Page 11 - John Hundley 2010

Sharp Thinking

No. 33 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. May 2009
Recovering Attorney Fees and

Interest in Contract Disputes

By Terry Sharp, 618-242-0246, law@lotsharp.com
Knowingly or unknowingly, people routinely enter into contracts.
These contracts may involve borrowing money, leasing an automobile,
farm or apartment, a service contract for TV service, a charge account, or a
contract to treat the house for termites. Many of these contracts are
preprinted forms or, in some cases, single-purpose contracts prepared by
lawyers. These contracts will normally have a clause that, if it is necessary
to enforce the contract, the breaching party is responsible for attorney’s
fees. These clauses are, of course, enforceable. Many contracts also
have a provision for interest in the event of a default.

Many contracts, however, lack this formality. A farmer calls a local
elevator and has it deliver some cattle feed. If the farmer, or a member of
his family, is present when the feed is delivered, he may sign a receipt for
the feed which may or may not contain anything other than the
acknowledgment that the product was received. The farmer is then billed
with the expectation, based on trade custom or terms stated in the delivery
ticket, that the bill will be paid promptly. Do these contracts provide for
attorney’s fees or interest? The answer almost universally is “no” unless special provisions are made.

Why Forethought Is Important.

In the event of dispute or non-payment, recovery of attorney fees and interest is important for making
the non-breaching party whole. Indeed, in transactions where the amount due is small, the cost of an
attorney can make collection impractical.

As to attorney fees, we start with the “American Rule”, applicable in both state and federal courts, that
each party pays its own attorney’s fees. See Travelers Cas. & Sur. Co. v. Pacific Gas & Elec. Co., 549
U.S. 443 (443); Taylor v. Pekin Ins. Co., 231 Ill.2d 390 (2008). There are two major exceptions to that
rule: (1) where a statute or official court rule shifts the attorney fee payment burden, and (2) when the
contract shifts such burden. Although the number of statutes providing for recovery of attorney fees is
ever growing, in the commercial context they are rare and the “American Rule” generally applies.

Similarly, in times when interest rates are high, recovery of prejudgment interest can be important –
but absent a contractual provision the circumstances in which you can recover such interest (and the 5%
rate allowed) are often inadequate. See 815 ILCS 205/1, 205/2. Accordingly, imposing the duty to pay
interest and attorney fees by contract can be important.

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Sharp Thinking is an occasional newsletter of The Sharp Law Firm, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp
Thinking shall be construed to create an attorney-client relation where none previously has existed, nor with respect to any particular matter. The perspectives herein
constitute educational material on general legal topics and are not legal advice applicable to any particular situation. To establish an attorney-client relation or to obtain legal
advice on your particular situation, contact a Sharp lawyer at the phone number or one of the addresses provided on page 2 of this newsletter.