What is a Non-Disclosure Agreement (NDA) and When Should You Use It?
For general guidance under Philippine law
In the Philippines, many individuals and businesses enter into partnerships, pursue acquisitions, hire workers, outsource services, or discuss new ideas. In these situations, it is often necessary to share sensitive or private information. However, without legal protection, there is a risk that this information could be misused or disclosed to others. This is where a Non-Disclosure Agreement, or NDA, becomes important.
What is a Non-Disclosure Agreement?
A Non-Disclosure Agreement (NDA) is a contract between two or more parties that outlines an obligation to keep certain information confidential. This means that any data or knowledge shared under the agreement cannot be disclosed to others or used for unauthorized purposes.
The purpose of an NDA is to protect confidential information such as trade secrets, strategies, financial data, intellectual property, or any business-related content that must not be made public. NDAs are also called "confidentiality agreements" or "confidential disclosure agreements" in some cases.
When and Why Should You Use an NDA?
NDAs are commonly used in both personal and commercial settings. Below are specific examples where an NDA is useful:
When pitching a business idea to a potential investor, collaborator, or co-developer, an NDA ensures that they cannot use or share your concept without your permission.
When hiring employees or consultants, especially those who will have access to internal systems or client lists, an NDA prevents them from using the company’s private information for personal gain or for a competitor.
When discussing a potential acquisition, an NDA protects both parties from misuse of confidential information. During acquisition talks, a company may need to reveal sensitive data — such as financial records, trade secrets, customer contracts, software code, or legal liabilities — to the potential buyer. An NDA (Non-Disclosure Agreement) ensures that this confidential information is used strictly for evaluating the deal and not shared with third parties or used to gain a competitive advantage if the acquisition does not proceed.
When entering into a joint venture, merger, or partnership, both parties often need to exchange confidential financial and operational data before closing a deal. An NDA allows this sharing to happen without risk of exposure.
When outsourcing services, such as software development or digital marketing, you may have to give access to sensitive data. An NDA protects you if the service provider tries to use your data improperly.
Even in personal settings, like sharing unpublished intellectual works (manuscripts, inventions, research), an NDA helps secure your ownership of the information.
The key reason why NDAs are used is to legally obligate the receiving party to keep the information private and not use it for any purpose other than what was agreed upon.
What Should an NDA Contain?
A well-written NDA under Philippine law may include the following essential parts:
Identification of Parties – It should clearly state who is sharing the information (the disclosing party) and who is receiving it (the receiving party).
Definition of Confidential Information – The agreement must specify what type of information is considered confidential. This prevents confusion and loopholes.
Obligations of the Receiving Party – The NDA must outline that the receiving party will not disclose, copy, or use the confidential information for anything other than the agreed purpose.
Exclusions – It should also clarify what information is not covered, such as publicly available data or information the receiving party already knew before the agreement.
Duration of Confidentiality – The NDA must state how long the confidentiality obligation will last. This can range from one year to indefinite, depending on the nature of the information.
Return or Destruction of Information - The NDA may also include the obligation to return or destroy confidential materials upon request or termination of the NDA.
Remedies for Breach – It should indicate what happens if the agreement is violated. This includes the right to sue for damages or file for injunctive relief.
Jurisdiction and Governing Law – It should mention that the agreement is governed by Philippine law and disputes will be handled by Philippine courts.
Is an NDA Enforceable in the Philippines?
Yes. NDAs are enforceable under Philippine law as long as they meet the legal requirements for contracts. The Civil Code of the Philippines governs contracts, including NDAs.
Legal Basis:
Article 1305 of the Civil Code defines a contract as a meeting of the minds where one party binds himself to give or do something for another. This applies to NDAs where both parties agree to protect information.
Article 1159 provides that obligations from contracts have the force of law between the parties and must be performed in good faith.
If the NDA includes clauses on damages or penalties for breach, Articles 1170 and 2201 may apply, which deal with liability arising from contractual breach and damages.
Therefore, if someone violates an NDA, the aggrieved party can seek damages or other legal remedies in court.
Can an NDA Protect You Completely?
While NDAs provide strong protection, they do not prevent disclosure on their own. Instead, they create a legal basis for holding someone accountable if they break the agreement. This means you still need to be careful about whom you share information with and should only do so if the person or entity has a legitimate reason to access the data.
A Non-Disclosure Agreement is not just a formality; it is a practical legal tool that protects your confidential information from being misused or shared without your consent. Whether you are a business owner, a professional, or even an individual with a unique idea, knowing when and how to use an NDA can protect your rights and give you peace of mind.
If you are unsure how to draft one, you may refer to https://www.dulaylaw.com/resources for a sample NDA.
Need legal assistance? You can reach us at +63.927.487.0737, email us at contact@dulaylaw.com, or visit https://www.dulaylaw.com/contact-us to learn more about how we can help.
Disclaimer: This blog post is for informational and general educational purposes only. It does not constitute legal advice or create an attorney-client relationship.
