A $150,000 contract claim is a different decision when the breaching party pays the legal fees. That is what Chapter 38 does. Texas Civil Practice and Remedies Code Chapter 38 lets a prevailing plaintiff recover reasonable and necessary attorney’s fees on a breach of contract claim. That one feature changes the economics of commercial litigation. It adds settlement leverage and offsets client cost in ways that no-fee jurisdictions cannot match.
The sections below work through the statutory framework, the 2021 HB 1578 amendment that closed a major gap, and the steps, presentment, segregation, fee proof, that decide whether the recovery actually lands.
The basic framework
Section 38.001 provides that a prevailing party may recover attorney’s fees in a claim for:
- Rendered services.
- Performed labor.
- Furnished material.
- Freight or express overcharges.
- Lost or damaged freight or express.
- Killed or injured stock.
- A sworn account.
- An oral or written contract.
Most Texas business contract claims fall within category 8 (oral or written contract). Categories 1, 2, 3, and 7 cover common commercial billing scenarios.
The fee recovery is for the prevailing plaintiff. Cases where the defendant prevails do not produce fee recovery under Chapter 38, though specific contracts may have two-way fee provisions and other statutes (TCPA, anti-SLAPP) sometimes support defense fee recovery.
The HB 1578 amendment
A critical development for Texas commercial litigation: HB 1578, effective September 1, 2021, amended Section 38.001 to replace “individual or corporation” with “individual or organization.”
The amendment closed a significant gap. Pre-amendment case law had limited Chapter 38 to claims against individuals and corporations. Claims against LLCs, limited partnerships, general partnerships, and other entity types fell outside the statute. The “fluke” produced a category of Texas contract defendants who could avoid fee exposure based on entity choice, typically the very entities most commonly used for commercial activity.
The amendment expanded coverage to “organizations,” defined to include the principal Texas commercial entity types. Claims against LLCs, partnerships, and similar entities now produce the same fee exposure as claims against corporations.
The effective date matters. The amendment applies to claims on causes of action accruing after September 1, 2021. Cases involving older facts may have different fee exposure depending on accrual.
Presentment requirement
Section 38.002 requires the claimant to present the claim to the opposing party at least 30 days before recovering fees. The presentment must:
- Be made to the opposing party or duly authorized agent.
- Be sufficient to put the opposing party on notice of the claim.
- Demand payment.
- Provide at least 30 days before suit.
Presentment is typically satisfied through formal demand letters. The letter identifies the underlying contract, the alleged breach, the damages claimed, and the demand for payment. The 30-day period runs from delivery.
Failure to present prevents fee recovery even when the underlying contract claim succeeds. Effective practice includes presentment in every Chapter 38 case from the beginning.
Reasonable and necessary
Section 38.003 establishes presumptions for reasonableness of fees, and Section 38.004 provides for judicial notice of the usual and customary attorney’s fees.
The fees recoverable are “reasonable and necessary.” Courts apply the Arthur Andersen and Rohrmoos Venture factors to evaluate reasonableness:
- Time and labor required.
- Novelty and difficulty of the questions.
- Skill required.
- Likelihood that acceptance of the matter would preclude other work.
- Customary fee for similar work.
- Whether the fee was fixed or contingent.
- Time limitations imposed.
- Amount involved and results obtained.
- Experience, reputation, and ability of the attorneys.
- Whether the case was undesirable.
- Nature and length of the professional relationship.
- Awards in similar cases.
The Texas Supreme Court’s Rohrmoos Venture v. UTSW DVA Healthcare decision provides the current framework for proving fees. The lodestar method (reasonable hourly rate times reasonable hours) is the starting point.
Segregation
A frequent fee recovery issue: Chapter 38 fees are recoverable only for the contract claim. When the case includes both contract claims (fee-eligible) and other claims (not fee-eligible under Chapter 38), the attorney’s fees must be segregated.
The Texas Supreme Court’s Tony Gullo Motors I, L.P. v. Chapa decision established the segregation framework. Fees for work that would have been done anyway in pursuing the contract claim do not require segregation. Fees for work specifically attributable to non-contract claims must be segregated and excluded from the recoverable amount.
