The liquidation clause under the confidentiality agreement requires one party to pay the other party a predetermined amount of money in the event of a breach of contract. Read 3 min Our client, “David Dennison,” is a public figure who is responsible for protecting his reputation. An adult film star named “Peggy Peterson” claims to have had a sexual relationship with Dennison. Peterson offered to sign a strict confidentiality agreement against a one-time payment of $130,000. Realistically, the way for a legally binding business contract is to define the terms of a relationship between two or more parties and to encourage signatories to respect the agreement. Contracts are certainly useful, but they cannot necessarily guarantee that a party acts in a certain way. In the case of an NDA, there is usually a “legend party” and a “receiving party.” In particular, the agreement cannot directly prevent the receiving party from disseminating sensitive business information, but it may encourage it to be kept confidential. But would the liquidation clause compromise Dennison`s ability to obtain an injunction? They prepared a confidentiality agreement with a liquidation clause, that is, a provision that determines in advance the amount of damage to Dennison if Peterson breaks the contract. The clause states that in the event of Peterson`s offence, Dennison can recover either his actual injury or the liquidated damages of US$1 million per offence. This is why a contractual penalty is not applicable. Different states test liquidated damage differently, but the Texas version is typical. In Texas, a liquidation clause applies if: It is typical of a confidentiality agreement to recite that disclosure of the information would cause “irreparable harm” and the non-injurious party has the right to obtain an injunction.
This type of clause is also found in non-competition clauses and other employment agreements. The proposed contract not only allows Dennison to decide whether to recover real or liquidated damages, but also expressly gives him the right to obtain an injunction or injunction to prevent the imminent disclosure of confidential information, i.e. a “gag order”. It`s a problem. First, the fact that Dennison can recover from actual damages could weaken the argument that actual damages are “incompetent or difficult to compensate.” If recovery of actual damages is an option, it means that actual damages can be calculated in a reasonable manner, making the enforceable force of the liquidated injury clause less likely. In the event of a breach of a confidentiality agreement, in particular By celebrities, the clause should contain a language that prevents third parties from promoting an offence. The indication of liability and associated costs limits the possibility of an offence.