Memorandum

Concept and Legal Nature of the Memorandum

The Term Memorandum derives from Latin and means “that which is to be remembered.” In a legal context, a memorandum generally refers to a written, often informal, summary of facts, intentions, declarations of will, or agreements. In many cases, it serves as the basis for formal contracts, minutes, or documentation of negotiation statuses. The specific legal classification of a memorandum depends on the respective context, its design, and the purpose of the record.

Memoranda are used in various areas of law—such as corporate law, contract law, international law, and public law. The following sections provide a detailed presentation of the legal aspects, types, and significance of a memorandum within the respective legal fields.

Forms and Functions of a Memorandum

Memorandum of Understanding (MoU)

Ein Memorandum of Understanding (abbreviated: MoU) is a widely used form of memorandum in international parlance. It is a written declaration of intent in which at least two parties state their shared objectives and the intentions they have regarding a collaboration.

Legal Bindingness of an MoU

The legal bindingness of an MoU must be determined on a case-by-case basis, considering its content, wording, and conclusions drawn. An MoU can

represent a non-binding declaration of intent,
include partially binding provisions (e.g., confidentiality, exclusivity), or
if the requirements of Section 145 BGB or international law are met, be regarded as a legally binding contract.

The actual binding effect depends primarily on the subjective intent of the parties and the chosen wording.

Function and Significance

An MoU often serves as the basis for later detailed negotiations and can replace or supplement preliminary agreements (such as a Letter of Intent). In practice, the MoU mainly fulfills a coordinating, confidentiality-preserving, and declarative function.

Letter of Intent (LoI)

Der Letter of Intent (LoI) is similar in content to a memorandum and also contains declarations of intent regarding a desired contract conclusion. Both types of document serve similar functions and may be structured to be either non-binding or binding. The distinction between memorandum and LoI is primarily based on the stage of negotiations and the legal terms used, with the LoI typically being used at the outset of negotiations.

Memorandum in Corporate Law

In Anglo-American corporate law (e.g., under English law), the “Memorandum of Association” refers to the founding document of a corporation. It governs key aspects such as the company name, registered office, share capital, and provisional internal regulations. In Germany, the articles of association or partnership agreement represent a comparable regulation in content. However, the term “memorandum” is not traditionally used.

Memorandum in International Agreements and Treaties

Within the framework of intergovernmental relations, a memorandum is often the instrument for political or administrative agreements which are not intended to be legally binding under international law (“Gentleman’s Agreement”). Nonetheless, such memoranda can gain legal significance by being referenced in subsequent treaties under international law or by being “transformed” into national law.

Memorandum in Administrative and Contract Law

Memoranda are also found in national administrative law as records of informal understandings, for instance in the run-up to legislation or in cooperation agreements between authorities. In public procurement procedures, corporate mergers, or collaboration agreements, a memorandum is used as an instrument of documentation and as a basis for subsequent contract negotiations.

Legal Interpretation and Binding Effect of Memoranda

Interpretation under German Law

The interpretation of a memorandum is primarily governed by Sections 133, 157 BGB (ascertaining intent, contract interpretation). The decisive factors are the objective meaning of the statement, the discernible intention of the parties, and the accompanying circumstances. As legally non-binding declarations of intent, memoranda serve to prepare the parties for a future contract without already creating rights and obligations.

Binding Clauses and Special Interpretation Rules

Memoranda often expressly include clauses on non-bindingness or on the binding nature of particular sections (e.g., confidentiality provisions). If such provisions are absent, case law provides criteria according to which, in particular,

the complexity of the provisions,
the wording of obligations, and
the context of the negotiations

determine whether a legal intention to be bound exists.

Memorandum as a Preliminary Contract

If a memorandum is worded such that the essential terms of the contract are already definitively regulated, it may exceptionally constitute a preliminary contract, from which corresponding binding effects and claims for performance arise. In this case, an express or implied reference to the principal contracts to be concluded is particularly necessary.

Memorandum in Commercial Practice: Practical Relevance

In business and international trade, memoranda primarily serve to structure complex issues, inform parties about the fundamentals of cooperation, and create an initial legal foundation for potentially later, comprehensive contractual arrangements. In negotiation processes, they serve as records and “milestones” for the further development of future contracts.

Risks and Benefits

Risks

Uncertain Legal Bindingness: Unclear or ambiguous wording can create unintended binding effects.
Premature Performance Duties: A memorandum that is too detailed may be considered a preliminary contract.
Duty of Information: Included confidentiality agreements are binding and may trigger claims for damages in the event of breaches.

Benefits

Documentation of the negotiation status
Creation of a basis of trust
Structured approach to complex contract negotiations

Memorandum and Data Protection Law

Memoranda are particularly significant when they involve personal data or trade secrets. The handling and processing of data in the context of memoranda often require additional data protection safeguards and confidentiality clauses to comply with the requirements of the General Data Protection Regulation (GDPR) or other applicable data protection laws.

