The American Rule and the Importance of Attorney’s Fees Provisions

In the United States there is a general rule, known as the American Rule, which provides that the parties in a lawsuit are responsible for paying their own legal fees, unless a specific statute expressly permits the court to grant attorney’s fees or if the parties have agreed by contract to pay each other’s fees. For this reason, it is often advisable to include a right to receive attorney’s fees in your contracts.

Why Including Attorney’s Fees Provisions in Contracts Matters

By including a provision for attorney’s fees, you can help to control legal costs in future litigation. A fee provision will help to prevent the opposing party from raising frivolous claims and counterclaims and will help to prevent the lengthening of a case in order to drive up costs to compel a bad settlement. Having a fee provision will protect you against these tactics because the other party will have to pay the costs of their own delays. For this reason, a fee provision helps you to achieve a fair outcome in your case and to enhance your confidence in litigation against a party with deeper pockets.

Even if a particular statute might afford you the same remedy, by placing a fee provision in the contract, you can always raise your right to collect attorney’s fees. Even if a statute provides for attorney’s fees, the right to receive these fees under many statutes will often be conditional or at court discretion, which can become guesswork and add to the costs. So, in the end, it is much easier to place an attorney’s fee provision in your contract from the outset.

Note, that certain contracts, such as residential construction contracts, do not permit the inclusion of attorney’s fees and may void your contract. So, it is worth contacting an attorney to assess whether your contract may include such a provision.