This memorandum of understanding can be used for simple, straightforward sale or purchase transactions or in any other situation in which a formal contract would be unnecessary or inappropriate, such as when the time or expense of drafting a formal contract would be a problem.

A memorandum can be useful even if the parties plan to draft a more complex and formal agreement at a later time, because some simple record of the parties' agreement may be necessary to avoid a bar to enforcement of the agreement under the applicable statute of frauds (see Uniform Commercial Code § 2-201). This memorandum resembles a simple contract in that it states only the essential parts of the agreement. This structure makes the memorandum the appropriate model on which to base purchase orders, sales orders, and other standardized forms that are designed to be filled out immediately after an oral agreement has been reached.

What does the Memorandum of Understanding cover?

• Price, quantity and description of items;

• Terms of delivery and payment;

• Warranties;

• Limitation of liability; and

• Governing law.

Other names for Memorandum of Understanding include:

• Terms Sheet;

• Memorandum of Purchase;

• Memorandum of Contract; and

• Memorandum of Sale.