Who Pays the Lawyers? Attorney’s Fees in Vendor Contracts
By Kendall Wilson
August 25, 2026
“Don’t worry—if they sue us and we win, they’ll have to pay our legal fees.”
This common belief among business personnel seems logical, even intuitive, and certainly fair: If I win a lawsuit, of course the other side will have to pay my attorney’s fees! But despite its common appeal, that is generally not the case.
The Default Rule: Everyone Pays Their Own Way
In the United States, the default rule in almost every state is the “American Rule”: each side pays its own attorney’s fees, regardless of who wins. Unlike many other countries, there is no general “loser pays” principle built into the law.
If you defend a claim, even a frivolous one, and win outright, you generally cannot recover your fees from the other side unless something specific changes that outcome. That “something specific” is almost always one of two things: a statute that applies to the particular type of claim, or a provision the parties wrote into their own contract.
For most everyday vendor, service, and commercial agreements, the contract is where this gets decided. If your contract is silent on attorney’s fees, plan on each side absorbing its own costs—win, lose, or draw.
That means the fee-shifting language in your contracts isn’t boilerplate to skim past. To the contrary, it’s one of the few places you can actually change who bears the financial risk of a future dispute.
Issues Worth Flagging Before You Sign
“Shall” vs. “may.”
What to look for: Some fee provisions are mandatory (“the prevailing party shall recover its reasonable attorney’s fees”); others are discretionary (“the court may award fees to the prevailing party”).
Why it matters: A “may” clause gives a judge or arbitrator an escape hatch, meaning fees might not be awarded even if your side clearly wins.
The takeaway: Know which version you’re agreeing to. “May” is a much weaker guarantee than it sounds.
Mutuality
What to look for: Is the clause one-sided, meaning only the vendor or the financial institution can recover fees, or is it reciprocal, allowing whichever side prevails to recover? One-sided clauses are more common than people expect, especially in vendor-drafted templates. We also see vendors slip in one-sided clauses seemingly related only to collections of fees, but which could result in an unintentional one-sided attorneys’ fee provision.
Why it matters: Some states have statutes that automatically make one-sided fee provisions mutual, but many don’t; and among those that do, many are limited to consumer contracts. Among commercial entities, the parties are generally left with the bargain they agree to, and courts will often enforce a one-sided fee provision if it makes its way into the final contract.
The takeaway: Don’t assume the provision protects both parties. Ask: who does this clause actually protect?
How “prevailing party” is defined, or isn’t
What to look for: Does the contract actually define “prevailing party”? If it doesn’t, courts will apply their own tests.
Why it matters: The results can be counterintuitive. A party that recovers a small fraction of what it sought can sometimes still be deemed “prevailing.”
The takeaway: If fee-shifting matters to you, it’s worth defining the term rather than leaving it to a judge later.
Remember: Fee-Shifting Cuts Both Ways
What to look for: Think about where your institution is likely to sit in a future dispute. Are you more likely to be trying to enforce the agreement because a vendor stops performing? Or are you more likely to be trying to get out of a long-term agreement you may want to terminate or challenge down the road?
Why it matters: A fee-shifting clause isn’t a one-way insurance policy. It’s a two-edged sword that applies to both sides. A provision that looks protective when you’re thinking about enforcement can become a liability if your institution later becomes the party trying to walk away or contest the deal.
The takeaway: There’s no universal “always include it” or “always resist it” answer. It depends on which side of a likely future dispute your institution is more likely to occupy.
The Bottom Line
Attorney’s fee provisions in contracts are easy to treat as standard legal language, but they have real financial consequences and no single “right” answer that applies in every instance.
Loop in legal counsel when drafting or negotiating agreements – particularly higher-risk vendor relationships – to think through whether a fee-shifting provision helps or hurts your institution’s position, and to make sure the language says what you intend it to say.
About the Author
Kendall Wilson
Kendall Wilson is a Senior Associate Attorney at SW&M, bringing over 15 years of diverse legal experience to the firm. Kendall’s practice is centered on representing credit unions in a wide range of legal matters, including labor and employment issues, […]
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