As a general matter, if you enter into a contract, the other party breaches the contract, and you use an attorney to enforce the contract (for example, to collect money owed to you by the other party), you do not have a right to recover your attorneys’ fees unless the contract provides you that right. As a result, in many cases you want to have your contracts specify that if you engage an attorney to enforce your rights, and you prevail in the dispute, the other party has to pay your attorneys’ fees. For example, it is typical to include such language in a promissory note, so that the lender has a right to recover attorneys’ fees if one is needed to collect the amounts owed under the note.
There are situations in which you may not want your contract to include such a right, however. For example, if in your particular contract, it is highly unlikely that the other party will breach the contract but you might, having an attorneys’ fee provision in the contract might work to your disadvantage.
In deciding whether or not to include attorneys fees in your contract, consider the following items and how they may apply in your situation:
- Are you in a position to afford attorneys fees in a dispute while the other party is not? If so, not having a provision could give you a significant advantage in a dispute.
- A fee provision will reduce the cost of enforcing the prevailing party’s rights; without one, a party might win in enforcing its rights but spend more money on attorneys’ fees than the victory is worth.
- A fee provision reduces the incentive to breach (it increases the financial risk for a party that might be considering a breach).
- A fee provision reduces the incentive to sue unless there is a reasonable chance of success (the provision should help avoid frivolous lawsuits).
There are some exceptions to the general rule. For example, some laws allow for recovery of attorneys’ fees in specify types of claims even if not specified in a contract, but those are relatively unusual situations. Also, it is important to know that under Utah law, if a contract provides that one party to a contract gets attorneys’ fees if it prevails in a dispute, by law the other party also has the right to recover attorneys’ fees if it prevails. Therefore having a one-way provision, if the contract is governed by Utah law, will automatically become a two-way provision. That is not always the rule in other states, however.
*This post was written by Business Department Chair Rob M. Alston