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Wagging the Dog: Ambiguous Attorney’s Fees Provisions

Apr 26, 2023 | Uncategorized | 0 comments

Is this attorney’s fees clause ambiguous?

“The Debtor agrees to pay all costs and expenses of collection (including Trustee’s and attorney’s fees in event of default in payment of the indebtedness secured hereby).”

The Utah Court of Appeals thinks so. Here’s the situation: A borrower sued his lender, arguing that his debt was invalid. The court disagreed and entered judgment for the lender declaring the debt legitimate. Naturally, the lender asked for attorney’s fees she incurred. The trial court rejected the request, finding that the clause unambiguously applied only when the lender was collecting a debt in default. Because the loan was not due yet, the clause could not apply.

The Utah Court of Appeals disagreed. Its reasoning: On one hand, the clause might apply only to efforts to receive payment on a defaulted debt. On the other hand, the parenthetical could imply that there are some situations – aside from default – in which the lender could incur costs and expenses (like defending the validity of the debt). Vierig v. Therriault, 2023 UT App 36 (2023).

The result? Both parties return to the trial court to present specific “evidence” of the intent of the attorney’s fees clause (a provision that was likely included in a standard form and not specifically negotiated). Good luck.

Do you have attorney’s fees clauses in your contracts that you haven’t looked at in a while? It might be time to dust them off. It’s worth your time – you just might avoid an evidentiary hearing . Your bank account will thank you.