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Memorandums of Understanding

MOU picWhen a buyer and seller want to move forward with a part of an agreement but a finalized contract has not been signed, they will commonly use a Memorandum of Understanding (MOU). The MOU sets forth the mutually agreed upon expectations between the parties and provides each side with a level of comfort that they can proceed with certain actions to be covered in the finalized agreement. For instance, if the supplier needs to buy raw materials in order to accomplish the parties’ common objective, the MOU can be used to provide the supplier the comfort needed to move forward.

You might be surprised to learn that MOU’s are typically not legally binding on the parties and they do not involve an exchange of money. The MOU is a very simple document that contains fewer details than a formal contract. In fact, the MOU falls somewhere between a handshake deal and a finalized, written contract. The MOU can outline the guidelines for each party as they take steps to contribute their effort, time or resources toward their common goal.

It is critical when negotiating a MOU that both parties understand that it is not legally binding. There may be certain provisions in the MOU that are binding and these provisions should be clearly indicated as such. For example, in bold letters the MOU could state that the “following provisions shall be legally binding on the parties hereto, while the other provisions begin with a statement that the “following provisions shall be non-binding.”

Most parties do not dissect and analyze the MOU as strictly as they do a formal contract. Thus, you may be able to use this to your advantage. If you are strategic in your negotiation of the binding and non-binding clauses, it can help you be one step further along when it is time to negotiate the final agreement. Use the MOU to gain leverage, especially in the binding provisions, and make it easier on yourself to get the deal you want in the final contract.

The Swenson Law Firm is located in Sacramento County and we proudly serve businesses of all sizes from all over the State of California. Contact us today to learn more about how we can assist you with matters such as trademarks, defending lawsuits, business formation, contract negotiations, hiring employees, and protecting your intellectual property. With our years of complex business trial and litigation experience, we are an effective, efficient and affordable choice in representing you at the bargaining table and in the courtroom.

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