Query on Diff. between Agreement and MOU

Dear Anil,

The legal definition of a contract is: An agreement between two or more

persons that creates an obligation to or not to do a particular thing.

A contract is an agreement, enforceable by law, and this is the real test. As long as an agreement does not involve the law, it would fall outside the purview of a contract. However, once the law can be called upon to play a role in some capacity, the agreement, immediately, becomes a contract.  All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

Every promise and every set of promises forming the consideration for each other is an agreement. An agreement enforceable by law is a contract.

Consideration forms an essential part of an agreement without which the agreement is void. This is because, in the absence of consideration, there is no legal obligation formed between the parties and, therefore, in such a scenario, they are not bound by the terms of the agreement.

Consideration is nothing but the price paid by one party for the promise of the other. It can be in the nature of a positive act or the forbearance of a certain act. It can be past, present or future.

Most people use the two terms synonymously but, from a legal standpoint, there is an important difference. All contracts are agreements but all agreements are not contracts. Analytically put, this would mean that agreements are the genus of which contracts are the specie.

An agreement needs the following essentials:

1. A proposal/offer


2. An acceptance


3. A promise


4. A consideration for the promise

MOA stands for Memorandum of Agreement and MOU stands for Memorandum of Understanding. They are both used as written agreements between two parties. There is no established legal difference. The two terms are interchangeable. Because it contains the word agreement, and a contract is an agreement, some people believe that an MOA signifies a more significant commitment than an MOU. So if you are having difficulty with entering a partnership using an MOA, then see whether your potential partner wants to sign an MOU.

An MOU/MOA is like a contract, but it doesnt have to carry the same legal weight. That is because an agreement doesnt need to be intended as a legally enforceable arrangement, but a Contract always is intended that way.

However, an MOA can include any or all of a contracts terms and conditions. If it includes all of them, but is just titled an MOA, it can carry as much legal weight as a contract.

Valid contracts: There are five essential prerequisites for a valid contract:

• There should be a proposal and an acceptance.


• The consideration must be lawful. For example, one cannot enter into a valid contract for smuggling or for black marketing or selling goods above a government-controlled price.


• Both the parties must be competent to enter into the agreement. In other words, there should be no legal barrier like age or one of the parties being a non-authorized person, or of unsound mind.


• There must be a free consent of both parties. In other words, the consent shall not be by coercion or fraud or misrepresentation.


• The agreement should not expressly be declared to be void.

do not matters does not matter...................

As correctly pointed out by Shree, Lordd Chancellor Cairns observed as follows with regard to MOU. With regard to the Memorandum of Association is a character and defines the limitation of power  of a company to be established under the act. With regard to the Articles of Association those articles play a part subsidary to the Memorandum of Association.They accept the Memorandum of Association as the character of incorporation of the company, and so accepting it, the articles proceeds to define the duities,rights and power of the Governing body as between themselves and the company at large and the mode and form in which the business of the company is to be carried on, and the mode and form in which changes in the internal regulations of the company may, from time to tiome, be made. With regard to the memorandum of association, if you find anything that goes beyond that memorandum or is not warranted by it, the question  will arise whether that which is so done is ultra vires, not only of the directors of the company but of the company itself. With regard to the Articles of association, if you find anything which, still keeping within the Memorandum of association is a violation of article of association or in excess of them, the question will arise,whether that is anything more than an act ultra vires the directors,but not ultra vires the company.