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Is an MOU Legally Binding? How to Tell

5 min readFLAT LAW FIRM
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Is an MOU Legally Binding? Distinguishing Memoranda of Understanding from Contracts

Two sides sign an MOU in high spirits. Six months later one walks away; the other claims damages "because we signed an MOU." The withdrawing side replies: "An MOU is just a memorandum, not a contract." Who is right? The answer lies not in the name "MOU" but in the content inside — where most MOU disputes originate.

Contents

1. The title does not decide: Civil Code principles

Under the 2015 Civil Code:

  • Article 117 sets validity conditions for civil transactions: capacity; full voluntariness; lawful purpose and content; compliant form.
  • Article 119 governs transaction forms.
  • Article 385 defines a contract as the parties' agreement to establish, modify, or terminate civil rights and obligations.

Common thread: no provision says "a document titled MOU is not a contract." Courts look at substantive content and party intent, not headings. A document called "Memorandum of Understanding" that fully sets rights and obligations (price, goods, timelines, penalties) can well be treated as a contract.

2. When an MOU is in substance a contract

An MOU becomes a (fully binding) contract when its content meets contractual elements:

  • Identifies the subject matter (specific goods, services, project);
  • Sets specific rights and obligations (who does what, when, at what price);
  • Shows binding intent — commitment language ("shall," "must," "undertakes") rather than aspirational language ("envisaged," "may," "to consider").

Conversely, an MOU recording only intent, negotiation principles, and preconditions (due diligence, internal approvals) usually creates no obligation to execute the main deal.

3. Clauses usually binding on their own

Even where the MOU as a whole is non-binding, some clauses bind independently — common practice parties often design deliberately:

  1. Confidentiality: negotiation information kept secret — binding from MOU signature.
  2. Exclusivity: one side undertakes not to negotiate with third parties for a set period.
  3. Costs: each side bears its own negotiation costs; or specific cost allocation.
  4. Governing law and dispute resolution: choice of law and forum/arbitration for disputes arising from the MOU itself.
  5. MOU duration and termination conditions.

So "MOUs are non-binding" is half-true — true for the main-deal obligation, false for confidentiality and exclusivity clauses.

4. How to keep an MOU safely non-binding

If parties genuinely want a non-binding MOU (except designated clauses):

  • State expressly: "This memorandum creates no legally binding obligations, except Articles [confidentiality], [costs]…";
  • Make the definitive contract conditional on negotiation outcomes, due diligence, and internal approvals;
  • Stay consistent throughout: you cannot declare "non-binding" while stipulating a "10% penalty for not signing the definitive contract" — that penalty is itself binding and contradicts the declaration.

5. Common MOU traps

  1. Commitment language inside a "non-binding" text: "shall supply" and "undertakes to purchase" appearing in a declared non-binding MOU — courts may rely on them to find binding intent.
  2. Part performance: one side already delivered/paid deposits under the MOU — performance is strong evidence of binding intent.
  3. Over-detailed MOUs: the more detail on price, volume, schedules, penalties — the more contract-like.
  4. No designation of binding clauses: in disputes, each side interprets self-servingly.

6. MOUs with Chinese partners: special notes

  • Prevailing language: in Vietnamese–Chinese bilingual versions, state which prevails on conflict.
  • Company chop: the Chinese side places great weight on the company seal — an MOU without chop may be viewed by them as unofficial, though Vietnamese law does not require sealing.
  • Signatory authority: verify the signatory's authority — avoid "the signer could not represent the company."
  • Binding clauses should choose arbitration for smoother cross-border enforcement.

Term sheets in fundraising and M&A. In funding rounds and acquisitions, MOUs (usually called term sheets) run highly detailed: valuation, shareholding ratios, preferences, conditions precedent. The more detailed, the higher the risk of being treated as a contract — especially where one side has partly performed (deposits transferred, costly diligence begun). Best practice: state the term sheet is non-binding except confidentiality, exclusivity, and costs — and sign a standalone NDA from the outset rather than relying on the MOU's confidentiality clause.

7. FAQs

Q: After signing an MOU, must I sign the definitive contract?

A: It depends on the MOU's content. If it only records cooperation intent and negotiation principles without committing to a definitive contract, no signing obligation arises. But clauses on good-faith negotiation, exclusivity, or withdrawal penalties can bind — even in a document titled "MOU".

Q: Which MOU clauses are usually legally binding?

A: Clauses commonly treated as independently binding: confidentiality, exclusivity, costs (each party bears its own negotiation costs), governing law, and dispute resolution. Substantive deal terms (price, volume, timelines) usually do not bind until the definitive contract is signed.

Q: How to make sure an MOU is non-binding?

A: State expressly: this document creates no legally binding obligations except the specifically listed clauses (confidentiality, costs…); signing the definitive contract depends on further negotiation and approvals. But stay consistent — you cannot declare "non-binding" while imposing a penalty for not signing.

Q: What is special about MOUs with Chinese partners?

A: Beyond content: which language prevails in Vietnamese–Chinese bilingual versions; governing law and dispute resolution for the binding clauses (confidentiality, exclusivity); and authorized signatures/seals — the Chinese side places great weight on the company chop.

8. When to work with a lawyer

Work with a lawyer when: preparing an MOU for an important deal and needing clarity on which clauses bind; disputes arise from an MOU (walkaway, confidentiality/exclusivity breach); or signing MOUs with foreign partners needing language, governing-law, and dispute-resolution clauses. FLAT Law Firm advises on drafting and commercial-contract disputes — hotline 0988424851.

References

  • 2015 Civil Code (No. 91/2015/QH13), effective 1/1/2017.
  • Cross-checked via thuvienphapluat.vn as of drafting (28/9/2026).

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