Unit 1 - Indemnity

SPECIAL CONTRACTS
INDEMNITY
Definition
• “A contract of indemnity is 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.” (Section 124 of the ICA, 1872).n, is
• Example: A contracts to indemnify B against the consequences of any

proceedings which C may take against B in respect of a certain sum of 200
rupees.
• Case: Adamson v. Jarvis

Is there any limitation in the definition?
FEATURES OF INDEMNITY
 It must possess all ingredients of a valid contract.
 It is a contingent contract to make good the loss.
 The loss must be caused by human conduct only.
 Loss must have actually been suffered.

Position in U.K.
• English Law has given a comprehensive definition which is as follows:
"A promise to save another harmless from loss caused as a result of a

transaction entered into at the instance of the promisor."
From the above definition it would be seen that it covers the loss caused by
accidents and events not depending upon the conduct of any person. It
includes a contract to save the promisee from a loss, whether it be caused by
human agency or any other event like an accident and fire.
Thus it is much wider in its scope.

Position in India
• Section 124 of the Act, in contrast, limits itself to losses caused by the indemnifier
or any other person.
• Thus the very process of definition is restricted to cases where there is a promise
to indemnify against loss caused by (i) by the promiser himself, or (ii) by any other
person. (Gajanan Moreshwar Parelkar v Moreshwar Madan Mantri)
The loss must be covered by some Human Agency only.
In its 13th report in 1958, The Law Commission of India recommended that indemnity
should include instances where losses may or may not happen as result of a person’s
conduct. The aim was to include more chances of indemnifying losses by increasing
the scope of the Section and making it more pervasive to different situations.
However, till date the recommendation stands unincorporated.
• A contract of indemnity may be (i) express, or (ii) implied.
• An implied indemnity may be inferred from the conduct of the parties or
the circumstances of the case.
• It has been held in a number of cases that an indemnity may also arise by
operation of law. Implies a duty to indemnify in case a person, who is
interested in the payment of money which another is bound by law to pay,
has paid the amount.
• Dugdale v. Lovering
PARTIES TO CONTRACT OF INDEMNITY
A person who promises to make good the losses, i.e., the promisor is called
the indemnifier and the person whose loss is to be made good, i.e., the
promisee is called the indemnity-holder or the person who is indemnified.
 INDEMNIFIER:
 INDEMNITY HOLDER:
• Life insurance is not the contract of indemnity
Why?
RIGHTS OF INDEMNITY-HOLDER WHEN SUED (Section 125)
• All the indemnity amount (damages) prescribed in the contract.
• All the damages he may be compelled to pay a third party for the loss.
• All the costs spent on the case filed or defended by him in connection with
the contract relating to indemnity.
• All the costs of legal actions, if it becomes necessary to initiate such an
action for a failure to pay the amount mentioned in all the above clauses.
RIGHTS OF INDEMNIFIER
 The contract act is silent about the rights of indemnifier.

Duties of the Indemnity- holder
• Duty to work prudently: Except otherwise is mentioned in the contract, the
indemnifier will not liable for the loss caused by the negligence work of the
indemnity-holder. In other words, it is the duty of indemnity-holder to work
prudently.
• Duty not to act to cause harm or loss: If the indemnity-holder is acting with
the intention of causing any loss or damage, the indemnifier will not be liable
for such loss. In other words, it is the duty of indemnity-holder not to act to
cause harm or loss.
• Duty to comply with the intention of promisor: If the indemnity-holder is
acting against the instruction of the other party or promisor, the indemnifier
will not be liable for the loss caused by such against act to his instruction. In
other words, it is the duty of indemnity-holder to comply with the intention of
promisor.
Commencement of Liability
“You must be Damnified before you can claim to be Indemnified”
• In England, under common law, it was essential for an indemnity holder to

first pay for the losses and then claim indemnity. With time, Court of
Equity softened the law and in 1911 with the RE: RICHARDSON, EX PARTE
THE GOVERNORS OF ST THOMAS HOSPITAL case, indemnity before
payment by the indemnity holder was made the norm.
• Further in 1914, in the case of RE LAW GUARANTEE & ACCIDENTAL case, it

was stated that ‘to indemnify does not mean merely to reimburse with
respect to the money paid but to save from loss with respect to liability for
which indemnity has been given’. A Contract of indemnity would serve
little purpose if the indemnity holder was made liable in the first instance.
What if he is unable to meet the claim in the first instance?
• In India, there is no specific provision which states when a contract of
indemnity is enforceable. There has been conflicting judicial decisions
throughout.
• OSMAL JAMAL & SONS LTD v. GOPAL PURUSHOTHAM [1928] ILR 56 CAL
262, was amongst the first Indian cases where right to be indemnified
before paying was recognised. But now, a consensus of sorts has been
formed in favour of the opinion of Equity Courts.
• In K BHATTACHARJEE v. NOMO KUMAR 1899 26 CAL 241, SHIAM LAL vs. ABDUL
SALAL 1931 ALL 754 and GAJANAN MORESHWAR CASE, it has been decided
that the indemnified may compel the indemnifier to place him in a position to
meet the liability that may be cast upon him without waiting until the
promisee (indemnified) has actually discharged it.
• Indemnity requires that the party to be indemnified shall never be called
upon to pay. Thus, the liability of the indemnifier commences the moment
the loss in form of liability to the indemnified becomes absolute.
• In its 13th report in 1958, The Law Commission of India recommended that
“the right of the indemnity-holder should be more fully defined and the
remedies should be indicated even in cases where he has not been sued.”
Specified time for notice
• Case: Praful Kumar Mohanty v. Regional Manager of Oriental

Insurance Co. Ltd., (1997) AIHC 2822:
• The court said the expression immediately implies notice to
be given with promptitude avoiding unnecessary delay.
Immediate police report showed the bona fide of the assured
in the matter.
ILLUSTRATIONS
• A parked his scooter at the college scooter-stand. He lost his token given
by the scooter- stand contractor. The scooter-stand contractor refuses to
return the scooter to A unless he (A) gives him an indemnity bond against
any loss which he may suffer if any other person claims the scooter from
the contractor.
• A and B two friends went to a shop. A says to the shopkeeper.
"Let B have the goods; I shall see that you are paid."
• In the first example, A is the 'indemnifier’ and the scooter-
stand contractor the 'indemnified' or 'indemnity-holder'.
• It is a contract of indemnity. [Birkmyr v. Darnell].

 Thus, Definition given in Sec. 124 is very narrow.
 It includes only
(i) express promises to indemnify, and
(ii) the loss caused by the conduct of the promisor or any other person.

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SPECIAL CONTRACTS

• “A contract of indemnity is a contract by which one party promises to save

• Example: A contracts to indemnify B against the consequences of any

• Case: Adamson v. Jarvis

 It must possess all ingredients of a valid contract.

 It is a contingent contract to make good the loss.

 The loss must be caused by human conduct only.

 Loss must have actually been suffered.

"A promise to save another harmless from loss caused as a result of a

Thus it is much wider in its scope.

 The contract act is silent about the rights of indemnifier.

“You must be Damnified before you can claim to be Indemnified”

• In England, under common law, it was essential for an indemnity holder to

• Further in 1914, in the case of RE LAW GUARANTEE & ACCIDENTAL case, it

• Case: Praful Kumar Mohanty v. Regional Manager of Oriental

• It is a contract of indemnity. [Birkmyr v. Darnell].

(i) express promises to indemnify, and

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