The core answer
Whether you can withdraw depends on what the MOU or LOI says and how far the parties meant to be bound, not on the title of the document. Do not rely on the idea that an MOU never binds. Some are full contracts, and even where most of the document is non-binding, certain clauses (confidentiality, exclusivity, cost sharing) often are binding.
The starting point is Civil and Commercial Code section 366: if the parties have not agreed on everything that one of them declared essential, then in case of doubt there is no contract yet; an understanding on only some matters does not bind even if recorded; and if they agreed the intended contract must be in writing, there is no contract until it is. So not signing the main contract is often not a breach in itself. But binding clauses, money actually paid and steps already taken under the MOU can leave you with obligations after you walk away.
Before sending a withdrawal notice, check in order: has the MOU become a contract, which clauses are stated to bind, and has money or performance already moved.
1. MOU and LOI: how do they differ, and how much does the title matter?
An MOU and an LOI are not contract types defined in Thai law. In practice an MOU is usually signed by both sides, while an LOI is often a letter from one side stating interest and proposed terms. Either can be drafted as fully binding or as not binding at all.
Courts look at substance and intention. Section 171 says that in interpreting a declaration of intention, the true intention counts more than the words or letters, and section 368 says contracts are interpreted in good faith with regard to custom. A document titled MOU that fixes price, subject matter, delivery date and payment terms may be treated as a contract. A document titled "contract" that says it is only a negotiating framework may not be a sale contract.
2. When is an MOU a contract itself, and when only an agreement to negotiate?
Think in three categories.
- Fully binding contract. The essential terms are agreed (parties, subject matter, price or how it is calculated, main conditions) and the wording shows an intention to be bound. Failing to perform may be a breach even if a longer agreement is expected later.
- Agreement to negotiate. The parties only agree to negotiate in good faith for a period, or set a broad framework while leaving important points open, such as final price or due-diligence outcome. This does not oblige anyone to sign the main contract.
- Hybrid. Mostly non-binding, with a list of clauses stated to bind. This is the most common form in business deals.
Section 366 is the starting point. If a party has stated in the document that a point is essential and it remains unagreed, or the parties agreed the main contract must be in writing and it has not been signed, there is a basis to say the main contract does not yet exist. That does not cancel clauses the MOU itself clearly says are binding.
A Supreme Court example: ruling 588/2564 concerned a memorandum under which one party would study a rental-building project before deciding to invest. The court treated it as a binding contract, and ending it had to follow its terms or the law. There the terms let the investor withdraw if the study was unsatisfactory, and the security money had to be returned, not forfeited. This shows that a "memorandum" can be a real contract.
3. What do "subject to contract" and "non-binding except clauses ..." do?
| Wording | Usual meaning | What to check |
|---|---|---|
| "Subject to contract" / "subject to signing a definitive agreement" | No intention to be bound on the deal terms until the main contract | Whether other clauses say they bind; whether later conduct changes the picture |
| "Non-binding except clauses 5, 6 and 8" | Only the listed clauses bind | Whether those clauses are clear enough to enforce |
| "A preliminary understanding only" | Negotiating intent | Whether the figures and terms are complete enough to look like a contract |
| "The parties will sign a definitive agreement by [date]" | Could be an obligation to contract, or just a target | Is it "shall" or "intend to"; what happens after the date |
| Nothing says whether it binds | Look at content and intention (sections 171, 368) | Completeness of essential terms; how the parties acted |
Such wording helps interpretation but is not a magic shield. A court looks at the whole document and the parties' conduct.
4. Clause table: which MOU clauses tend to bind, and what to check
| Clause | Usually binding? | What to check |
|---|---|---|
| Price, subject matter, main deal terms | Normally not if a negotiating framework; binding if the MOU is meant as a contract | Fully specified or left open; any statement that it binds |
| Deposit | Depends whether it is a true deposit, booking money or an advance | Paid on signing day? Wording of forfeiture (section 5) |
| Negotiation and due-diligence costs | Binds if written as a clear cost-sharing clause | Who pays on termination; any cap (section 6) |
| Confidentiality | Usually intended to bind and to continue after talks end | Duration, scope, return or destruction (section 7) |
| Exclusivity / no-shop | Usually binds for the stated period only | Duration, scope, consequence of breach (section 7) |
| Deadline for main contract (long-stop date) | Often a target; some MOUs lapse on that date | What happens after the date; how to extend |
| Due-diligence and information access | Binds the party who must disclose, if clear | Scope of data; rules on use |
| Governing law and forum or arbitration | Often binds even if the rest does not, if clearly written | Whether it is stated to apply to this MOU |
| Termination | Binds as worded | Method and notice period; which clauses survive |
5. Deposit paid under an MOU: forfeitable? Deposit versus advance payment
A deposit in the legal sense. Section 377: when a contract is entered into, if something is given as a deposit, the giving is evidence that the contract was made and also security for performance. Section 378: unless otherwise agreed, a deposit is returned or counted as part payment on performance; forfeited if the depositing party fails to perform, or performance becomes impossible through circumstances for which that party is responsible, or the contract is ended because of that party's fault; and returned if the party receiving it is the one who fails or is responsible.
