Unit - I - Indemnity

Section 124 of the Indian Contract Act 1872, defines Indemnity.

According to Halsbury, as indemnity is a contract, express or
implied to keep a person, who has entered into or who is about
to enter into, a contract or incur any other liability, indemnified
against loss, independently of the question whether a third
person makes a default
Chitty defines 'indemnity' in its widest sense, it means
recompense for any loss or liability which one person has
incurred, whether the duty to indemnify comes from an
agreement or not.
In Adamson v. Jarvis, the plaintiff (an auctioneer), sold certain
cattle on the instruction of the defendant. It subsequently
turned out that the livestock did not belong to the defendant,
but some other person, who made the auctioneer liable and the
auctioneer in his turn, sued the defendant for the indemnity; for
the loss he had thus suffered by acting on the defendant's
directions.
The Court laid down that the plaintiff having acted on the
request of the defendant, was entitled to assume that, if, what
he did turned out to be wrongful, he would be indemnified by
the defendant.
Thus indemnity under English Law means a 'promise to save
a person harmless from the consequences of an act.'

The promise may be express or it may be implied from the

circumstances of the case.
The English definition is wide enough to include a promise of
indemnity against loss arising from any cause whatsoever, e.g.:
loss caused by fire or by some other accident. But the definition
of Sec 124 of The Indian Contract Act, 1872 is somewhat
narrower.
124. “Contract of indemnity” defined.—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.”
Illustration - A contracts to indemnify B against the
consequences of any proceedings which C may take against B in
respect of a certain sum of Rs. 200. This is a contract of
indemnity.
In Secretary of State v. Bank of India, a note with forged
endorsement was given to a bank, which received if for value
and in good faith. The bank sent it to the Public Debt Office for
renewal in their name. The true owner of the note recovered
compensation from the State and State was allowed to recover
from the bank on an implied promise of indemnity.
Every contract of insurance, other than life assurance, is a
contract on indemnity.
The person who gives the indemnity is called 'indemnifier' and
the person for whose protection indemnity is given is
'indemnified or indemnity-holder

Gajanan Moreshawar v. Moreshwar Madan

Facts : Plaintiff got a plot of land on lease from Municipal

Corporation of Bombay. Plaintiff allowed the defendant to
erect building on that land. Defendant, in this course,
incurred debt of Rs.5000 from building material supplier ,
twice.

On both the occasion, Plaintiff mortgaged part of the land to

supplier. Plaintiff on the defendant's request transferred the
land to defendant, on the consideration that the plaintiff
would be discharged of all the liabilities arising out of that
land.

The defendant failed to adhere to his consideration. Plaintiff

filed a suit for discharge of liabilities on him, alleging the
defendant to be indemnifier.

Issue: Whether the suit for indemnity was premature as the

plaintiff had not yet incurred any loss as such?

The Bombay High Court held that The Indian Contract Act
1872 is both an amending and a consolidating Act, and it is
not exhaustive of the law of contract.

Section 124 deals only with one particular kind of indemnity in

which the loss is caused by the conduct of the indemnifier
himself or of other person, but does not cover the cases
outside this or cases when liability arises because of
something done by the indemnified at the request of the
indemnifier.

S. 124 deals with subsequent conduct but here the liabilities

were past, i.e. prior to the date when the contract was
actually entered into force. Earlier to this contract, all the acts
were done merely on request and without any
consideration and hence, were not binding.

Therefore Sec 124 is inapplicable here.

Additionally, under both the mortgage and the further

charge, there is a personal covenant by the plaintiff to pay
the amount due, and it would be open to the mortgagee to
sue the plaintiff on the personal covenant reserving his rights
under the security.

Therefore, the liability of the plaintiff under the personal

covenant is absolute and unconditional.

Principles of equity (as applied in English Courts) can be

applied here to relieve plaintiff from all the liabilities as The
Indian Contract Act, 1872 is not exhaustive on the law of
indemnity.
Sec 125 - Rights of indemnity-holder when sued.—The
promisee in a contract of indemnity, acting within the scope of
his authority, is entitled to recover from the promisor—
(1) all damages which he may be compelled to pay in any suit in
respect of any matter to which the promise to indemnify
applies;
(2) all costs which he may be compelled to pay in any such suit
if, in bringing or defending it, he did not contravene the orders
of the promisor, and acted as it would have been prudent for
him to act in the absence of any contract of indemnity, or if the
promisor authorized him to bring or defend the suit;

(3) all sums which he may have paid under the terms of any
compromise of any such suit, if the compromise was not
contrary to the orders of the promisor, and was one which it
would have been prudent for the promisee to make in the
absence of any contract of indemnity, or if the promisor
authorized him to compromise the suit.