In Missouri, residential sale contracts are generally boilerplate agreements that contain a number of fill-in-the-blanks which are used to identify the key terms of the sale. These boilerplate agreements almost always contain an attorneys’ fees provision tucked away in the fine print, but most buyers and sellers likely have no clue as to the legal impact of that provision. Accordingly, a brief overview may be helpful.

Missouri courts adhere to the “American Rule,” which provides that each litigant must bear the cost of attorneys’ fees incurred. However, Missouri recognizes an exception to the American Rule when a contract permits a successful litigant to recover attorneys’ fees. If a contract provides for the payment of attorneys’ fees in the enforcement of a contract provision, the trial court must award them to the prevailing party. Importantly, the decision to award attorneys’ fees is not a matter of discretion in this situation, and failure to do so is erroneous. But a court may not go beyond the terms of the attorneys’ fees provision.

As with other contracts, attorneys’ fees provisions in residential sale contracts are enforceable in Missouri. For instance, in Vaughn v. Willard, 37 S.W.3d 413 (Mo. App. S.D. 2001), the plaintiffs argued that the trial court erred in not awarding them reasonable attorneys’ fees as specifically provided in the real estate sale contract entered into between them and the defendant. The Missouri Court of Appeals agreed with the plaintiffs and analyzed the issue as follows:

    Absent statutory authority or contractual agreement, each litigant, with few exceptions, must bear the expense of his or her own attorneys’ fees. A trial court has broad discretion in awarding attorneys’ fees, and an award will be distributed on appeal only upon a showing that the trial court abused that discretion. The setting of any such fee is also within the discretion of the court and should not be reversed unless the amount awarded is arbitrarily arrived at or is so unreasonable as to indicate indifference and a lack of proper judicial consideration. However, if a claim for attorneys’ fees is made under a provision of [a] contract, the trial court must comply with the terms set forth therein. Here, Plaintiffs Olmsted presented evidence of their attorney expenses in pursuing their claim against Defendant. They were the prevailing party in their claim. … We conclude that the total lack of an award of attorneys’ fees is contrary to the clear terms of the parties’ real estate sales contract and constitutes an abuse of discretion by the trial court.

Similarly, in Sheppard v. East, 192 S.W.3d 518 (Mo. App. E.D. 2006), the Missouri appellate court discussed the exceptions to the American Rule with respect to a residential sale contract and noted:

    In this case, the contract clearly directs that the prevailing party recover attorneys’ fees. Paragraph 13 of the Residential Sales Contract provides: “In the event of litigation between the parties, the prevailing party shall recover … the cost of litigation including reasonable attorneys’ fees.”

In analyzing an attorneys’ fees provision, one must keep in mind that the purpose of contract construction is to ascertain the intent of the parties and to give effect to that intent, which is determined based on the contract alone, unless the contract is ambiguous. A contract is ambiguous if its terms are susceptible to more than one meaning so that reasonable persons may fairly and honestly differ in their construction of the terms. Where a contract is fairly open to two or more interpretations, it will be construed against the party who prepared the contract.

The issue of whether an attorneys’ fees provision is ambiguous becomes important when deciding whether the provision covers the plaintiff’s claims against the defendant. Unlike some jurisdictions, there is no bright-line rule governing the scope of attorneys’ fees provisions in Missouri. Based upon previous Missouri decisions, courts seem to factor in the language of the provision as well as the plaintiff’s claims against the defendant.

For instance, in Borgschulte v. Bonnot, 285 S.W.3d 345 (Mo. App. S.D. 2009), the plaintiff home purchasers prevailed in their tort action for fraudulent misrepresentation against the defendant sellers based upon the defendants’ denial of knowledge of any problems with the septic system. However, even though the sale contract provided for attorneys’ fees to the prevailing party upon default of the contract, the Missouri appellate court held that the plaintiffs were not entitled to attorneys’ fees. In its decision, the court noted that the plaintiffs prevailed on their tort action for fraudulent misrepresentation, not on their contract action.

In contrast, in Sheppard v. East (see above), the plaintiff purchasers filed a petition seeking damages for breach of contract, intentional misrepresentation and negligent misrepresentation based upon disclosures the defendant made in a seller’s disclosure statement attached to the residential sale contract. In their intentional misrepresentation count, the plaintiffs alleged that the defendant made representations in the sale contract that were not true and accurate and that, as a result of the falsity of the representations in the sale contract, the plaintiffs were damaged. The plaintiffs incorporated these allegations into their negligent misrepresentation count as well. The defendant ultimately prevailed on the plaintiffs’ claims, but the trial court denied his request for attorneys’ fees. On appeal, the Missouri Court of Appeals reversed the attorneys’ fees denial and held that the defendant was entitled to reasonable attorneys’ fees. The court noted that the attorneys’ fees provision in the parties’ contract allowed the prevailing party to recover fees “in the event of litigation” between the parties, and that such language was broad enough to cover the breach of contract claim based upon a duty to disclose as well as the misrepresentation counts based upon the defendant’s disclosures in the contract documents.

While Sheppard seems to suggest that the phrase “in the event of litigation” encompasses both contract and tort claims, a close reading of the decision suggests that the holding is rather limited in scope. To be sure, the plaintiff’s claims for negligent and intentional misrepresentation in Sheppard relied upon representations made by the defendant in the sale contract itself. Accordingly, there was no question that the plaintiff’s claims arose from the sale contract.

Moreover, when analyzing an attorneys’ fees provision with “prevailing party” terminology, it is important to understand what exactly that means. Missouri courts have held that “a litigant may be the prevailing party when he obtains a settlement, obtains a voluntary dismissal of a groundless complaint, or obtains a favorable decision on a single issue if the issue is one of significance to the underlying case.” A litigant may also be the prevailing party even if he obtains a dismissal without prejudice of the cause against him when the plaintiff abandons the claim and the litigant thereby receives a benefit.