Prevailing Party Clause: Everything You Need to Know
The prevailing party clause in a contract states that the prevailing party (or, winner) in a lawsuit, will have their legal fees paid by the non-prevailing party after the judgement is made.3 min read
The prevailing party clause in a contract states that the prevailing party (or, winner) in a lawsuit, will have their legal fees paid by the non-prevailing party after the judgement is made. Should a prevailing party clause not exist at the onset of the lawsuit, then each party will be responsible for their own legal fees. In most cases, the prevailing party clause is specific to the legal fees incurred and is separate from any other award, compensation, or damages the prevailing party may receive.
Including a prevailing party clause in a legal contract can ensure greater financial protection for someone who may end up having to sue the other party for breach of contract, as they will ideally not be saddled with paying legal fees. Additionally, the inclusion of a prevailing party clause can provide further incentive to all parties who have entered into the contract to adhere to the terms, as certainly no one wishes to have to shell out money for both their attorney and someone else’s.
Any decision to include or exclude a prevailing party clause in a contract should be discussed with an attorney. Additionally, before signing a contract that contains a prevailing party clause, it is always wise to go over it with a lawyer, to ensure that you understand the specifics of the clause and what it may mean for you down the road, should you find yourself in a position where legal action is being taken either by you or against you.
What Does “Prevailing Party” Actually Mean?
It seems simple enough to determine who the prevailing party is, after all, they are the party who won the lawsuit. However, often times lawsuits are able to be settled out-of-court and it is not actually a judge who makes a final determination. It can also be the attorneys who are able to reach an agreement, or cases are able to be settled through mediation.
It is also worth noting that the prevailing party does not have to be the plaintiff, or the party who filed the lawsuit. Sometimes the defendant can come out as the prevailing party, thus, having their legal fees covered by the plaintiff.
Types of Prevailing Party Clauses
There are generally two types of prevailing party clauses, mutual and unilateral. The key differences between them include:
- A unilateral clause only applies to one of the parties involved.
- A mutual clause applies to both (or all) parties involved.
- Mutual prevailing party clauses are customary in both the legal and insurance industries.
- Mutual prevailing party clauses largely exist to ensure that all parties will give appropriate forethought before taking legal action, decreasing the likelihood of engaging in frivolous or meaningless lawsuits.
Alternatives to a Prevailing Party Clause
Not everyone is a fan of the prevailing party clause, as there are those who find it to be unfair or overly aggressive. There are other avenues you can take to ensure that you are protected financially, should a legal situation arise even without the prevailing party clause. Specifically, there are two other types of contract clauses that can get the job done and may be better suited to you:
- Certificate of Merit Clause. If you have a certificate of merit clause in your contract, it states that before anyone takes legal action against the other party involved in the contract, you must obtain written confirmation from another professional in that field, that any legal action would have merit. For example, if you hire a photographer and you do not like the way the photos were edited, you would have to obtain written confirmation from another professional photographer that legal action would be warranted. It is worth noting that different states have different requirement regarding the certificate of merit clause, so it is perhaps best to consult with an attorney.
- An ADR Provision. An ADR provision in a legal contract states that prior to the filing of any lawsuits, the parties involved must at least attempt other means to resolve the dispute, such as mediation. Ideally, in doing so, it will save all parties money, time, and headaches, while also reaching an amicable agreement. Additionally, as lawsuits are often public record and mediations are not, it can spare one or all parties any public embarrassment or tarnished reputations.
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