Massachusetts court: Does a MOU constitute an enforceable contract?

A memorandum of understanding can be a legally enforceable document in certain situations, but not always.

Land Court Judge Karyn F. Scheier recently heard a case questioning whether or not a "memorandum of understanding" could constitute an enforceable contract between the parties for the sale of property. Essentially, a memorandum of understanding ("MOU") is a legal document that is executed by and between two parties with the understanding that it will form the basis of a future, formal contract. A recent article in Investopedia discussed the nature of the MOUs, noting they are generally viewed as far more binding than a handshake, but without the same legal weight as a formal contract. This grey area can, and has, led to litigation.

Facts of the case: Slover, et al. v. Carpenter, et al.

The Land Court case began with the rental of a 5,000 square foot home located on Main Street in Nantucket by the plaintiffs Katherine Slover and her husband. The couple was renting the property from the woman’s uncle and mother. The mother, Josephine Carpenter, owned the property in common with her brother and had developed a rental agreement with the daughter. The agreement spanned from 2000 to 2011 and provided that in exchange for use of the property and personal possessions therein, the couple would pay $48,000 annually to the owners in rent.

In 2010, Mrs. Slover and her husband proposed a new lease which was denied. Although the proposed lease was denied and the previous lease was not renewed, the plaintiffs continued to occupy the property. During this time, Mrs. Carpenter began to discuss gifting the property to Mrs. Slover. In 2013, the Carpenter’s family attorney emailed Mrs. Slover stating that the email included an attached agreement (the MOU) approved by Carpenter and the Slovers. The MOU stated that the Slovers would purchase the brother’s half-interest in the property and that Carpenter would gift her share to the Slovers. This document was not signed by Carpenter.

A recent publication in Massachusetts Layers Weekly discussed the case, noting that there were two primary reasons the MOU should not stand as an enforceable document. The first is the lack of a proper signature. The second is the fact that both parties continued to act as if a final contract was not yet agreed upon. This was supported by the presence of continued and ongoing negotiations.

Ultimately, Judge Scheier stated that although MOUs contemplating future, more formal contracts can be legally upheld under certain circumstances, "an agreement to enter into a contract which leaves the terms of that contract for future negotiation is too indefinite to be enforced." This fact, in combination with the ability of any giftor to change his or her mind before the gift is conveyed, resulted in the finding that the MOU was not enforceable.

Lessons from the case

This case provides a number of lessons for those in Massachusetts that find themselves negotiating property conveyances, namely that these transactions are complex and that what may appear to be a non-binding proposal may turn out to be an enforceable contract. As a result, it is wise for those in these situations to seek the legal counsel of an experienced real estate lawyer. Aceto Bonner & Prager can review the details of the situation and any proposed transaction, and discuss the legal options that are available, working to better ensure your interests are protected.