What is Included in a Contract Matters: Why Attorney’s Fees and Prejudgment Interest Clauses are Imperative

A contract allows parties to have a clear understanding of what their duties and obligations to each other are throughout the term of the contract. For example, a contract between a restaurant and a supplier might specify how much time the supplier has to fulfill an order and how long the restaurant then has to pay the supplier. But what happens if the restaurant doesn’t pay the supplier and the supplier must take the restaurant to court in order to recover the payments owed by the restaurant?

Without a clause in the contract awarding attorneys’ fees and prejudgment interest, the supplier might end up paying more to collect than the principle amount owed. “In claims that arise out of a contractual right, interest has been allowed at the legal rate from the date that payment was wrongfully withheld, where the damages are liquidated and certain, and the interest is readily ascertainable through computation.”  Daset Min. Corp. v. Industrial Fuels Corp., 326 Pa.Super. 14, 473 A.2d 584 (1984). (emphasis added) “Where the terms of a contract provide for the payment of interest, a court’s award of such interest in favor of the prevailing party is not discretionary.” TruServ Corp. v. Morgan’s Tool & Supply Co., Inc., 614 Pa. 549, 39 A.3d 253, 261 (2012). Additionally, each party is ordinarily responsible for its own attorneys’ fees “absent bad faith or vexatious conduct”. Lucchino v. Commonwealth, 570 Pa. 277, 282, 809 A.2d 264, 267 (2002). Known as the American Rule, it applies “unless there is express statutory authorization, a clear agreement of the parties or some other established exception.” Mosaica Academy Charter School v. Com. Dept. Of Educ., 572 Pa. 191, 206-7, 813 A.2d 813, 822 (2002). (emphasis added). Once attorneys’ fees are allowed, the trial court has the authority to consider the reasonableness of the fee claimed. McMullen v. Kutz, 603 Pa. 602, 614-15, 985 A.2d 769, 776-77 (2009). Pennsylvania courts routinely uphold contractual agreements between commercial parties regarding consequences of breach. *

In a recent victory for one of our clients, an information technology service provider, the contract specified their right to recover all reasonable attorneys’ fees, costs, litigation expenses, and prejudgment interest in the event that legal action was required to recover payment for services rendered or products delivered, and in the event of any legal action commenced by them to enforce any term or condition provided for in the contract. Rather than pay per the contract, their customer concocted baseless defenses and counterclaims, delayed trial for three years, and failed to come forward with any credible evidence in support of their claims and defenses. The court found in favor of our client and enforced the clauses of the contract awarding attorneys’ fees, litigation expenses, and prejudgment interest. On a principle claim of approximately $25,000, our client was awarded in excess of $30,000 in additional prejudgment interest and attorneys’ fees. Without the clause in the contract that allowed for those awards our client would not have been made whole, with the litigation expenses eating away at what they were rightfully owed by their recalcitrant customer. So, if you are drafting, signing, or seeking to enforce contracts, keep these things in mind. It could be the difference between “eating” the costs of litigation and interest or recovering them.

*It is important to note, however, that these legal tenets may not apply in consumer contracts, where statutes may prohibit recovery of attorneys’ fee, etc.