally enforceable agreement between two or more individuals or entities, typically in the form of a written document. Contracts may be oral, written, or implied. In the United States, they are governed by the common law, with some aspects of contract law regulated by statute. State contract law varies from state to state but generally hinges on the following elements:
Contracts may be used in various contexts and in various ways. In commercial transactions, contracts may be used for sales, leases, credit, employment, and more. Together, a reach of contracts exists for virtually every transaction and industry. For example, a company may use a contract to protect its intellectual property, to formally arrange a joint venture, or to hire a consultant. Each industry has its own specialties and conventions when it comes to forming and enforcing contracts.
Differences Between MOA and Contract
In the world of formal agreements, a Memorandum of Agreement (MOA) is often confused with a contract. While both documents are used to outline an agreement between two parties, they serve different purposes and are treated distinctly in the eyes of the law. Essentially, an MOA is a written understanding between the parties, such as an agreement on a business relationship or a joint research project. A contract, on the other hand, is a more technical document that is legally enforceable in a court of law. It is a binding legal agreement that is usually created in response to the completion of a task or project.
Typically, a Memorandum of Agreement is a mutual understanding between parties about their intentions. For example, a landowner and a company involved in the clearing of trees on the property may draft a MOA that outlines the conditions of the clearing, any required restoration, and so on. A MOA is simply a way of keeping in mind everything that was agreed upon by the parties.
However, if a breach of the agreement were to take place, it is not legally enforceable. Because it lacks formal legal implications, the drafting and structure of a MOA is relatively free form. It may even be verbal. There are no regulations or strict guidelines for a MOA.
Because a MOA is a basic understanding and is not legally binding, it is not required for tax and accounting purposes. This is because there is no evidence of financing, partnerships, etc. that is associated with a MOA.
A contract, on the other hand, is a signed agreement outlining the details of an agreement made between two parties. It is a legally binding document governed by the law. Contracts can be made through sale of goods, purchases, leases, services, and more. It is a more formal document than the MOA. For example, when you rent your apartment, you’ll make a somewhat complex MOA that will lay out the conditions of your stay and your relationship with your landlord.
Agreements made via a contract are enforceable in court, and can be used to hold the other party accountable. The agreement and details of the contract may or may not be confidential (the details of the agreement might be required by shareholders, 3rd parties, etc.), but it is a legal document that is enforceable in court. For example, job offers are legally binding contracts.
If a breach of the contract were to occur, a signed contract can be used to hold the offending party accountable in court. It is also used to determine compensation and damages.
The drafting and structure of a contract is more formal than a MOA. In many cases, it requires full name signatures, agreement of witnesses, notary public, and stamps of the registering authority.
Unlike a MOA, a contract is required for tax and accounting purposes. The contract outlines the conditions of the agreement, any payments, shares, etc. This is important for determining taxes, benefits, etc.
When to Use MOA vs Contract
When time, effort, or cost are of a concern, an Memorandum of Agreement can be an appropriate and convenient choice for an agreement. In situations where a simple understanding is all that is necessary, a MOA can relieve the burden of creating an involved agreement, which can take a long amount of time and effort to draft. A MOA provides the information without being as detailed. This is especially true if there seems to be an expectation for more regulation on the parties and circumstances involved. An MOA can also be the best choice when there is not enough information to draw a definitive conclusion about an agreement.
An MOA is usually acceptable when the parties involved consider the agreement much less formal than the terms of a contract. They may perceive the situation as more flexible, so an MOA could be a suitable option in this case. If either party has the perception that probably a contract is not needed, a MOA may be the right choice.
A MOA may also be used when the subject matter is very limited. Situations where a MOA is commonly used can include agreements between educational institutions and a subsequent research study. It can also be used as a type of pre-contract to get the terms of the agreement established quickly and simply, and avoid other costly or time-consuming issues.
