Favorite Contract Clauses

Favorite Contract Clauses

Some call it boilerplate...

Some Things Are So Important, They Ought To Be In Every Contract.

You may have noticed that many contracts contain boiler plate provisions; terms so common they wind up in practically all contracts. You also may be tempted to ignore these parts, since they invariably crop up no matter what. That's a mistake. The so-called boiler plate provisions are actually so vital that they find their way into nearly every contract. They can easily be more important, and more dangerous, than the other clauses of the contract. Always read the boilerplate, and remember, everything, even a boilerplate clause, is negotiable.

The Attorneys Fees Clause

Of all the boiler plate clauses, this is far and away the most important. Under the default rules, unless your contract or a special statute makes the loser pay the winner's attorneys fees, each side pays their own, win or lose. This is the so-called "American Rule". In Great Britain, the opposite is true: the default is that the loser pays the winners' fees. The result of the American Rule is that you simply cannot sue over small amounts of money, unless, that is, you put a clause into your contract negating the American Rule and establishing that the loser pays the winners' fees. This is the famous "Attorneys Fees Clause".

Pay Attention to the Details, or the Clause Might Not Work.

Each Attorneys Fees Clause is a bit different, and some do a very poor job protecting you. Imagine your contract has an attorneys' fees clause which reads "In the event of litigation, the loser shall pay the winner's legal costs". Notice it says costs, not fees. Courts interpret this to mean the filing fees, expert witness costs and such, but not the fees of the attorneys. You might not get any attorneys fees at all under such a provision. Next, imagine if you win on some claims but not others. The loser will assert that they did not lose, but rather won, on certain claims and try to get you to pay their costs on those claims! Not what you had in mind. And, imagine that you have to travel to a far away city and stay there for weeks during the trial. The clause as drafted above does not cover travel costs, only legal costs. You are stuck with your hotel, meal and airfare bills. Finally, what if you hire a lawyer, spend significant money working up the case, and then the other party gives up and settles with you before you file anything. The clause says "in the event of litigation" and here no litigation happened, so the clause does nothing to help you!

A better clause reads like this: "In the event of any dispute relating to this agreement, even if not litigated, the substantially prevailing party shall be entitled to payment of its fees and costs, including without limit attorneys fees and costs, payable by the substantially non-prevailing party". This clause applies even if filing suit never happens. It applies to all costs, even travel costs. It specifically includes attorneys fees. You get the picture. It is very important not only to have this vital clause in your contracts, but to have it drafted correctly. Hopefully you can see the value that a skillful business lawyer brings to the table in this regard.

Why Do We Have The "American System"; Why Not a Loser-Pays System?

In theory, the American rule exists so that people will not be discouraged from seeking redress in court out of fear that they might have to pay the other side's fees if they lose, and it encourages people to sue on marginal theories or bringing novel or unusual claims. But in our experience, the American rule simply makes small wrongdoing economically impossible to sue for, which allows petty wrongdoers to misbehave with impunity.

Call a Denver business lawyer at The Vasilco Law Group, P.C. today for your free telephone consultation.