Contract Disputes Are On The Rise

Contract disputes are on the rise.  I always encourage small business owners to include attorney's fee provisions in all contracts to be able to recoup the expenses of collection or enforcement of agreements.  The precise language, however, must be carefully considered.  In the event the term "reasonable attorney's fees" is used, then the court fixes the fees, thereby leaving open the possibility that the prevailing party will not recoup all of the amount spent.  By contrast, if the term "actual attorney's fees" is used, then the prevailing party can recover the actual amount spent on attorneys.

Moreover, Civil Code section 1717 provides for reciprocity.  In other words, if a contract permits one party to recover attorney's fees, then the provision allows the other party to recover reasonable attorney's fees if it is the prevailing party.  Again, the language of the contract becomes key in the event there are other claims brought not related to the contract, or peripherally related to the contract.  If the provision is broadly written, it is possible for a prevailing party to recover attorney's fees even on non-contractual, tort claims such as negligence.  On the other hand, if the provision is narrowly drawn such as limiting recovery of attorney's fees to actions "to enforce the contract," then the prevailing party will only be able to recover the fees incurred on the contractual claims.   

We can help if you have concerns about the language in your contracts, or if you have a claim in which a contract is involved and would like to know your rights to recovery.

Article submitted by: Attorney Min N. Thai