INDEMNITY
CONTRACT
Definition :
According to Sec-124 of I.C.A, 1872, a contract
of indemnity means
“a contract of indemnity is a
contract by which one party promises to
another to save him from loss caused to him by
the conduct of the promisor himself or by the
conduct of any other person”.
Meaning of Indemnity:
To ‘indemnify’ means to save from loss.
Indemnity means an act to compensate or
protect somebody from the loss or make good
to the loss.
When one person promises to another person
that in case another person suffers from some
loss the first person will compensate the loss.
By a contract of indemnity, a security is
provided to the promisee against any
anticipated loss.
Example:
AMIT parked his scooter at the scooter stand.
He lost his token given by the scooter stand
contractor.
The scooter stand contractor refuses to return
the scooter to AMIT, unless AMIT gives him an
Indemnity Bond against any loss which that
contractor may suffer if any other person claims
the scooter from the contractor.
ESSENTIALS of Indemnity Contract :
1) All the essentials of a Valid Contract must be
present.
2) There must be loss either by the promisor’s
conduct or by any other person’s conduct.
3) Contract may be expressed or implied.
4) It is a Contingent Contract by nature.
PARTIES INVOLVED IN INDEMNITY
CONTRACT:
1. Indemnifier [Promisor]
2. Indemnity-Holder or Indemnified [Promisee]
1) Indemnifier [Promisor]- the person who
promises to make good the loss.
2) Indemnity-Holder [Promisee]- the person
whose loss is to be made good.
according to previous example, here:
Indemnifier – Amit
Indemnity-Holder or Indemnified – Scooter
Stand Contractor
Rights of Indemnity-Holder:
The rights of the indemnity holder are
dependent on the terms of the contract of
indemnity as a general rule.
Section 125 of the Indian Contract Act, 1872
comes into play when the indemnity holder is sued
i.e. under specific situation.
1. Claim for Damages-Sec.
125(1) :
An indemnity-holder when sued, is entitled to
recover from the indemnifier all damages which
he may be compelled to pay in any suit in
respect of any matter to which the promise to
indemnity applies.
2. Claim for Cost of Suit-
Sec.125(2) :
An indemnity-holder is entitled to recover from
the indemnifier all costs reasonably incurred in
bringing or defending such suits.
But the indemnity-holder is entitled such cost,
when he has acted with foresight as a prudent
man would, under similar circumstances.
Or he must act as per instruction of the
indemnifier (promisor) who carries the
authority.
3. Recovery of Sums paid
under Terms of
Compromise.-Sec.125(3) :
Indemnity-holder is entitled to recover from the
indemnifier, all sums which he may have paid under
terms of any compromise of any suit.
The compromise must not be contrary to the orders of
the indemnifier (promisor) or it must be authorized by
the indemnifier & acted same as the prudent person
would under similar circumstances.
The compromise made must be with the consent of the
indemnifier.
4. Suit for Specific
Performance :
If the indemnity-holder incurs absolute liability which is
covered by the contract of indemnity, then an
indemnity-holder can sue for specific performance of
the indemnity contract.
It is a general principle of law that :
when an act is done by one person at the request of
another,
which act in itself is not tortuous to the knowledge of the
person doing it,
and such act turns out to be injurious to the rights of a
third party,
then the person doing it is entitled to an indemnity from
him, who requested that; it should be done.
THANK
YOU !
