INDEMNITY

CHIRAYU OLKAR 42
AMBIKA PARMAR 44
NIMESH PARMAR 45
VIKAR PATEL - 51
WHAT IS MEANT BY INDEMNITY IN A
CONTRACT?

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 CONTRACT OF INDEMNITY:

INDEMNIFIER: The person who promises to indemnify.
INDEMNITY HOLDER: The person whose loss is to be
indemnified.
 KEY FUNDAMENTALS
1. It is a promise to compensate for or security against
damage, loss or injury.
2. In wider sense it includes all contracts of insurance,
guarantee. It is not a collateral but an independent
contract.
3. It is a tool for allocating risks contingent liability.

4. Indemnity clauses, amongst other things, must be

clear, specific, where possible stipulate the
circumstances under which the indemnity will arise, be
considered in light of any exclusion of liability clauses
found elsewhere in the agreement and state what
damages will be payable in the event of the clause
being successfully invoked
ENFORCEMENT
1. A contract of indemnity can be enforced according to
its terms.
2. Claim of Indemnity holder can include: damages,
legal costs of adjudication, amount paid under the
terms of compromise
3. The measure of damages is the extent to which the
promise has been indemnified.
4. Indemnifier should ideally be informed of the legal
proceedings or should be joined as third party
5. There is no onus to show breach or actual loss.
RIGHTS OF INDEMNITY HOLDER

a) All the damages that he may have been

compelled to pay in any suit in respect of any matter
to which the promise of the indemnifier applies.

For example, if A contracts to indemnify B against

the consequences of any proceedings which C may
take against B in respect of a particular transaction.
If C does institute legal proceeding against B in that
matter and B pays damages to C, A will be liable to
make good all the damages B had to pay in the case.
 b) all the costs of suits that he may have had to pay
to the third party provided he acted as a man of
ordinary prudence and he did not act in contravention
of the directions of the indemnifier or if he had acted
under the authority of the indemnifier to contest such
a suit.

For example, car rental companies stipulate that the

person hiring will be responsible for damage to the
rental car caused by his reckless driving and will
have to indemnify the rental company.
 c) All the sums that he may have paid under
the terms of any compromise of any such suit
provided such compromise is not contrary to the
indemnifiers orders and was a prudent one or if
he acted under authority of the indemnifier to
compromise the suit.

The indemnity holder is also entitled to losses

due to change of law not foreseen by the parties
when they entered into such contract of
indemnity
RIGHTS OF THE INDEMNIFIER
The rights of the indemnifier have not been
mentioned expressly anywhere in the Act.
KEP POINTS
NUMBER OF PARTIES INVOLVED - There are two
parties to the contract viz. indemnifier (promisor) and the
Indemnified (promise).

OBJECTIVE OF PURPOSE Reimbursement of loses

NUMBER OF CONTRACTS There is only one contract

in case of a contract of indemnity, i.e., between the
indemnifier and the indemnified.

NATURE OF LIABILITY Liability of the indemnifier to

the indemnified is primary and independent ,so its primary

LIABITY IS DUE - The liability of the indemnifier arises

only on the happening of a contingency.
 EXISTING DEBT OR DUTY No existing
Debt or duty

REQUEST BY THE DEBTOR Independent

RIGHT TO SUE An indemnifier cannot sue a

third party for loss in his own name, because
there is no privity of contract. He can do so only if
there is an assignment in his favour.
GAJAN MORESHWAR VS.
MORESHWAR MADAN 1942 BOM
302,
 FACTS: G Moreshwar got a plot in Bombay for a
long lease period. He transferred the lease to M
Madan for a limited period. M Madan started
construction over the said plot and got his
supplies from a K D Mohan Das. When
Mohandas asked for payment, the defendant
could not pay up. Upon request of M Madan, G
Moreshwar executed a mortgagee deed in favor of
K D Mohan Das. Mohandas, the supplier.
Interest rate was decided and G Moreshwar put a
charge over his properties. A date was set for the
return of the principal amount. M Madan had
agreed to pay the principal amount, the interest
and to get the mortgage deed released before a
certain date. M Madan did not pay anything to K
D Mohan Das; it was G Moreshwar who paid
some interest.
 When despite repeated request, M Madan did not
pay the principal amount, interest or get the
mortgage deed released, G Moreshwar sued him
for indemnity.
HELD: The Privy Council did not accept M
Madans stance that G Moreshwar had suffered no
loss and thus could not claim anything under
Sections 124 and 125. The Council held that an
indemnity holder has rights other than those
mentioned in the Sections above. If the indemnity
holder has incurred a liability and the liability is
absolute, he can turn to the indemnifier to take
care of the liability and pay it off. Thus, G
Moreshwar was entitled to be indemnified by M
Madan against all liability under the mortgage and
deed of charge.