CONTRACT OF INDEMNITY*

  1. Introduction 

Halsbury explained indemnity as 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 of whether a third person makes a default.

Adamson v. Jarvis[i], on the defendant’s instructions, the plaintiff, an auctioneer, sold a few cattle. Later, it was discovered that the livestock did not belong to the defendant but rather to someone else. This person held the auctioneer accountable and caused him to sue the defendant for compensation for the loss he had caused by following the defendant’s instructions.

The plaintiff, who acted at the defendant’s request, was allowed to presume that, should what he did turn out to be unlawful, the defendant would compensate him.

The contract of indemnity is entered into by the parties to shield the promisee against unforeseen losses. It is an assurance that a person will be saved from an act’s repercussions without suffering any harm. The Contract of Indemnity is between two parties. There are two parties:

  • Someone who provides protection from or makes up for the loss of the suffered injury is an indemnifier.
  • The other party who receives compensation for the loss incurred is known as the indemnified party or indemnity-holder.

Dugdale v. Lovring[ii]: “Plaintiffs v. possession of specific trucks that defendants and KP.Co both claimed. The defendants requested delivery and an indemnification bond from the plaintiff, but neither request was answered. However, they did deliver the vehicles to the defendant. After K.P. Co. successfully sued the plaintiff for the conversion of property, the plaintiff was determined to be entitled to indemnity from the defendants under an implied promise since it was obvious from their demand for indemnity that they had no intention of providing it.”

Shefield Corpn. v. Barclays[iii] When someone with a statutory or common law duty of a ministerial nature is required to perform that duty at someone else’s request, direction, or demand, and that person defaults on his part by acting in a way that appears legal but is illegal and in violation of the duty and thereby exposes him to liability to third parties, a legal agreement is impliedly made by that person to hold that person harmless from any liability that may result from that action.

  1. Contract Of Indemnity:

Article 124 defines contract of Indemnity as a contract in which one party pledges to protect the other from harm brought on by their own or another party’s actions or another person is called a “contract of indemnity”.

According to Section 124, an indemnification agreement is one in which one party promises to protect the other against harm brought on by either the promisor’s actions or those of any third parties. Therefore, Section 124 only addresses one specific type of indemnity that results from a promise made by the indemnifier to protect the indemnified from loss caused by the indemnifier’s conduct as well as the conduct of any other person, but does not address those groups of cases where the indemnity arises from losses brought on by accidents that are not necessarily related to the behavior of the indemnifier or any other person, or because of liabilities brought on by actions taken by the indemnified at the indemnifier’s request.

  1. Rights of Indemnity Holder:

Section 125 describes right to 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 that he may be required to pay in a lawsuit about any matter to which the promise to indemnify applies; and

(2) all costs that he may be required to pay in a lawsuit if, in bringing or defending it, he did not act in contravention of the promisor’s instructions and acted as it would have been prudent for him to act.

(3) all claims that he may have made under the terms of any compromise of such a suit, provided that the compromise was not against the promises of the promisor and was one that the promisee would have made if there had been no contract of indemnity, or if the promisor had permitted him to compromise the suit.

As stated in the marginal note, Section 125 only addresses the rights of the indemnity-holder should he be saved. According to the section, the promisee has the right to sue the promisor for any damages that he may be required to pay concerning any matter that the promise to identify applies to.

  1. Rights of Indemnifier:

The Indian Contract Act of 1872 does not include indemnifier rights, despite the fact that the Act mentioned indemnity privileges. In Jaswant Singh v. the State[iv], it was determined that the benefits of reimbursement are similar to those of a guarantee under Section 141, where the person providing the indemnification benefits from all defences held by the loan manager against the significant borrower, regardless of whether the primary account holder was concerned about them.

  • Conclusion:

Those who want to escape accountability for their actions or want a waiver of those obligations are not supported by the law. A careless party shouldn’t be able to totally transfer all claims and damages brought against him to another, non-negligent party, and this is the main justification for this.

  • References:

* Harshita Malviya, final year law student, Banasthali Vidyapeeth

[i]  (1827) Bing 66: 5 LJ OS 68:

[ii] (1875) LR 10 CP 196

[iii] (1905) AC 392 (399)

[iv] https://indiankanoon.org/doc/86350/

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