The Importance of Attorney's Fees Provisions in Contracts

A recent decision by New Mexico's Court of Appeals reiterates the significance of ensuring that parties to a contract, particularly the sale of real estate, should ensure that the contract includes a provision for the award of attorney's fees in the event of a dispute. In the case of Varga v. Ferrell, Nos. 34,403, 31,268, Consolidated with 31,337 and 31,398 (NM: Court of Appeals 2014), a home purchaser discovered after the sale that it had contained severe construction defects. The purchaser not only sued the seller and the seller's broker but also her own broker. In the course of the litigation, the purchaser's broker successfully won the grant of a motion for summary judgment. Accordingly, that broker does not have to go to trial and was also relieved from any liability in the matter.

 

However, this broker did incur attorney's fees to reach that point. The sales contract contained a relevant provision concerning responsibility for attorney' fees: "Should any aspect of this [a]greement result in dispute, litigation, or settlement, the prevailing party of such action including Broker shall be entitled to an award of reasonable attorney[] fees and court costs. As the grant of summary judgment for the purchaser's broker clearly rendered that broker as a "prevailing party".

 

However, the trial court declined to award that party attorney's fees because the broker had indicated, during the course of the litigation that the company had insurance to pay for representation. The trial court relied on this point to conclude that the broker is not entitled to recover these fees. But the Court of Appeals concluded that the purchase agreement required the district court to award reasonable attorney fees to Campbell/DLR as the prevailing parties noting, "There is nothing in the purchase agreement that provides an exception to the fee provision when fees are paid by a third party." The fact the broker had coverage for such fees does not constitute an exception to this effect of this provision."

 

The decision in this case underscores the importance of making sure that any agreement entered in to by parties to a contract in the State of Mexico should include an appropriate provision regarding award of attorney's fees. Just as it is important to retain experienced counsel to draft contracts on your behalf, it should be considered critical that the contract contain a mechanism by which you can have other parties bear responsibility should they breach the agreement with you.

 

Mr. Giddens and the other attorneys at Giddens & Gatton Law, PC have experience advising New Mexico businesses and property owners regarding contract matters. Giddens & Gatton Law, PC is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico. Call the office at (505) 633-6298 to set up an appointment or visit the firm's website at giddenslaw.com for more information.      

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