Contract of Indemnity

Meaning:
• I. Literal Meaning: Indemnity means –make good the loss.
• In contract of indemnity, there are two parties-promissor/indemnifier
• And promisee/indemnified/indemnity-holder
• II. English Law: An 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 party makes a default.
• That is to say, Indemnity is a promise to save the promisee harmless
from loss caused as a result of a transaction entered into at the
request of the promissor.
• Adamson v. Jarvis, (1827) 4 Bing 66
• Dugdale v. Lovering, (1875) 10 CP 196
• Shefeild Corporation v. Barclay, (1905) AC 392
• Indian Law:
• Sec. 124 of the Indian Contract Act defines the term “Contract of
Indemnity” as,
• “A contract by which one party promises to save the other from loss
caused to him by the contract of the promissor himself or by
conduct of any other person, is called a ‘Contract of Indemnity.’
• Under the Indian Law, a person may indemnify for the loss-(a) caused
by the promisor himself,
• (b) by conduct of any other person.
• Secretary of State v. Bank of India, (1938) 175 IC 327
• Essentials conditions:
• All condition for a valid contract,
• The promisee must have suffered a loss,
• The promissor or indemnifier shall be liable for all damages sustained by the
indemnity-holder or any cost or benefit paid at law.
• ###Comparison between English Law and Indian Law:
• i. Common law definition is wider than the Indian law on the ground that – a
promiossor may indemnify against loss arising out of any cause whatsoever,
i.e., loss caused by fire or any other act of God. But, under Indian law,
indemnity extends to the acts of human agency not by acts of God.
• ii. U/English law, every contract of insurance other than life insurance is a
contract of indemnity, but, it is not so in /Indian law.
Rights of the Indemnity holder:
• Sec.125 of the Indian Contract Act -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.
Commencement of Indemnifier’s Liability:
• There are two views –
• One view refers as, indemnifier is not liable until and unless the
indemnity holder suffers an actual damage or loss,
• Other view holds that indemnifier may be compelled to indemnify
without waiting of the occurrence of actual loss or until he has
actually discharged it.
• Gajanan Mareshwar v. Mareshwar Madan, AIR 1942 Bom. 302
• Osman Jamal &Sons Ltd. V. Gopal Purushottam, 1928 ILR 56 Cal.262