Contract of indemnityLegal Environment of Business

Prepared By

Manu Melwin Joy

Assistant ProfessorIlahia School of Management Studies

Kerala, India.

Phone – 9744551114Mail – manu_melwinjoy@yahoo.com

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Contract of indemnity - Definition

• To indemnify means tocompensate or make goodthe loss. According toSection 124 of the contractAct, “A contract ofindemnity a contract bywhich one party promisesto save the other from losscaused to him by theconduct of the promisorhimself or by the conductof any other person.”

Example

• A takes court proceedings against B to recovera sum of Rs 1000. At this juncture, C entersinto an agreement with B and promises tocompensate B from the loss or consequencesof such court proceedings which A takesagainst B. This is a contract of indemnity.

Definition

• The person who promisesto save the other from theloss is called indemnifier.The person, to whom thepromise is made, is calledindemnified.

Definition

• To constitute a validcontract of indemnity, thefollowing three ingredientsare necessary.– One party promises to savethe other from loss causedto the latter.

– The loss caused to him bythe conduct of the promisor.

– The loss is caused by theconduct of any other thirdperson.

Object of contract of indemnity

• The object of contract ofindemnity is essentially to protectthe indemnified form theanticipated loss.

• A contract of Indemnity may beexpressed or implied.– Expressed contract of Indemnity –

Where the terms of the contract orIndemnity are either in oral or inwritten form.

– Implied contract of Indemnity –where the contract of Indemnitycan be inferred from thecircumstances of the case or fromthe relationship of the parties.

Rights of indemnity holder

• Section 125 enumeratesthe rights of an indemnityholder in a contract ofindemnity. An indemnityholder can recover fromthe indemnifier thefollowing.

Rights of indemnity holder• Damages – All damages which he may

be compelled to pay in any suit of anymatter to which the promise toindemnify applies.

• Costs – All costs he may be compelledto pay in any such suit.

• All sums – All sums which he may havepaid under the terms of anycompromise of any such suit, providedsuch compromise is not contrary to theorders of the promisor and was onewhich it would have been prudent forthe indemnity holder to make.

• Suit for special performance – Anindemnity holder is entitled to sue theindemnifier even before he has sufferedany damage provided an absoluteliability has been incurred by him.

• Contract of Indemnity