Lecture-1

Law of Contracts-II

Contract of Indemnity

Date: 03/07/2013 Slide-1

 Lecture-
1
Law of Contracts-II
(Contract of Indemnity)
• General and Special Contracts
• S. 124 defines a contract of indemnity as: 
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”.
• Parties to a contract of indemnity:
– ‘Indemnifier’ and
– ‘Indemnified’ or ‘Indemnity-holder’
• Illustrations: PNVSV Prasad v Union of India
(1995) 1 Andh WR 120 [A, 481] employee can
leave employment before agreed period
provided there will be forfeiture of bond
money necessary to indemnify employer of
his losses

Date: 03/07/2013
Slide-1
 Lecture-
1
Law of Contracts-II
(Contract of Indemnity)

• Essential Features:
1. Valid contract.
2. Either written or oral; express or implied.
 Secretary of State v The Bank of India Ltd (1938) 175 IC
327 (PC): AIR 1938 PC 191 [A, 480-81] implied indemnity
3. The liability must have arisen or the indemnified must have
suffered some loss.
4. Loss must be caused by some human agency.
5. The indemnified shall be entitled to all the damages which he
has paid, all costs which he may have compelled to pay in any
suit, and all sums paid by him under any compromise. (S. 125)
Date: 03/07/2013 Slide-3
 Lecture-
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Law of Contracts-II
(Contract of Indemnity)

• Contract of Insurance: Whether or not a

contract of indemnity? [A, 480]

• Indian Law of Indemnity v English Law of

Indemnity [A, 479]
• Situations like Adamson v Jarvis (1827) 4 Bing
66: 5LJ (OS) (CP) 68: 29 RR 503. –S. 223 of the
ICA [A, 479] plaintiff sold cattle on directions of defendant- D
not rightful owner- sued for indemnity for loss
Date: 03/07/2013 Slide-4
 Lecture-
1
Law of Contracts-II
(Contract of Indemnity)
• Right of indemnity-holder when sued (S. 125):
The promisee in a contract of indemnity, acting within the scope
of his authority, is entitled to recover from the promisor-
o (1) all damages which he may be compelled to pay in any suit in respect of
any matter to which the promise to indemnity applies;
o (2) all costs which he may be compelled to pay in any such suit, if in
bringing of 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 authorised him to bring or
defend the suit; 
o (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
authorised him to compromise the suit.
Date: 03/07/2013 Slide-5
 Lecture-
1
Law of Contracts-II
(Contract of Indemnity)

• Commencement of liability: Gajanan

Moreshwar v Moreshwar Madan AIR 1942 Bom
302—Ss 124-125 are not exhaustive on the law
of indemnity [A, 482-83]

• Recommendations of the Law Commission of

India: 13th Report, 1958, on the Indian Contract
Act 1872.

Date: 03/07/2013 Slide-6

 Lecture-
1
Law of Contracts-II
(Contract of Indemnity)
• Recommendations of the Law Commission of
India: 13th Report, 1958, on the Indian Contract
Act 1872.
– A contract by which one party promises, expressly or
impliedly, to save the other from loss caused to him
by the conduct of the promisor himself, or by the
conduct of any other person or by any event not
depending on such conduct, is called a “contract of
indemnity”.
• The LCI recommended for the insertion of one more section, i.e.
S 125 A, with a view to fully define the rights and remedies of
the indemnity holder even in cases where he has not been sued.
Date: 03/07/2013 Slide-7