Summary

The memorandum is a legal document of versatile application, the legal significance of which depends largely on its content, context, and wording. It can be a non-binding declaration of intent or a (partially) binding preliminary agreement, and is used in various areas of law as an organizational and documentary instrument. The interpretation and effectiveness of memoranda always require a precise analysis of the circumstances of the specific case.

References

Schütte, Roland: “Absichtserklärungen (Letter of Intent, Memorandum of Understanding, Heads of Agreement) im deutschen Vertragsrecht”, NJW 2000, 842.
Langenbucher, Katja: “Recht der Unternehmensverträge”, 2nd edition, Munich 2018.
MüKoBGB/Busche, BGB § 145 Rn. 1 ff., 8th edition 2020.
Palandt, BGB, Vorb. v. § 145 Rn. 16, 82nd edition 2023.

Note: This article does not provide individual legal advice and represents an objective definition and legal explanation.

Frequently Asked Questions

What legal binding effect does a memorandum have?

In a legal context, a memorandum is generally understood as a document that summarizes the key points of a proposed agreement or negotiation result. As a rule, a memorandum itself does not have legally binding effect, as it is usually a declaration of intent (“Memorandum of Understanding”, MoU for short). However, legal bindingness depends on how the document is structured—a legal obligation can arise if it is expressly determined that certain clauses are already legally binding (e.g., confidentiality or exclusivity provisions). Lacking such characterization, courts in Germany usually assume that the memorandum merely serves as a basis for later, detailed, and binding contracts. In international matters, the precise wording in the document (such as “subject to contract” or “legally binding”) also plays a significant role in its classification under the respective legal system.

Does a memorandum have to comply with specific form requirements?

Memoranda are generally not subject to any special form requirements under German law, unless they involve contracts or individual declarations of intent that are subject to a statutory form requirement (e.g., notarization for real estate transactions under Section 311b BGB). In practice, memoranda are usually prepared in writing to avoid later misunderstandings and to provide proof of the points discussed. In international legal transactions, national form requirements may play a role, particularly for binding sections. For complex transactions, it is advisable to have a legal review as to whether important content requires a particular form due to its significance; for instance, if it could be seen as a preliminary or even a principal contract.

Can agreements made in a memorandum violate statutory prohibitions?

Yes, even within the scope of a memorandum, the agreements reached or recorded intentions may—depending on their structure—violate mandatory legal provisions or prohibitions (e.g., Section 134 BGB: illegality, Section 138 BGB: immorality). Some points agreed upon in a memorandum—such as violations of antitrust law, evasion of labor laws or violations of confidentiality rules—can already have legal consequences at the stage of a declaration of intent. In such cases, the memorandum may be void or even result in significant fines and claims for damages. Therefore, particularly in far-reaching economic projects or corporate transactions, legal review is essential.

How does a Memorandum of Understanding (MoU) differ from a preliminary contract?

In a legal context, the distinction between a Memorandum of Understanding (MoU) and a preliminary contract is decisive: Whereas an MoU is usually only a declaration of intent without immediate legal binding effect, a preliminary contract already binds the parties to conclude a principal contract under certain conditions. The preliminary contract constitutes a contract in the legal sense (so-called “obligation to contract”) and can be legally enforced. In the case of an MoU, it depends on whether and which binding clauses have been included; in general, however, MoUs serve merely for coordination and documentation of negotiation statuses, not for creating legal obligations.

Who is authorized to represent the parties when concluding a memorandum?

The authority of representation when concluding a memorandum is governed by the general provisions of civil law, especially Sections 164 et seq. BGB. If a natural person is acting, the conclusion is either made in their own name or as a representative, provided that an appropriate power of attorney is available. In the case of legal entities or companies, the corporate representatives (managing director, board member, authorized signatory, etc.) must act within the scope of their authority. A lack or excess of authority can affect the validity of the memorandum and, in extreme cases, lead to liability claims (e.g., for “culpa in contrahendo”). Even informal documents such as memoranda require a careful review to ensure that the signing person is actually authorized to act on behalf of the party.

What legal risks exist when drafting a memorandum?

Drafting a memorandum entails several risks: If non-bindingness is not clearly communicated, a court may nevertheless find a legal binding effect in the event of a dispute, especially if the structure and wording of the document suggest this (e.g., definitive commitments, detailed service descriptions). In addition, confidentiality, exclusivity, or non-compete clauses already included in the memorandum may create legal obligations. Unclear or contradictory wording carries the risk of misinterpretation or subsequent conflicts, particularly in international settings with different legal traditions. Furthermore, the memorandum may infringe the rights of third parties or violate statutory prohibitions and general principles of business. Therefore, legal review is always recommended, especially in cross-border matters and complex commercial projects.