Sometimes the day’s political headlines can present legal questions with real-world implications for businesses across the country. The recent reappearance of Stormy Daniels in the news is a reminder of the ongoing non-disclosure agreement (“NDA”) controversy involving her and President Trump. As you’ll remember, this is a significant legal issue related to the enforceability of a contract that has not been signed by all parties.
Stephanie Clifford, aka Stormy Daniels[i], filed a lawsuit in California federal court alleging that the NDA between her and Trump is unenforceable because Trump did not personally sign the agreement. This happens to be a question pertinent to many businesses: Can an agreement be enforceable if only one party to the agreement signs it? The simple answer is, “Yes, it can.”
In fact, a non-disclosure agreement, like any other contract, may be enforceable without any signatures. It is established law that a signature is not required to make a contract; the purpose of the signature is to demonstrate what is known as “mutuality of assent” or an intent to be bound to the agreement.[ii] However, an intent to be bound to an agreement can be proven by the conduct of the parties, even where one or more of the parties to the agreement did not sign it.
Mutuality of Assent: A Colorado Example
As an example of this, I once represented a janitorial company in a case against a commercial building landlord who refused to pay for cleaning services. There was a written agreement for the cleaning services, and although the janitorial company had signed it, the landlord had not. When the landlord stopped paying for the cleaning services, the janitorial company sued the landlord for breach of contract, among other claims.
The landlord denied it had an obligation to pay because it had never signed the contract. However, on behalf of the janitorial company, we successfully argued that because the landlord had paid the janitorial company pursuant to the terms of the written agreement for eight months of a 12-month agreement, it had shown an intent to be bound to the contract and was therefore liable for breach of contract because it had refused to pay for the cleaning after the eighth month.
The Question of Trump’s Intent
In the matter of Trump and Daniels, Trump could assert that there was a clear intent to perform the agreement because Daniels was paid $130,000, the amount set forth in the contract. However, the question of Trump’s intent has been a somewhat moving target.
On April 5, 2018, Trump denied knowledge of the payment of $130,000 to Daniels. Then, on May 2, Rudy Giuliani, former New York City mayor and now personal attorney for Trump, reported to Sean Hannity of Fox News that Trump repaid Michael Cohen, his attorney at the time, the $130,000 paid to Daniels.
The next day, on May 3, Trump seemed to acknowledge his awareness of the NDA when he tweeted that “through reimbursement, a private contract between two parties, known as a non-disclosure agreement, or NDA. These agreements are very common among celebrities and people of wealth. In this case it is in full force and effect and will be used in Arbitration for damages against Ms. Clifford (Daniels)…”
Later the same day, Giuliani claimed that Trump was unaware of the NDA at the time of the payment to Daniels, but that Trump decided to pay Cohen back later when he learned about the agreement. The following day, May 5, Trump shed some doubt on Giuliani’s original statement claiming, “He’ll get his facts straight.”
The Case for Trump to Be Bound by the NDA
On Sunday, May 6, White House counselor Kellyanne Conway claimed that Trump’s April 5th denial was in reference to when the payment was made, not that Trump didn’t know about the payment. If it is true that Trump had no knowledge of the payment, he may have issues in showing his intent to be bound to the agreement. Alternatively, if he knew about the payment and even paid Cohen back, there is a stronger case for Trump’s intent to be bound to the NDA.
The non-disclosure agreement in question is publicly available because of Daniels’ lawsuit filed in federal court (Central District of California). The agreement was made between Essential Consultants, LLC (“EC”) and/or David Dennison (pseudonym for Trump) “on the one part” and Peggy Peterson (pseudonym for Daniels) on the other.
EC is a limited liability company that was created by Cohen to represent Trump’s interests. Cohen signed the NDA agreement on behalf of EC, which also was responsible for wiring the $130,000 to Daniels. Accordingly, it will be difficult for Daniels to contend there is no enforceable non-disclosure agreement, although the agreement actually may be with EC.
Daniels also argues the NDA is unenforceable because it is unconscionable. An agreement may be found to be unconscionable if there is unequal bargaining power between the parties, or if the terms of the agreement are substantively unfair. In the Daniels NDA, there is a provision providing that every time Daniels talks about her relationship with Trump, she owes Trump one million dollars.
Liquidated Damages Provisions Must Be Reasonable to Be Enforceable
When there is a clause such as this, referred to in the legal world as a “liquidated damages” provision, the amount of the damages has to have a reasonable relationship to the amount of actual financial damage that could flow from a breach of the contract. Daniels’ lawsuit argues that the one-million-dollars-per-breach clause is not enforceable because it amounts to a penalty designed to coerce performance. And it is long-settled law that liquidated damages that are determined to be a penalty are not enforceable. In a residential lease in Colorado, for example, a liquidated damages clause of $615 for non-payment of rent, where rent was only $365, was deemed a penalty and therefore unenforceable.[iii]
While it’s impossible to say with any certainty how this case will be resolved, it looks plausible that the NDA contract will be enforced in favor of either Trump, EC, or both. We predict that the NDA will be found enforceable, but that the liquidated damages clause will not. Trump will have to prove in court that Daniels violated the NDA and the amount of his damages. If this were to take place, it likely would result in more than a few riveting news stories in the months ahead.
Non-disclosure agreements, even those containing liquidated damages provisions, can be drafted in a way that is both enforceable and ethical. For example, I have assisted with non-disclosure agreements for entrepreneurs with unique product formulas, processes, or client lists, which help to protect the entrepreneur’s intellectual property and intangible assets of the company.
If you have questions regarding the enforceability of a contract or if you would like to create an enforceable NDA, don’t hesitate to reach out to either me or any of the other attorneys at Proctor Brant.
[i] For purposes of this article, Ms. Clifford aka Stormy Daniels will be referred to as “Daniels”.
[ii] See City and County of Denver v. Adolph Coors Co. 813 F. Supp. 1476, 1480 (D. Colo. 1993); Presidential Motor Yacht Corp. v. President Marine, Ltd. 753 F. Supp. 7, 13 (D.D.C 1990); E-21 Engineering Inc. v. Steve Stock & Associates, Inc., 252 P.3d 36, 39 (Colo. App. 2010).
[iii] Kirkland v. Allen, 678 P.2d 568 (Colo. 1984).