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Contract Disputes: Attorneys' Fees Clauses

Most disputes between businesses relate back to a pesky contract.  Within that contract are paragraphs and paragraphs of terms, obligations, rights, reservations, promises, guarantees, and on and on.  Unfortunately in many instances, the first time parties truly analyze or pay attention to those paragraphs is when they find themselves in a dispute...sometimes years after signing the subject contract.  One paragraph, or clause, that becomes particularly important during a contractual dispute is the existence, and extent, of an attorneys' fees clause.

California Civil Code section 1717 states:

“In any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded … to the prevailing party, then the party who is determined to be the party prevailing on the contract … shall be entitled to reasonable attorney’s fees in addition to other costs.”

The existence of an attorneys' fees clause typically causes both parties to think a little longer and a little harder before agressively pursuing or defending a breach of contract case.  Attorneys' fees have an uncanny ability to elevate very quickly in these types of cases.

There are two lessons to take away from this post.  First, if you are a business owner (or an individual) entering into a contract, in addition to all the other paragraphs you should review and understand, take note of whether or not an attorneys' fees clause exists.  Like all agreements, one needs to map out their "worst case scenario" from the beginning and know what may follow if their is a dispute in the future.  Next, when you find yourself in a dispute regarding the contract and are seeking counsel, make sure to discuss and understand the serious consequences an attorneys' fees clause may produce as litigation commences and continues.

This post only touches on the "tip of the iceberg" as it relates to the complex topic of attorneys' fees clauses, their construction, their enforceability, their reach and the ever-elusive definition and extent of the term "prevailing party."  If you are seeking legal advice regarding a contract dispute involving an attorneys' fees clause, contact an attorney immediately.

For a free consultation, please contact Richardson "Red" Griswold of Griswold Law at (858) 481-1300 or rgriswold@griswoldlawsandiego.com.

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