In Demi Nity

Indeminity
Section 124 define Indemnity, “A contract of indemnity is a contract

whereby 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”.
Eg :- Contract of Insurance
Like Insurance company, save the person from the loss, or pay
the loss.
The person who gives the indemnity is called indemifier, and the
person for whose protection it is given is called the indemnity-holder
or the indemnified.
Contract of indemnity is really a part of general class of contingency
contract.
Contingency contract means the contract’s performance depends on
uncertain event.
This contract is contingent in nature and is enforceable only when the
loss occurs.
Introduction
 The contract of indemnity and the contract guarantee are
the special contracts under the Indian Contract Act,
1872. The contract of indemnity is the contract where one
person compensates for the loss of the other.
 Contract of guarantee is a contract between three
people where the third person intervenes to pay the debt if
the debtor is at default in paying back.
 The contract of guarantee and contract of indemnity perform
similar commercial functions in providing compensation to the
creditor for the failure of a third party to perform their
obligation.
 Chapter VIII of the Indian Contract Act, 1872 contains the
legal provisions governing a contract of indemnity and
a contract of guarantee in India.

Contract of Indemnity
 The term indemnity is derived from the Latin word “indemnis”
which denotes uninjured or suffering no damage or loss. It is
a sort of security or protection against loss.
 Indemnity is to indemnify one person by bearing his losses
incurred to him by the conduct of promissory or by any other
party.
 Section 124 of the Indian Contract Act, 1872 defines a
contract of indemnity as a contract wherein 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.
 In an indemnity contract, there are only two parties i.e.,
o The Indemnifier: The promisor, who agrees to make up
the damage caused to the other group.
o The Indemnified: The person who is assured of
compensation for the damage incurred (if any) is referred
to as the indemnity holder or the indemnified.
Essentials in the Contract of Indemnity

 Valid contract: An indemnity contract must have all parts of
a valid contract. The Indian Contract Act of, 1872 applies to
indemnity contracts.
 Loss protection: The indemnity contract is for loss protection.
The indemnifier is bound to recover the losses.
 Parties: The indemnity contract shall have two parties. The
indemnifier and the holder.
 Contracts: There is one contract only between the holder and
the indemnifier.
 Express or implied: The indemnity contract can either
be spoken or written. The parties can also imply it.
Types of Indemnity
 Express Indemnity:
o This is also known as written indemnity. Under this, all
the terms and conditions of the indemnity are mentioned
specifically in the contract.
o The rights and the liabilities of both parties are clearly
set out in the agreement.
o This type of agreement includes insurance indemnity
contracts, construction contracts, agency contracts, etc.
 Implied Indemnity:
o It refers to that indemnity wherein the obligation
arises from the facts and the conduct of the
parties involved. This is not a written contract.
o The core example of this type of indemnity is the master-
servant relationship.
o The master is liable to indemnify his servant for the losses
that he incurred while working as per his instruction.
Rights of an Indemnity Holder

Section 125 of Indian contract Act, 1872 deals with rights of an
indemnity holder. The promisee in a contract of indemnity, acting
within the scope of his authority, is entitled to recover from the
promisor:
 All damages which he may be compelled to pay in any suit in
respect of any matter to which the promise to
indemnify applies.
 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;
 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.
Rights of the Indemnifier

 After the indemnity holder is paid for the damage incurred,
the compensator shall have all the rights to all the methods and
services which can save the compensator from the damage.
 Indemnification can only be done if the loss to the other
party is incurred, or if it is certain that the loss will be incurred.
 The Indian Contract Act of, 1872 does not provide for the time
to commence the liability of the indemnifier under the contract.
 In Gajanan Moreshwar vs. Moreshwar Madan, (1942),
the Bombay High Court held that if the indemnified has
incurred liability and the liability is absolute, he is entitled to
call upon the indemnifier to save him from the liability and pay
it off.
 In Lala Shanti Swarup vs Munshi Singh & Others, (1967),
the Supreme Court held that a conveyance which contains a
covenant whereby the purchaser promises to pay off
encumbrances on the sold property is nothing but an implied
contract of indemnity, whose cause of action arises when
actually indemnified. (Mortgage decree being passed does not
amount to actual indemnification).

In Demi Nity

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In Demi Nity

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Indeminity

Section 124 define Indemnity, “A contract of indemnity is a contract

Essentials in the Contract of Indemnity

Rights of an Indemnity Holder

Rights of the Indemnifier

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