assignment-contract of indeminity

8/8/2019 Assignment-contract of Indeminity

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INTRODUCTION.

1. According to Indian Contract Act 1872

Sec 124.Contract of indemnity defined.- 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".

2. Different definitions of the term Indemnity.

a) As a legal concept, it has a more specific meaning, to compensate anotherparty

to a contract for any loss that such otherparty may suffer during theperformance

of the contract.

b) Indemnity is a duty to make good any loss, damage or liability incurred by

another. It is the right of an injured party to claim reimbursement for any loss,

damage, or liability from any person who had such a duty.

c) According to Longmans dictionary indemnity is protection against loss esp. in the

form of a promise to pay, orpayment for loss of money, goods etc.

d) In a contract of Indemnity, theperson who promises to indemnify is known as

indemnifier and theperson in whose favor such a promise is made is known as

indemnified or indemnity holder.

e) In sec 124 the provision incorporates a contract where oneparty promises to

save the other from loss which may be caused either by the conduct of the

promisor himselfor by theconduct of anyother person.

f) To indemnify someone means to cover them for their loss in a certain


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circumstance. Most forms of insurance - except life insurance are based on the

indemnity principle. This means you can only recover the replacement value of

your loss.

g) According to the definition of Indian Contract Act the definition covers indemnity

for loss caused by human agency and it does not deal with those class of cases

where the indemnity.

h) arises from loss caused by events or accidents or natural calamity which do/may

not depend upon the conduct of the indemnifier or any otherperson, or by reason

of liability incurred by something done by the indemnified at the request of the

person who promises to indemnify (indemnifier).

i) When an act has been done by the Plaintiff under theexpress directions of the

defendant which occasions injury to the rights of the third persons, yet if such an

act is not apparently illegal, but is done in honest and bona fide in compliance

with the defendants directions, he shall be bound to indemnify the Plaintiff

against the consequence thereof.

j) So we see that the definition of Indemnity in Indian Contract Act 1872 and

English law is different in certain extend. The definition under English Law is

much broader. In India contract of insurance is not covered by the definition of

Sec 124 of ICA. Thus if under a contract of insurance, an insurerpromises to pay

compensation in theevent of loss by fire, such a contract does not come under

thepurview ofSec 124. Such contracts are defined underSec 31 .

k) Under English law the word indemnity carries a wider meaning. It includes a

contract to save the promisee from the loss whether it is caused by human

agency or by natural calamity like accident or fire. Contract of insuranceexcept

life insurance is a contract of indemnity.


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facts that by demanding an indemnity, they made it clear that they have no intention

to deliverexcept on indemnity.Section 124 of the Act deals only with oneparticular

kind of indemnity which arises from a promise made by the indemnifier to save the

indemnified from the loss caused to him by the conduct of the indemnifier himself or

by the conduct of any otherperson, but does not deal with those classes of cases

where the indemnity arises from loss caused by events or accidents which do not or

may not depend upon the conduct of the indemnifier or any other person, or by

reason of liability incurred by something done by the indemnified at the request of

the indemnifier.

5. Section 125 of the Act deals only with the rights of the indemnity-holder in the

event of his being sued. It is by no means exhaustive of the rights of the indemnity-

holder, who has other rights besides those mentioned in the section. Where the

indemnified has incurred a liability and that liability is absolute, he is entitled to call

upon the indemnifier to save him from that liability and to pay it off.

6. Indemnity shifts liability from the legally responsibleperson to an otherperson.

Indemnity is a claim for reimbursement by a party who has paid or may pay money for

a loss or liability against a party who should reimburse the payor because of an

agreement, relationship, or duty. Indemnity's roots are grounded in principles of

equity. Indemnity, a form of restitution, is founded on equitableprinciples; it is allowed

where oneperson has discharged an obligation that anotherperson should bear; it

places the final responsibility whereequity would lay the ultimate burden.

7. A contract of insurance an example of a contract of indemnity . In consideration

of a premium the insurerpromises to make good the loss suffered by the assured on

account of the destruction by fire of his property insured against fire. However thecontract of life insurance does not come under the category of contract of indemnity.

This is because the life of a person cannot be valued and replaced.

8. Indemnity is one of the basic tenets of insurance that the insured should not profit

from a loss or damage but should be returned as near as possible to the same


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13. Indemnity shifts theentire liability from one legally responsibleperson to another.

"Contribution is based on concurrent negligence of the parties toward the injured

party, and before there can be contribution among tortfeasors, there must be

tortfeasors. Contribution requires common liability to the injured party. Where the

parties have no common liability, there can be no right of contribution. Indemnity, on

the other hand, does not require common liability and is permitted in circumstances

where there is no common liability to the injured party, provided there is an

agreement, relationship, or duty between the indemnifier and indemnity-holder that

allows for indemnity.