Effective practice maintains contemporaneous time records that support segregation analysis. Cases with significant non-contract elements (fraud, business torts, statutory claims) require careful segregation work to maximize Chapter 38 recovery.
Contractual fee provisions
Many commercial contracts include their own fee-shifting provisions. These contractual provisions can:
- Apply when Chapter 38 would not.
- Provide for two-way fee recovery (prevailing party rather than prevailing plaintiff).
- Apply to broader categories of claims (not limited to Chapter 38 categories).
- Specify particular fee calculation methods.
Contractual fee provisions are generally enforceable in Texas. They run alongside Chapter 38 in cases where both apply.
Strategic implications
The fee recovery shapes case strategy in several ways:
Settlement leverage. Defendants facing fee exposure typically settle at higher numbers than defendants without fee exposure. The fee exposure becomes part of the settlement value.
Investment justification. Cases with viable fee recovery justify substantial attorney investment because the fees can be recovered if the case succeeds. Cases without fee recovery require more careful cost-benefit analysis.
Defendant calculus. Defendants in Chapter 38 cases face expanded exposure. Pre-suit settlement often becomes more attractive than risking trial fees.
Specific recovery strategies. Some plaintiffs structure their pleadings to maximize Chapter 38 fee recovery, for example, leading with contract claims and treating fraud or other theories as alternatives.
Plea to the jurisdiction issues. Specific aspects of fee recovery (presentment, segregation, prevailing party status) sometimes produce jurisdictional and substantive issues.
Common case applications
Business-to-business contract disputes. The standard application. B2B contract claims under Chapter 38 with amended scope post-September 2021.
Vendor and supplier disputes. Cases under Categories 1 through 3 of Section 38.001 (services, labor, materials) often qualify.
Sworn account claims. Category 7. Common in business-to-business sales of goods on open account.
LLC and partnership operating agreement breaches. Now covered post-HB 1578 amendment.
Personal guaranty claims. Cases against individual guarantors of business obligations.
Building the fee claim from day one
Fee recovery is not something to bolt on at the end. We pursue Chapter 38 in every qualifying case because it moves both the economics and the settlement dynamics, and that means doing the unglamorous work up front. We satisfy presentment in every case, with demand letters in the right form and on the right clock, so the option is never lost on a technicality. We keep contemporaneous time records that are ready to segregate, which makes the mixed-claim cases straightforward instead of a fight. And we run Chapter 38 alongside any contractual fee provision, because the two together often reach further than either one alone.
Miss presentment and the best contract claim in the file recovers no fees. We do not miss presentment.
Frequently Asked Questions
Can attorney's fees be recovered for breach of contract in Texas?
Yes, under Texas Civil Practice and Remedies Code Chapter 38. A prevailing plaintiff in a breach of contract claim may recover reasonable and necessary attorney's fees against an individual or organization. HB 1578 (effective September 1, 2021) amended the statute to replace "individual or corporation" with "individual or organization," expanding coverage to LLCs, partnerships, and other entity types that had previously been outside the statute. The fee recovery substantially affects the economics of contract litigation.
What organizations are covered by the Texas Chapter 38 attorney's fees statute?
Following the HB 1578 amendment effective September 1, 2021, Chapter 38 covers claims against organizations including corporations, LLCs, limited partnerships, general partnerships, limited liability partnerships, and other business entities. Pre-amendment case law had limited the statute to individuals and corporations, leaving claims against LLCs and partnerships outside fee recovery. The amendment closed that gap. The statute applies to claims based on rendered services, performed labor, furnished material, freight or express overcharges, lost or damaged freight or express, killed or injured stock, sworn account, and oral or written contracts.
What is the presentment requirement for Texas Chapter 38 attorney's fees?
Section 38.002 requires the claimant to present the claim to the opposing party (or the party's duly authorized agent) at least 30 days before the claimant may recover attorney's fees. The claim must be one for which Chapter 38 provides fee recovery, and the presentment must be sufficient to put the opposing party on notice of the demand. Failure to present prevents fee recovery even when the underlying claim succeeds. Effective practice typically uses formal demand letters that satisfy presentment, providing 30-day cure periods before suit is filed.