Situations where a MOA might not be used can occur when the parties prefer a more formal approach to the matter at hand. If the subject of the agreement is going to be scrutinized by the public or has some sort of ongoing regulation due to a government entity or the like, a standard contract may be the most suitable way to go. If the agreement is a complicated one that requires the review of what actions will take place, the relative worth of the parties including assets and trade secrets, and other financial components, a MOA may be seen as too electronic for the business and its needs. Instead, a full-fledged agreement with terms and obligations may work better for the parties.
Generally, any time that a MOA is used, it is understood that the parties should still follow through and create a contract, if necessary, for the MOA to take effect. In cases where the agreement is a scientific one or a government matter, an MOA might be best viewed as a funding and monitoring tool.
Legal Advisories and Notes
It is important to keep in mind that the absence of agreement terms that signal a clear and particular agreement of the parties can have a drastic impact upon the enforceability of the agreement with respect to third parties. Entanglements created by ambiguities in the agreement can create traps for the unwary as the agreement becomes subject to interpretation, and the concern over these entanglements becomes more pronounced in an MOA situation because of the Vague Planning Doctrine and its possible application. When entering into an MOA with a County, public agency staff will need to alert members of an oversight board, regional officials (and potentially other public agency officials) that the agreement has been entered into.
In negotiating, preparing, and entering into any agreement , it is critical to recognize the legal ramifications of its contents. The CTC has rejected funding applications that were not in compliance with the requirements of PRCs 50462(a) and 51162(b) (more on that below). Even the passage of a minor piece of legislation can have a significant impact on funding and financing agreements with the State under some circumstances. Additional considerations regarding the legal standards applicable to MOAs include: MOAs are issued by the CTC at its discretion; MOUs are less formal written agreements and so are not approved by the CTC (also see footnote 56 of the Guidelines); and MOAs are not generally used for larger construction projects, which typically take the form of financing agreements with the State (subject to different requirements); also refer to disclosure requirements for awards in the Act, and other restrictions on disclosures where applicable and when applicable.
Common Misunderstandings
There are a number of myths and misconceptions that often arise in conversations about MOAs and contracts. The first and foremost is that an MOA and a contract can be used interchangeably, when in fact, they most definitely cannot. An MOA is not a contract; it is a separate, distinct document with its own necessary components. A contract should not include statements of relationship or intent. MOAs do. While there are some similarities between MOAs and contracts, there are also clear differences that illustrate their distinct purposes.
Like a contract, an MOA communicates the agreement between the parties, but it does so as an expression of goodwill and intent rather than as an enforceable agreement. An MOA is generally used to establish an informal agreement between parties regarding a common goal or objective, while a contract is a formal agreement that is legally binding. As such, DMEs and MOAs are not legally enforceable, because they lack the necessary mutual consideration that an MOA provides as a statement of intent, rather than an enforceable promise.
Another common misconception is that an MOA is a contract, and vice versa, is that of course one reads an MOA like a contract and can rely on it as a legally binding document. In actuality, you cannot rely on the DME or MOA to guarantee an outcome or a deal, because no party can be compelled to act as agreed. Instead, an MOA sets the foundation for future negotiations or steps toward a legally binding contract. Therefore, it is important to ensure that your MOA states all of the necessary terms to serve as the basis for a later contract, such as USDOL guidelines for apprenticeships, to avoid any misinterpretation of whether or not the document is legally binding.
Conclusion: Selecting the Right Document
As we’ve seen, there is a clear distinction between a Memorandum of Agreement and a Contract Neither is superior to the other; rather each serves different purposes. A Memorandum of Agreement is often more suited for less formal and legally binding agreements, while a Contract is ideal for those requiring structurally methodical and legally enforceable stipulations. When determining which type of document to draft , keep in mind the specific needs of the transaction. Some factors to consider may include the complexity of the parties involved, the risks of the deal, and the desired enforceability of the agreement. While the differences between these two documents are generally straightforward, it’s always recommended to consult a legal professional, especially when a deal has a particularly complicated structure or structure.
