What Does “Prevailing Party” Mean in a Contract?
A clause requiring the losing party in a dispute to pay the winner's attorney's fees and costs.
Detailed Explanation
American rule: Each party pays their own attorneys, regardless of outcome. Prevailing party clauses override this, making the loser pay. This discourages frivolous claims but also increases stakes of losing.
Defining 'prevailing party' can be complex when outcomes are mixed. Some clauses specify thresholds or formulas. Bilateral fee-shifting (applies to both parties) is generally fairer than one-sided provisions.
Example in a Contract
“In any action to enforce this Agreement, the prevailing party shall be entitled to recover reasonable attorney's fees and costs from the non-prevailing party.”
Why It Matters
Prevailing party clauses significantly affect litigation economics. They can deter weak claims but also deter valid claims from risk-averse parties. Make sure any fee-shifting is mutual—one-sided provisions favor the party more likely to sue.
Related Terms
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