Contract of Indemnity
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A contract of indemnity is defined as one where one party promises to compensate the other for any losses caused either by the promisor's actions or those of others. The person making the promise is the indemnifier and the person receiving the promise is the indemnified. For a contract of indemnity to be enforceable, it must meet all the requirements of a valid contract. If the purpose or consideration of the indemnity is unlawful, such as promising to indemnify someone for assaulting another person, the contract cannot be enforced. Contracts of insurance, excluding life insurance, as well as implied contracts between auctioneers and those requesting an auction are also considered contracts of indemnity.
Contract of Indemnity
- 3. MEANING AND CONCEPT The term 'indemnity' simply means to make good the loss or to compensate the party who has suffered some loss. The term 'contract of indemnity' is defined in Section 124 of the Indian Contract Act as follows: "A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the: conduct of any other person, is called a contract of indemnity."
- 4. PARTIES The person who promises to compensate for the loss is called the "indemnifier“. The person to whom this promise is made or whose loss is to be made good is known as "indemnity-holder" or "indemnified". For example, A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of money. This is a contract of indemnity, Here A is the indemnifier and B is the indemnified.
- 5. ENFORCEABILITY To enforce such contracts it is necessary that all the essentials of a valid contract must be present. In case any one of the essential is missing, the contract cannot be enforced. Thus if the object or consideration of an indemnity agreement is unlawful, it cannot be enforced. For example, A asks B to beat C, promising to indemnify him against the consequences this cannot be enforced. Suppose B beats C and is fined Rs. 500, B cannot claim this amount from A, because the object of the agreement is unlawful.
- 6. SCOPE All contracts of insurance (except Life Insurance) are also contracts of indemnity. In an auction sale there is an implied contract of indemnity between the auctioneer and the person who asks him to sell goods. A promise to make good the loss arising from any cause whatsoever e.g. fire, perils of sea, accidents etc. are also considered to be contract of indemnity.