Can a party recover attorney fees from an unenforceable contract under Utah Code section 78-27-56.5? Bilanzich v. Lonetti Explained

In Bilanzich v. Lonetti, the Utah Supreme Court addressed a fundamental question about attorney fee recovery: can a party obtain fees under Utah Code section 78-27-56.5 when the underlying contract is unenforceable? The Court’s answer significantly expanded the scope of statutory attorney fee recovery in Utah.

Background and Facts

Michael Bilanzich executed a personal guaranty for a substantial loan to secure an ownership interest in a corporation. The guaranty contained a unilateral attorney fees provision favoring the lenders, the Lonettis. However, the guaranty was placed in escrow and was only to be delivered upon the corporation obtaining adequate financing. When the financing condition failed, Bilanzich sued to have the guaranty declared unenforceable due to failure of a condition precedent. The district court granted summary judgment in Bilanzich’s favor, finding the guaranty unenforceable. Bilanzich then sought attorney fees under Utah Code section 78-27-56.5, which the district court denied.

Key Legal Issues

The central issue was whether Utah Code section 78-27-56.5 permits attorney fee awards when a party successfully challenges the enforceability of the very contract containing the attorney fees provision. The court of appeals had applied the common law rule from BLT Investment Co. v. Snow, which prevents parties from avoiding a contract while simultaneously claiming benefits from it.

Court’s Analysis and Holding

The Utah Supreme Court reversed, holding that statutory interpretation must focus on the plain language of Utah Code section 78-27-56.5. The Court found two key requirements: (1) the civil action must be “based upon” a promissory note, written contract, or other writing, and (2) the writing must “allow at least one party to recover attorney’s fees.” Critically, the Court emphasized that the statute requires only that litigation be “based upon” the writing—not that the writing be enforceable. The statute’s language focuses on the “provisions” of the writing rather than its legal effect.

Practice Implications

This decision significantly expands attorney fee recovery opportunities under section 78-27-56.5. The Court clarified that the statute grants discretionary authority to district courts and should be applied liberally to “level the playing field” between parties with unequal exposure to attorney fee liability. Courts should consider whether pursuing or defending an action creates unequal exposure to contractual attorney fee risks. The decision also confirms that Utah statutes supersede conflicting common law principles, rejecting narrow interpretations that would preserve common law limitations.