Contract of indemnity, Rights and duties of indemnity holder

1. CONTRACT OF
INDEMNITY
BY
DR.SRIDEVI KRISHNA
ASSISTANT PROFESSOR
VVLC

2. CONTRACT OF INDEMNITY
• INDEMNITY MEANS
• PROTECTION AGAINST LOSS OR
• RECOMPENSE OR
• REIMBURSE FOR ANY LOSS

3. DEFINITION
• SECTION 124: 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 as indemnity.
• The person who promises to indemnify is known as
‘indemnifier’.
• The person in whose favor such promise is made is known as
‘indemnified’ or ‘indemnity holder’

4. Application of section 124
• It is narrow in scope
• Covers acts caused by conduct of any person only.

5. Section125liabilityofindemnifierorRightsofindemnity
holder
• The promisee in a contract of indemnity, acting within the scope of his
authority, is entitled to recover from the promisor-
• Claim damages: All damages which he may be compelled to pay in any
suit in respect of any matter to which the promise to indemnify applies.
• Claim costs: All costs which he may have been compelled to pay in the
institution or defending of any such suit.
• Recover sums paid under compromise: All such sums he may have paid
under any compromise or case of settlements of any such suit – provided
the compromise was not contrary to the orders of the indemnifier or that
the compromise was a reasonable one to make.
• Right to sue for specific performance – he is entitled to sue for specific
performance if he has incurred absolute liability and the contract covers
such liability.

6. CommencementofLiability
• There are different views among the High Court.
• First view-HC of Kolkata, Chennai, Allahabad and Patna have held
that indemnifier may be compelled to indemnify the indemnity
holder without waiting of the occurrence of actual loss or until he
has in fact discharged it.
• Second view-The High Court of Lahore, Nagpur and Bombay have
held that indemnifier cannot be compelled to indemnify until
indemnified/indemnity holder has incurred actual loss.
• First view is correct and is in accordance with English Law.
• Gajanan Moreshwar Parlekar V Moreshwar Madan Mantri AIR
1942 Bom 302
• www.judis.nic.in

7. Case law
• Plaintiff (P) got a plot of land on lease from municipal corp. of Mumbai. P allowed
Defendant (D) to erect building on that land. D, in this course, incurred debt
of Rs.5ooo from building material supplier Keshava Mohan Das (K), twice. On both the
occasion, P mortgaged part of the land to K. P, on D’s request transferred the land to D,
on the consideration that he (P) would be discharged of all the liabilities arising out of
that land. D failed to adhere to his consideration. P filed a suit for discharge of liabilities
on him, alleging D to be indemnifier.
• ISSUE: Whether the suit for indemnity was premature as P had not yet incurred any loss
as such?
• CONTENTIONS (Defendant):
• As per s. 124, the promisor promises to safeguard the other from the damage
that is caused to him, not the damage which may be caused to him. Since there is no
damage to the plaintiff as yet, P is not entitled to sue the indemnifier.
• The liability of the plaintiff is not absolute but contingent. There is nothing to show that
if the mortgagee was to sue to enforce his mortgage and the property was sold, there
would be any deficit for which the plaintiff would be liable.

8. Case law continued..
• Justice Chagla
• (w.r.t 1st contention of D) ICA is both an amending and a consolidating Act, and it
is not exhaustive of the law of contract. Section 124 deals only with one particular
kind of indemnity in which the loss is caused by the conduct of the indemnifier
himself or of other person, but does not cover the cases outside this or cases when
liability arises because of something done by the indemnified at the request of the
indemnifier. S. 124 talks about subsequent conduct but here the liabilities were
past, i.e. prior to the date when the contract was actually entered into force. Earlier
to this contract, all the acts were done merely on request and without any
consideration and hence, were not binding. Therefore s.124 is inapplicable here.
• (w.r.t 2nd contention of D) Under both the mortgage and the further charge there is
a personal covenant by the plaintiff to pay the amount due, and it would be open
to the mortgagee to sue the plaintiff on the personal covenant reserving his rights
under the security. Therefore, the liability of the plaintiff under the personal
covenant is absolute and unconditional.
• Principles of equity (as applied in English Courts) can be applied here to relieve P
from all the liabilities (as ICA is not exhaustive of the law of indemnity).