An attorney fee clause is a provision that states that the prevailing party in any dispute arising under the agreement shall be awarded his or her reasonable attorney fees and costs. The prevailing party is typically the party who recovers the greater relief in any action brought to enforce his or her rights under the agreement. If Joe sues Fred for breach of contract and wins a damage award, Joe will be the prevailing party and will be awarded his reasonable attorneys' fees that he incurred if the attorneys' fees clause is included in the contract. A court typically determines the "reasonableness" of attorney fees and costs.
A party who brings an action for breach of contract, or any other action based on the agreement, will likely incur substantial legal costs in seeking to recover damages. Not only will that party incur the cost of attorney fees, but there are also a multitude of "costs" associated with bringing a lawsuit, including expert witness fees, payments for court reporters, fees for filing documents with the court, as well as costs of travel, printing, photocopying, postage, telephone, and messenger services.
The general rule is that, without a contractual provision, statute, or case law to the contrary, attorney fees and other litigation costs are generally not recoverable by the prevailing party in a breach of contract case.
If an attorney fees clause is not included, then each party has to bear the cost of paying his or her attorney fees, costs, and expenses. What this means is, without this clause, you could end up having to pay your own attorney fees and costs — even if you win.
Here is a sample attorney fees clause:
Attorney Fees. In any litigation, arbitration, or other proceeding by which one party either seeks to enforce its rights under this Agreement (whether in contract, tort, or both) or seeks a declaration of any rights or obligations under this Agreement, the prevailing party shall be awarded its reasonable attorney fees, and costs and expenses incurred.
A tort is a civil cause of action for things such as negligence by one party that cause injury or harm to another.