Contract of Indemnity

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Indemnity is defined under section 24 of the Indian contract act, 1872 as:

A contract by which one party promises to save the other from loss held 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 the contract: 1) promise: a person accepting the proposal

2) promisor: a person who is offering

  • The person who makes good the loss is called the indemnifier
  • And the person to whose loss is made good is called the indemnity holder                                                                                                                              Illustration : 

X contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of 300rs. this is a contract of indemnity.

In English law contract of indemnity is wider, where it means the promise by a person to save another harmless from loss caused by events or accidents, which depends on the conduct of others.

As definition given is given by the Indian contract act 1872, indemnity is limited to the loss caused by the conduct of the hello Promissor himself is by the conduct of any other person but it does not cover the events beyond the control of the promiser or any other person

Essentials

  • There must be a loss
  • The loss must be caused either by the promisor or by any other person.
  • Two parties: indemnifier and indemnity holder
  • Must contain all the essentials of a valid contract ( sec10)
  • The contract may be express or implied

The promise of Indemnity may be expressed are employed do you promise to indemnify may be express are employed in Dugdale versus lovering [1]get plaintive where the imposition of some tracks for stop the trucks were claimed by the defendant as well as by a company. The defendants asked the plaintiffs to deliver the trucks to them but the plaintiffs said that they would deliver the trucks on receiving indemnity bond from the defendants. the plaintiffs did not receive indemnity bonds from the defendants but they delivered trucks to the defendants. the company brought a suit against the plaintiffs for conversion of their property and the suit was decided against the plaintiff. The plaintiffs then sued the defendants for the indemnity and they were held entitled to as it had become clear by the demand of indemnity bond by the plaintiffs that they had the intention to deliver trucks to the defendants only when they would be indemnified by the defendants in case of any eventually.

In G.S Nayak and co, Quilon v. National insurance co. ltd, Calcutta[2]  under an insurance agreement, the insurer was bound to indemnify the insurance agreement, the insurer was bound to indemnify the insured for the loss caused by the riot and strike, the agreement clause provided that the loss was not covered in case loss or damage resulted from the total or partial cessation of work or the retarding or interruption or cessation of any process or operation. The contention that in case of any cessation of work or interruption of work or any loss resulting from such cessation or interruption of work, the riot and strike endorsement had no application was not accepted because the loss sustained by the appellant was directly attributed to the strike by the workers

Scope: Section 124 is somewhat narrow in its scope. It talks about the losses which were done by the promisor to the promise or by the third party. The definition itself doesn’t include insurance as insurance covers only the accidents, not by the acts, not the promisor or any third party.

Rights of indemnity holder on being sued[3] :

  1. 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.

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.

[1] Dugdale v. lovering ,( 1875) LR 10 CP 196.

[2] G.S Nayak and co , Quilon v. National insurance co. ltd , Calcutta

[3] https://indiankanoon.org/doc/301393/

 

 

 

 

 

 

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