Attorneys’ Fees Provisions in Your Contracts, Should You or Shouldn’t You?

Fake Flower - By Mike Rozema

Attorneys’ fees provisions in contracts can be tricky.  The general rule in California, each party takes responsibility for his or her own attorneys’ fees unless the parties agree otherwise, although some “specialty” rules exist that reallocate payment of attorneys’ fees or mandate “fee shifting.”

Generally, the attorneys’ fees provision in a contract will read something like:

The prevailing party in any action or dispute arising out of this agreement will be entitled to their reasonable attorneys’ fees and costs.

Effectively, an attorneys’ fees provision encourages the person who abides by the terms of the agreement to sue the other party to the agreement in order to hold the violator to the terms of the contract. However, an attorneys’ fees provision can discourage either party from breaching the agreement because now the provision makes them responsible not only for what they owe under the contract but for the other person’s attorneys’ fees. So, you need to decide whether, in your business, you want the contracts that you have with vendors or customers or anyone else to have an attorneys’ fees provision. The answer may be different depending on who you are contracting with.

Contracts With Vendors

These could be agreements like purchase orders by which they deliver goods or services and you pay for them. When contracting with vendors, you will want to consider whether you believe it is likely that the vendor will not deliver or the vendor sells an extremely valuable item that you have no alternative sources to purchase from.  If either of these scenarios is true then you may want to consider including an attorneys’ fees provision in your agreement with that particular vendor.  Let’s face it, most contracts fall into breach when one party does not pay the other party for delivered goods or services. Because you, as the purchaser (despite your good credit and good intentions), are more likely to breach an agreement to pay than the vendor is to breach an agreement to deliver goods or services, generally, there is no benefit to you to include an attorneys’ fees clause.

Contracts With Customers

Using the same analysis as above, you can see why you might want your contracts with customers, including invoices, to have an attorneys’ fees provision in them. If you have to sue to get paid, I know you hope this will never happen, but it sometimes does and if it does you may want to also be able to recover attorneys’ fees in addition to any other amounts owed. This can also be an incentive to encourage payment because your customer may know that if they don’t pay and you sue, they will owe you more.

Do you include attorneys’ fees provisions in your agreement?  Why or why not?

If you have questions about your contracts, Integrated General Counsel can help you determine your next steps.  If you are ready for a results-driven plan of action, contact us either by telephone at (925) 399-1529, schedule yourself into our calendar for an appointment at a time convenient for you, or complete the Contact Kristen form and we will get back to you.

 photo credit: Mike Rockmore

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