What Constitutes a Memorandum of Agreement?
A memorandum of agreement (MOA) is a written agreement in which two or more parties agree to be bound to the terms and conditions expressed in the document. The idea behind the MOA is simple. The parties discuss the project, program, work or event that they intend to pursue and then the formalize their cooperation by reducing the discussion to a written agreement. The MOA is the essential agreed document, and can be signed by the parties to exhibit their solidarity on the decisions made in the agreement.
The MOA, unlike a contract, lacks sufficient parameters to be legally enforceable. When possible, it is generally understood that the MOA should be converted into a more formal agreement . The MOA is still a binding document that protects both parties in any future controversy. The MOA can be used for a temporary or long term relationship between parties.
If parties seek a contract to be legally binding, they must sign a written document that has the required provisions and have it notarized. Usually, the MOA is the precursor for an official agreement. Nonetheless, it is not compulsory for the MOA to have the legal components that establish a contract, because the document is not a formal contract. However, the parties should specify important details regarding the document.
Legal Basis for MOAs in the Philippines
In the Philippines, the legal framework for Memorandum of Agreement ("MOA") is primarily based on Civil Code provisions and local government code regulations. The provisions of the Civil Code govern the formation and enforcement of contracts, including MOAs, and are covered by Article 1318 which states that "there is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the contract which is established."
Article 1352 of the Civil Code provides that "by the contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves." This provision is the basis for special partnerships under Philippine jurisprudence. In this regard, Republic Act No. 6939 or "The Cooperative Code of the Philippines" defines a cooperative as an "association of persons with a common bond of interest who have voluntarily joined together to achieve a lawful common social, economic and cultural end by making equitable contributions to the capital" and regulates cooperatives.
Local Government Code Regulations may also apply to MOAs entered into between and among local government units. For instance, Section 33 of Republic Act No. 7160 or the Local Government Code provides that "Any province, city, municipality or barangay or combination thereof may enter into joint ventures with any of the following, the end in view of which shall be the improvement of basic services for national and local use: (a) Other provinces, cities, municipalities or barangays; (b) National government instrumentalities or government-owned or controlled corporations; (c) Non-governmental organizations; and (d) People’s organizations." Moreover, "The right to enter into joint ventures with each other shall likewise expressly be made in the local resource utilization and development plan."
MOAs may also be entered into between the National Government and one or more local government units in the Philippines. The Department of Education ("DepEd"), for instance, issued the Administrative Order 42 s. 2010 dated July 15, 2010 pursuant to Sections 7 and 8 of Republic Act No, 9155 otherwise known as the Governance of Basic Education Act of 2001, which provides that "It is imperative for the Department of Education to construct and maintain certain facilities in support of its school building program." In this regard, Section 30 of the Implementing Rules and Regulations of R.A. No. 9155 allows DepEd to pursue joint ventures with interested parties through a memorandum of agreement.
The Expanded Senior Citizens Act of 2010, Republic Act No. 9994, also encourages the participation of the senior citizens’ sector in government programs and services through the creation of "Senior Citizens Centers" located in each district in a city or municipality. Section 7(a) of the Implementing Rules and Regulations, however, requires the Department of Social Welfare and Development ("DSWD") to enter into MOAs with local government units for the creation of these centers.
Essential Elements of a MOA in the Philippines
Generally, a Memorandum of Agreement ("MOA") is nothing more than a contract between a duty bearer and a service provider with some minor differences such as that it is usually informal, generalized and non-exclusive and is usually formed without consideration, which is sometimes even accepted by the law on account of the public policy behind the agreement. In other words, an MOA is much, if not all, the same as a contract except that the parties to a MOA intend that the agreement will not be legally enforceable in court.
Recently, the Supreme Court has indicated that even when parties label an agreement in writing an MOA, it may, on the basis of its character and provisions, still constitute a contract. The rules governing memoranda of agreement are generally the same as those applicable to contracts. This means that the fundamental requirements of an enforceable contract, e.g., capacity of the contracting parties, consent of the contracting parties, a definite agreement as to the object and the cause/lawful object, must also be present in a memorandum of agreement.
In a properly drafted MOA, the following essential elements should be included:
- A clear and recognizable offer, acceptance or mutual assent to the terms of the agreement.
- The capacity of the parties to establish a contractual relation.
- A definite subject matter with respect to which the obligation of each party consists.
- Support or consideration.
Common Applications of MOAs in the Philippines
Within the business sector in the Philippines, businesses often use MOAs to establish agreements with other individuals or groups such as suppliers, contractors, sub-contractors, or even with other businesses. Some typical purposes for MOAs include to arrange the division of responsibilities among a group of businesses or to set out the details of how a business will be operated.
Government entities use MOAs with both other government agencies and private companies. Government entities often regulate a wide variety of enterprises, from exportation to importation. Government entities also work with private organizations to enforce various law provisions, such as environmental protection. MOAs are used to work out the roles and responsibilities of each party in such arrangements.
Non-profit enterprises in the Philippines also rely on MOAs to help establish various relationships with other organizations or individuals. Non-profits often use MOAs with sponsor organizations when instigating a new program; with funding organizations to establish how the funds they receive from the sponsor will be spent; and with other organizations to determine how two or more organizations will work together to fund or carry out a certain program.
Creating and Negotiating a MOA
A thorough understanding of the details involved in a Memorandum of Agreement in the Philippines will make it easier for business owners to apply terms and conditions to their specific purpose, in a way that best benefits both sides. Before beginning the negotiation process, it is important to make sure each party is on board, and communication is clear.
