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The Legal Effect of Documenting Contractual Arrangements through a Memorandum of Understanding in Nigeria: Much Ado about Nothing?

– Nelson Onuoha

Introduction

Recently, concerns have been raised about whether capturing contractual or commercial arrangements in a document titled “Memorandum of Understanding” (“MoU”) would create on parties binding obligations capable of being enforced upon breach. This brief piece seeks to address this commercial conundrum in the simplest and shortest way possible.

Is an MoU capable of creating a Binding Contract in Nigeria?

To appropriately answer this poser, it is pertinent to explore the elements that make up a valid and binding contract in Nigeria. Under Nigerian Contract law, certain elements must be present in an accord or arrangement for it to constitute a binding and enforceable contract. These elements are as follows:

1. An Offer: For a Contract to be validly created between two or more parties, there must be a proposal of terms presented by one or more of the parties for the other to accede to. This proposal is referred to as an Offer and it must be positive, direct and unambiguous so that the party or parties to whom it is presented are capable of understanding the terms proposed to them and therefore capable of accepting them.

2. Acceptance: this is where the party or parties to whom an offer has been made agrees to or accedes to that offer. Upon this agreement, that party is deemed to have accepted the terms proposed and agrees to be bound or obligated by them. Acceptance must be unequivocal; there must be a plain indication of concurrence with the terms of the offer.

3. Consideration: This simply means what one party is giving or has agreed to give in return for what the other party is giving or has agreed to give. For instance, in a sale of goods contract; the purchase price a buyer is paying is his consideration in return for the goods the seller is transferring. The purchase price is the buyer’s consideration while the goods being transferred are the Seller’s consideration.

Consideration need not always be monetary or indeed tangible. It can be a forbearance, an undertaking or whatever valuable and adequate recompense in exchange for what the other party is offering. But Consideration must not be vague; it must be clearly ascertainable from the parties’ agreement.

4. Capacity to Contract: Under Nigerian law, save for some exceptions, only persons who are of contractual age and mental capacity are legally recognized as able to enter into a valid contract. Except for some variances in respective State Contract Laws, the contractual age in Nigeria is 21 years, any person below 21 is deemed a minor who is unable to legally enter into a contract for himself/herself except through his/her guardian or next friend who is of contractual age.

5. Intention to enter into legal relations: It must be clear from the parties’ agreement that they intend to be bound by the terms of the agreement either immediately, at a certain date or upon the occurrence of a contingency or event. Furthermore, a mere social or domestic arrangement may not pass for a valid contract if it is not clear that the parties intended to be obligated by the terms of their arrangement.

Where all of the foregoing elements are present in any arrangement, written or unwritten, same amounts to a valid contract which is binding on the parties and enforceable[1] (Orient Bank of Nigeria Plc v. Bilante International Ltd (1997) 8 NWLR (Pt. 515) 37 at 76; Ojo v. ABT Associates Incorporated & Anor (2014) LPELR-22860(CA) )

Thus, where parties enter into any arrangement in which all the foregoing elements are present and they decide to document this arrangement and tag or title the documentation an MoU or any other appellation whatsoever, it does not change the character of that arrangement as it remains a valid and binding contract. Once all the elements of a valid contract are present in a transaction it suffices as a valid and binding contract under Nigerian law irrespective of what the parties chose to name or call the transaction.

Many non-lawyers always bring up the bother that from their search on google, they read legal articles wherein it was opined that MoUs do not create binding and enforceable contracts in Nigeria. This is very incorrect. Perhaps these articles misconceived the decision of the Nigerian Supreme Court in BPS CONSTRUCTION & ENGINEERING COMPANY LIMITED v. FEDERAL CAPITAL DEVELOPMENT AUTHORITY (2017) LPELR-42516(SC).

In that case, a party had entered into an MoU with another party wherein both parties stated that the terms of the MoU would be “subject to contract“. Now this means that the terms of the MoU would only become binding on the parties when they execute a formal contract. The Supreme Court, therefore, held that given the manner in which the MoU, in that case, was couched, same did not create a binding and enforceable contract between the parties as the parties clearly intended only to be bound by its terms upon subsequently executing a formal contract which they never did. The “subject to contract” feature in the MoU in that case clearly excluded the required contractual element of  “Intention to enter into legal relations” as discussed above.

Hence, it is clear that the Supreme Court’s decision was premised on the facts of that case, principally with regard to the peculiar terms of that particular MoU which was in dispute between the parties in that case. The Supreme Court did not in any way make any blanket decision or one-size-fits-all pronouncement that an MoU cannot create a binding and enforceable contract or agreement.

Indeed, under Nigerian Law, a pronouncement or decision of a Court in once case can only be relied on in the context of the peculiar facts and law that were considered in that case[2]

A Court’s decision in one case cannot be stretched across the board to apply to other cases with dissimilar or different facts. An earlier decision of a superior court will only bind that court and the courts below it in a subsequent case if the facts and law which informed the earlier decision are the same or similar to those in the subsequent case. Where the facts which are to inform the decision in the subsequent case differ from those which informed the court’s earlier decision, the earlier decision cannot serve as a precedent for determining the subsequent case[3]

Therefore, where the parties express their intention to be bound by the terms of an MoU and all of the other elements of a valid contract are present, the terms of the MoU will create a valid, binding and enforceable contract; the decision of the Supreme Court in BPS Construction & Engineering Ltd’s case would not be applicable.

Conclusion

Under Nigerian Law, parties are given the wide latitude to contract as they deem fit in so far as same is done within the bounds of the law. Parties are therefore free to call/tag their contractual arrangement whatever name they so please provided that the arrangement comprises all the elements of a valid contract under Nigerian Law. Accordingly, where the contractual or commercial arrangement is documented in an MoU fulfills the 5 contractual requirements discussed above, it creates a valid, binding and Contract/Agreement in Nigeria; it is that simple.


[1] Orient Bank of Nigeria Plc v. Bilante International Ltd (1997) 8 NWLR (Pt. 515) 37 at 76; Ojo v. ABT Associates Incorporated & Anor (2014) LPELR-22860(CA)

[2] Emeka v. Okadigbo (2012) 18 NWLR (Pt. 1331) 55 at 95 para. H; Interdrill (Nig.) Ltd. v. U.B.A. Plc (2017) 13 NWLR (Pt. 1581) 52 at 66; Akeredolu v. Abraham (2018) LPELR-44067 at p. 34 (SC).

[3] Godwin Ugwuanyi v. NICON Insurance Plc (2013) 11 NWLR (Pt.1366) 546 at 604 paras. C-D, Dangtoe v. Civil Service Commission, Plateau State (2001) 9 NWLR (Pt. 717) 132 at 155, para. G.

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