The MOU problem. A deposit is tied to a contract. If the MOU is not a binding sale contract, money paid under it may be only booking money, a negotiation security payment or an advance, and the MOU's own terms decide when it is returned or kept. Calling it a "deposit" in the document does not always make it one in law.
Supreme Court examples on deposits:
- Ruling 2478/2565: money the contract called a deposit but handed over after the signing day was not a statutory deposit, so the recipient could not forfeit it even though the other party breached.
- Ruling 10316/2559: a deposit is something handed over on the signing day as evidence of the contract and security for performance.
- Ruling 7302/2559: the seller gave the buyer a proper new deadline, the buyer missed it, and the seller could forfeit the deposit under section 378 (2).
- Ruling 301/2563: a court has discretion to reduce an excessive forfeiture under section 7 of the Unfair Contract Terms Act B.E. 2540, but is not required to reduce it every time.
| Question | If yes | If no |
|---|---|---|
| Was there a binding contract when the money was paid? | More likely a deposit | May be booking money or an advance; read the return or forfeiture terms |
| Paid on signing day? | Consistent with a deposit | May not be a statutory deposit (compare 2478/2565) |
| Is the payer the party in breach? | Forfeitable under section 378 (2) unless agreed otherwise | Must be returned (section 378 (3) if the recipient is at fault) |
| Is the forfeited amount far above the loss? | A court may reduce it (compare 301/2563) |
Hypothetical example: A pays 200,000 baht under an MOU to buy a business, described as "negotiation security, refundable in full if due diligence fails, forfeited if A withdraws without a listed reason." This is not a payment under a sale contract, so forfeiture depends on the MOU's wording and the listed reasons. If A withdraws because due diligence uncovers hidden debt, which the MOU treats as a refund event, the recipient must return it.
6. Who bears due-diligence and negotiation costs?
The usual position is that each side bears its own costs: lawyers, accountants, due diligence, travel. If the MOU says nothing, recovering them from the other side when the deal fails is difficult; you would have to prove breach of a binding obligation or another legal basis.
What to write into the MOU:
- who pays which costs, and whether advisers are shared;
- when, on termination, the other side must reimburse or share costs (for example withdrawal without a listed reason, or false information);
- a cap on recoverable costs and a requirement for receipts;
- whether a party that uses another's due-diligence report must contribute.
7. Confidentiality and exclusivity: do they survive withdrawal?
Confidentiality. Usually drafted to bind from the first exchange of information and to continue for a stated period after talks end, such as several years. If the rest of the MOU is non-binding but this clause is stated to bind, it still applies. Withdrawal does not release you. Check what counts as confidential, exceptions (information already public, disclosure required by an authority), duration, and return or destruction of information.
Exclusivity / no-shop. Usually time-limited, for example 60 or 90 days (hypothetical figures), during which the seller may not negotiate with other buyers. It typically ends on expiry or termination as agreed. If drafted to continue after termination, ask whether duration and scope are reasonable and whether a penalty or agreed damages applies; if so, whether it is excessive.
Practical points:
- after withdrawing, stop using the other side's information and do not pass it to third parties;
- if you are the seller, do not open talks with others while the exclusivity period runs, even if the rest of the MOU is non-binding;
- keep a record of what information went out and when.
8. Breaking off negotiations in bad faith: is there liability?
Thai law has no general statute that sets out a pre-contract duty to negotiate in good faith, so there is no settled rule that ending negotiations in bad faith always creates liability.
The relevant sections say:
- Section 5: in exercising one's rights and in performing obligations, everyone must act in good faith.
- Section 368: contracts are interpreted according to the intention in good faith, having regard to custom.
- Section 171: the true intention counts more than the words.