As with any agreement, the first step is communication with all parties prior to meeting to discuss the specifics of the Memorandum of Agreement. Each party should be aware of the basic framework to be followed – will it be a legal contract, or simply an informal letter agreeing to terms? Ensure complete disclosure from each party before moving forward.
When coming to an agreement, each side should listen closely to the proposed terms and refer to their original intentions as a guide for feedback. Be upfront about what will be needed from each party, as well as the accepted terms of the agreement . Approaching the document as you would an outlined business plan will allow for ease of facilitation.
It is important to include a "this agreement is not yet effective" clause so that each party is able to change and negotiate throughout the process. This should be the first outlined point in the agreement, as it will set the tone for the flexibility of the negotiation process.
It is not uncommon for one side to be demanding, or to expect more than they are willing to give. It is essential to hold onto expectations – there should be give and take on both sides of the agreement. If a request feels unfair to you or your team, it may be best to walk away.
It is also important to keep clear and consistent notes or documentation of negotiations so that when you arrive at the final version of the agreement, each party is able to answer questions, or refer to their previous offers in a clear and concise way. This will help you receive full and final agreement once the terms of the Memorandum of Agreement are finalized.
Potential Pitfalls to Consider
1. Legal Identity and Capacity:
Before entering into an MOA, it is essential to ensure that the parties have the legal capacity to contract. It is crucial to confirm that the parties are legally recognized entities, registered with the appropriate government agencies, and authorized to enter into contractual agreements.
2. Authority of Signatories:
The signatories of the MOA must be properly authorized to bind the respective parties. Companies, government agencies, and other organizations usually require a resolution from their governing body, authorizing a representative to enter into a contract on their behalf. Ensuring that the right person with the right authority to enter into a contract on behalf of the organization is critical in creating a binding agreement.
3. Ambiguity and Lack of Clarity:
An MOA should be as detailed and comprehensive as possible, outlining specific terms and conditions of the agreement. A poorly drafted or ambiguous MOA may result in future disputes among the parties. Thus, each party should ensure that they understand their rights and obligations under the MOA before signing.
4. Legal Risks and Compliance:
An MOA may give rise to a legal responsibility. Parties should be cautious about entering into an MOA that attempts to create legally binding obligations without complying with relevant laws, such as procurement laws, anti-trust laws, or industry-specific regulations. A breach of law associated with an MOA may lead to administrative or civil sanctions.
5. Dispute Resolution Clause:
It is advisable for an MOA to contain a dispute resolution clause to address any potential conflicts that may arise. The parties should consider specifying the mode of dispute resolution, such as negotiation, mediation, or arbitration, as well as the applicable law and venue for resolving disputes.
6. Changes in Circumstances:
Before entering into an MOA, the parties should consider what happens if circumstances change after the MOA is entered into. For example, what if one party is no longer able to fulfill its obligations? What happens with rights and obligations if a party sells its assets, undergoes a merger, or a change in control occurs? It is best to address these issues in the MOA itself to avoid uncertainty and disputes in the future.
7. Lack of Enforcement Mechanism:
Last but not least, make sure that the contractual terms and conditions imposed by the MOA can be enforced. An MOA may be declared null and void if it contains illegal contracts or stipulations that contravene public policy, such as contracts of adhesion, contracts in restraint of trade, or contracts that are prejudicial to public welfare.
Successful Examples of MOAs
A useful framework to employ in determining the key elements associated with a successful MOA is the eight "W’s" of MOA which was outlined by G. M Bureau III, George F Dinsmore, and Scott A. Steinbach in their article "The Memorandum of Agreement as an Effective Tool for Conflict Resolution," in the 1995 edition of Environmental Impact Assessment Review:
- Willingness
- Wants
- Will
- Who
- What
- Where
- When
- Why
For example, the successful MOA that game from The City of Fort Lauderdale and Broward County, Florida worked well because the stakeholders involved were all willing to work together. No one party was forcing the other party into negotiations, and there were no hidden agendas. This allowed the parties to put their minds together and know what they really wanted, which was to ensure that Broward County Airport may be expanded, but in a way that does not interfere with the City’s aeronautical operations and its future development.
In this case, even the "wants" were pretty much in agreement. The City conducted a noise study, which included a survey about the residents’ experience with the noise coming from the airport. The feedback from the survey showed that 87% of the residents believe that noise above 85 decibels should be eliminated and that noise above 75 decibels does not have to be eliminated. With this knowledge, all parties sought to eliminate or prevent any new noise exceeding 75 decibels within the city limits , and that was agreed upon by all parties involved.
It was this high level of agreement and willingness behind the agreement that allowed the parties to put this agreement on paper. No one involved wanted to rush anything. They all wanted to agree on how to handle any future expansion work at the airport since they were all currently in agreement. This MOA stands out because the focus was on the collaboration, not on the differences between the city and the other agencies. The MOA does not address who will pay for improvements, or how the airport could cost over runs will be met. Instead, it focused on minimizing the negative effect of the airport noise.
Another excellent example of a successful MOA came from the Bureau of Forestry and Fire Management in Washington who produced a Memorandum of Agreement in 2006 to Stop Illegal Firesetting (MOA). The federal and state parties involved in the MOA wanted to stop the illegal acts of firesetting in the United States.
The firesetting MOA is a regional initiative that pulls together a wide variety of stakeholders to provide their experience and insights to the issue of youth firesetting. The parties involved include the Bureau of Forestry and Fire Management, the U.S. Forest Service, the Bureau of Indian Affairs, the Bureau of Land Management, the National Park Service, the National Oceanic Atmospheric Administration, the Federal Aviation Administration, the U.S. Fish and Wildlife Services, U.S. Army Fort Huachuca, the U.S. Army Corps of Engineers, the U.S. Airforce, and the U.S. Navy.