A landowner and entrepreneurs signed a short three-page document headed “memorandum of understanding” (MOU) stating that an elaborated contract containing material commercial conditions will be signed within 60 days. An elaborated contract was never signed but the entrepreneurs sought to see the MOU as a binding one.
The Court rejected the claim and held that an MOU may in certain circumstances be binding but only if it fulfills the requirements of intent (to enter into agreement) and specificity (enumeration of the material conditions of the agreement). For this purpose, the Court will review whether the MOU includes, for example, the names of the parties, the nature of the deal, the price and terms of payment and any other essential detail without which the transaction does not exist. In addition, where the parties stipulated a period of time for review of the transaction and conduct due diligence, this teaches that the MOU is not binding. Here, because no binding agreement was executed and because a period to review the feasibility of the agreement was set in the MOU, it was held that the MOU is not binding.