Is a Memorandum Legally Binding?

In commercial activities, parties often record their phased opinions in the form of meeting minutes or memorandums before entering into a formal agreement. To avoid being deemed to have concluded a contract, some parties may add a clause to the memorandum stating that it “shall not be binding on either party”. However, in most cases, the memorandum is without such clause. In such circumstances, is a memorandum legally binding?

From the perspective of judicial practice rules, a memorandum is generally deemed legally binding if it has the following characteristics:

Firstly, it contains the essential terms of a contract. Some parties believe that a document titled as a memorandum is not a contract or agreement, and thus is not binding. This opinion is incorrect. According to the relevant provisions of the “Civil Code”, the formation of a contract depends on its content rather than its title. Paragraph 1 of Article 3 of the “Judicial Interpretation of the Supreme People’s Court on Several Issues Concerning the General Provisions of the Contract Book of the Civil Code” stipulates: “Where a dispute arises between the parties over the formation of a contract, if a people’s court can ascertain the names of the parties, the subject matter and the quantity, it shall generally affirm the formation of the contract.” Paragraph 2 of Article 6 stipulates: “Where the parties only express the intention of a transaction by signing a letter of intent, a memorandum or other documents, without agreeing to enter into a contract within a certain period in the future, or even if there is such an agreement, the subject of the contract to be entered into in the future, the subject matter and other contents cannot be ascertained, and one party claims the formation of a preliminary contract, the people’s court shall not support such a claim.” Therefore, a memorandum shall be legally binding if its content includes the essential terms of a contract. For example, in (2025) Ji 08 Min Zhong No. 857, the memorandum stipulated that the equity transferee would be Company A or Company B, based on which the court held that the subject of the future contract had not been agreed upon, and thus the memorandum was not a preliminary contract and had no legal effect.

Second, even if a memorandum does not contain the essential terms of a contract, it is often deemed legally binding if the essential terms of a contract between the parties can be inferred from the actual performance. This is mainly based on Article 490 of the “Civil Code”, which stipulates: “Where one party has performed the principal obligations and the other party has accepted the performance before the signature, seal or fingerprint affixation, the contract shall be formed.” For example, in (2023) Jing 01 Min Zhong No. 2853, (2018) Lu 14 Min Zhong No. 3391 and (2017) Hu 0116 Min Chu No. 4529, the courts held that the memorandums were binding on both parties because one party had actually performed the obligations agreed upon in the memorandums.

In addition, judicial authorities usually take the following factors into account when determining whether a memorandum is legally binding:

(1) The parties of the contract shall be valid, such as, whether the official seal, special contract seal, or the signature of an authorized representative is affixed. For example, in (2021) Jing Min Zai No. 158, although only the relevant personnel signed the memorandum, there was evidence proving that an apparent agency was formed between the parties, and thus the court held the memorandum to be legally binding. In another example, (2020) Er 01 Min Zhong No. 8420, the court held that the memorandum had no legal effect because only one party had signed it.

(2) The content shall not violate the mandatory validity provisions of laws and administrative regulations. For example, in (2025) Hu 74 Min Zhong No. 30, the court held that the memorandum was invalid because it violated the principles of fairness, impartiality and investor risk self-bearing in the bond market transaction order.

(3) If the memorandum is an accessory contract, the principal contract shall have legal effect. For example, in (2025) Jing 03 Min Zhong No. 12011, the court held that the agreement on the dispute resolution method in the memorandum constituted an amendment to the arbitration clause in the capital increase agreement and its supplementary agreements, and such amendment was not binding because it lacked a legally valid prior procedure. In another example, (2018) Shan Min Zhong No. 454, the court held that the memorandum was a supplementary contract to the construction contract, and thus the memorandum was also invalid because the construction contract was invalid.