Will a clause giving jurisdiction to the contract maker hold up in court?

Question

A clause states "If the contract is breached you accept that you must pay for damages. We shall determine the amount." Will this hold up in court?

Answer 1

A clause states "If the contract is breached you accept that you must pay for damages. We shall determine the amount." Will this hold up in court?

A court is going to want to look for context and an interpretation that would make this provision make sense before invalidating it (which it might).

For example, if there was a schedule of the amount of damages for various violations attached to the contract, a court might interpret this language to mean that the drafting, non-breaching party will invoice you for damages in amount that it determines in good faith to be the correct amount with reference to the schedule or some formula set forth in the contract (e.g. an interest rate on an open account loan), in much the same way that a landlord might dock your security deposit and send you a letter telling you what was deducted in what amounts and why, or that a credit card company might charge you interest and late fees on a monthly basis.

A court would, of course, be unlikely to interpret the clause as affording final and binding legal authority to decide what is owed. In the face of a clause like this one, the other party could bring a lawsuit to dispute the amount determined to be owed by the drafting, non-breaching party (unless the contract is a third-party arbitration clause and simply doesn't read like one because it is out of context).

Answer 2

Why would you put that in a contract?

The normal remedy for contract breaches is damages so the first sentence is redundant. And a court will determine the amount, so the second sentence is wrong.

Answer 3

It is normal if there is a clause like "Both parties agree that the [governement's judical] court in XYZ has jurisdiction in case of controversy." That is enforcible.

Another typical clause that can be enforceable in countries that allow binding arbitration is akin to "Both parties agree to undergo arbitration." That means they seek an unpartial arbitration company.

A clause that makes one party the sole arbitrator is not only unenforceable, in Germany it would be illegal and could be used to void the clause or even the whole contract.

Answer 4

It's very unlikely this would hold up.

A contract can be voided as unconscionable if it is so one-sided that it is unfair to one party. Awarding unlimited compensation at the whim of the party receiving them with no regard to the actual damage suffered would almost certainly qualify.