These apply to exercising rights, performing contracts and interpretation. If the MOU contains binding clauses, such as a commitment to negotiate in good faith or an exclusivity clause, breaking off in breach of them may be a breach of contract. If the MOU has no binding clause at all, a damages claim solely because the other side ended talks would need another provable legal basis. Each case turns on its facts and the outcome is uncertain.
In practice, the party who withdraws should have a reason it can explain and should give notice properly. The other side should keep evidence of costs it incurred and steps it took in reliance on the other's assurances.
9. What conduct can turn an MOU into a binding agreement?
Even if the MOU says it is non-binding, the parties' conduct can change the picture, because courts look at true intention (section 171).
- Performance of the deal has begun: delivery of goods, transfer of staff or work, or taking over management.
- Payments that look like price or consideration, not merely booking or negotiation money.
- Both sides tell third parties the deal is done, for example customers, banks or authorities.
- Main terms are fully agreed in later emails or messages with no reservation.
- Treating each other as if a contract exists, for example one side borrows or hires staff to prepare, with the other knowing and not objecting.
Section 366 remains an argument for the other side where points are unagreed or a written form was agreed. Actual performance is a fact the court weighs, not an automatic answer.
10. How to withdraw properly
- Read the whole MOU. Look at the clauses on binding effect, termination, notice, confidentiality, exclusivity, costs and dispute resolution.
- Gather the facts. Money paid or received, information sent, emails showing agreement or rejection of terms, and what has been done in reliance.
- Choose a reason that matches the MOU. For example due diligence results outside the agreed conditions, expiry without agreement, or a stated approval not obtained. If the MOU allows withdrawal without cause, use that right.
- Send written notice by the address and method the MOU specifies. Identify the MOU, the date of withdrawal, the clause relied on, and ask for acknowledgement. Keep proof of delivery.
- Return or destroy information received and confirm in writing that you will not use it.
- Settle money and costs. Ask for return of booking money or advances, or state with reasons that it is not returnable under the terms, and settle cost sharing as the MOU provides.
- Confirm the surviving clauses, such as confidentiality and any exclusivity that remains in force, to avoid later disputes.
- Have a lawyer check the wording before sending; overstated language can be used as evidence.
11. Common mistakes
- Assuming the MOU is non-binding because of its title.
- Calling money a "deposit" but paying it after the signing day, then expecting to forfeit it.
- Paying money or starting work before the main contract with no agreement on refund or reimbursement.
- Sending confidential information before the confidentiality agreement is signed.
- Leaving exclusivity open-ended.
- Not saying who pays due-diligence and adviser costs if the deal fails.
- Withdrawing by going silent or by phone, with no written notice.
- Emailing "we have a deal" while not intending to be bound.
12. Checklist for drafting an MOU before signing
- State clearly whether the document binds and which clauses do (for example "non-binding except clauses ...").
- If it is meant to bind fully, include all essential terms: price, subject matter, conditions, dates.
- State that the main contract must be in writing and signed by authorised signatories (compare section 366).
- Describe any payment: deposit, booking money or advance, the date paid, and the return or forfeiture conditions.
- Allocate due-diligence and negotiation costs: who pays, who reimburses on termination, and a cap.
- Confidentiality: scope, exceptions, duration after termination, return of information.
- Exclusivity: clear duration and scope, and the consequence of breach.
- Set the MOU expiry date, what happens then, and how to extend.
- Set the termination method, notice period and surviving clauses.
- Choose governing law and the dispute resolution method.
- Check that signatories have authority to bind the company.
- Have a lawyer review before signing.
Further reading
- Is a verbal agreement enforceable in Thailand? — proving agreements that are not in writing
- Thai legal due diligence for cross-border deals — scope of review before the main contract
- A big customer sent us its contract — reading a contract before you sign
- Signing contracts or taking deposits before the company is registered — liability for contracts made before a legal entity exists
- Contract review and approval without a legal department — an approval process for contracts
Whether an MOU binds depends on its wording, the parties' intention and what has been done under it, not on its title. Before withdrawing, check the clauses stated to bind, the money paid and the information sent, then give written notice.
We help draft and review MOUs and LOIs, identify which clauses bind, prepare withdrawal notices and replies to the other side, and handle negotiations through to the main contract for businesses in Thailand. For an initial consultation, call +66 92 254 2045 or send us the details. See also contracts and documents and joint ventures.
This guide is published by Suwanvara Law Firm — a Khon Kaen law firm established in 1986. General information only, not legal advice on a specific matter.
