Opinion ID: 2546870
Heading Depth: 3
Heading Rank: 2

Heading: Liability Under the Indemnification Agreement

Text: ¶ 19 The district court also ruled that Tremco was liable to BYU pursuant to the indemnification agreement that Tremco entered with STC in 1994 in connection with the sale of STC's stock to WordPerfect. [4] In that agreement, Tremco assumed responsibility for the litigation concerning BYU's DSearch software technology and agreed to hold STC harmless from any and all claims, damages or liabilities of any nature ... stemming from or in connection with ... BYU claims with respect to the Dsearch algorhythm [sic]. ¶ 20 BYU persuaded the district court that the terms of the indemnification agreement rendered it a third-party beneficiary of that agreement, thereby conferring upon it the right to directly enforce against Tremco its judgment against SoftSolutions. It reiterates this position on appeal, asserting that it is an intended beneficiary of Tremco's agreement with STC. To support its position, BYU relies on Ron Case Roofing & Asphalt Paving, Inc. v. Blomquist, 773 P.2d 1382 (Utah 1989), in which we agreed with the holdings of courts in other jurisdictions that one who assumes a debtor's obligations creates enforceable third-party beneficiary rights in the debtor's creditors. Id. at 1387. It also relies on section 302 of the Restatement of Contracts, which provides that, [u]nless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and . . . the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary. Restatement (Second) of Contracts § 302(1)(a) (1981). ¶ 21 We have no quibble with BYU's recitation of intended beneficiary principles, but those principles are not applicable here. Tremco's liability for the SoftSolutions judgment cannot arise from the indemnification agreement because SoftSolutions was not a party to that agreement, and nowhere in the agreement did Tremco agree to assume liability for SoftSolutions' obligations to BYU. The indemnification agreement was expressly made between Tremco and STC; Tremco was the promisor, and STC was the promisee. SoftSolutions was never mentioned in the agreement. Therefore, to the extent that BYU is an intended beneficiary of the agreement, it could attempt to collect from Tremco a hypothetical judgment entered against STC, but not one entered against SoftSolutions. BYU's judgment, however, was entered only against SoftSolutions. BYU has not asserted an alter ego theory of liability, attempted to pierce a corporate veil, or otherwise demonstrated why Tremco is legally responsible under the indemnification agreement for SoftSolutions' debt. BYU's arguments regarding its right to collect from Tremco under the indemnification agreement are therefore untenable, and we hold that the district court erred in relying on them as a basis for imposing liability on Tremco.