14. "A third party's action for indemnity is not exactly for "damages" but for

reimbursement,"' although this seems to be a distinction without a difference. The

indemnifier receives no consolation by calling the money paid to the indemnity-holder

"reimbursement" or "restitution" rather than "damages."

15. A claim for indemnity is also not a claim for breach of contract. A claim for breach

of contract is separate and distinct from a claim for indemnification. Theplaintiff may

choose between the claims or include both in the same action.

16. A contract claim requires proof of a breach of a contractual duty and proximate

cause of the claimed damages, while an indemnity claim has otherelements, including

the requirement that the indemnity-holder is liable for the underlying claim.

17. A right to indemnification is not a "promise to pay."Unless modified by contract,the indemnity-holders liability generally must be fixed first by settlement or judgment.

18. Contractual indemnity is the promise of "'one party the indemnifier to hold

another party (the indemnity-holder harmless for loss or damage of some kind."

Courts do not disfavor contractual indemnity and will generally enforce it. Theparties

need no special words to establish the obligation and it can arise "without specifically

expressing the obligation as indemnification."

19. Theparties create an indemnification agreement when their words express the

"intention by oneparty to reimburse or hold the otherparty harmless for any loss,


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damage, or liability. As with other issues of contract law, intent is the controlling

consideration for whether an indemnity agreement exists.

Scope ofSec 124 & 125 in Indian Contract Act.

20. Section 124 of the Act deals only with one particular kind of indemnity which

arises from a promise made by the indemnifier to save the indemnified from the loss

caused to him by the conduct of the indemnifier himself or by the conduct of any other

person, but does not deal with those classes of cases where the indemnity arises from

loss caused by events or accidents which do not or may not depend upon the conduct

of the indemnifier or any otherperson, or by reason of liability incurred by something

done by the indemnified at the request of the indemnifier.



holder, who has other rights besides those mentioned in the section. Where the

indemnified has incurred a liability and that liability is absolute, he is entitled to call




holder, who has other rights besides those mentioned in the section. Where theindemnified has incurred a liability and that liability is absolute, he is entitled to call


23. The cause of action for the claim against thepromise accures to thepromise

when the later is actually demnified. Under a contract of indemnity thepromise can


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claim only damages as distinguished from the debt for the non-payment of which the

promisor as agreed to indemnify him. So a suit before the actual loss may be

considered as premature. The main thing is that theperson must prove a loss.

24. This sections deal a particular type of indemnity which arises from a promise

made by the indemnifier to save the indemnified from the loss caused to him by the

conduct of any otherperson but does not deal with those classes of cases where the

indemnity arises from the loss caused by theevent of accident which do not depend

on the conduct of the indemnified or anyotherperson.

25. The sections 124 and 125 in Indian Contract Act have a narrow meaning. The

word indemnity has a wider scope than what is mentioned in Sec124 and 125. A fire

insurance or marine insurance is always a contract of indemnity though under the

contract act it would more properly come under Sec 31 which defines contingent

contract. Fire contract is a contract of indemnity and when loss occurs it is assured to

prove the actual loss in the absence of which no decree can bepassed. English usage

of the word Indemnity is much wider. It includes promise to save thepromise from

harm or loss caused by events like accident which do not or may not depend on the

actions of thepromisor. In the case of life insurance, it is not a contract of indemnity.

In case of life insurance, death in inevitable and contact of indemnity will not be

against an inevitableevent.

26. The right of indemnity is not confined to cases of contract only. It exists where

the relation between the parties is such that, either in law or equity, there is an

obligation upon one party to indemnify the other. The right of indemnity may arise

between theprincipal and agent, an employer and employee, in favor of a trustee

from the trust fund.

27. The obligation to indemnify may arise out of a legal duty to indemnify in particular

circumstances. Whenever an act is done by one person at the request of another

which act turns out to be injurious to the right of a third party, theperson doing it is


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entitled to indemnify from him who requested that it should be done.

28. English cases establish the right of indemnity in several ways:-

a) It may be created by express contract, that is, if it is given in terms of the contract

itself between two parties.

b) It may arise from implied contract, that is, if the true inference to be drawn from

the facts is that theparties intended such indemnity even if they did not express

themselves to that effect.

c) The position of the parties is such that either in law or in equity there is an

obligation on theparties to indemnify the other.

d) If there is a state of circumstances to which the law attaches a legal duty to the

indemnify.

e) A right of indemnify may be given in statute.

29. There is a distinction between right of indemnity and damage. Right of indemnity

is given in the original contract whereas the right of damages is not present in the

original contract but arises out of breach of theparticular contract. It is often seen that

when contract is broken the indemnity and damage coincides.16

30. When an act is done by oneperson at the request of another which act not itself

tortuous to the knowledge of theperson doing it and if such an act turns out to be

injurious to the rights of the third party, theperson doing it is entitled to an indemnity

from him who requested that it should be done. This is implied contract of indemnity.

The right of indemnity arises from contract which may beexpress or implied. The right

of indemnity exists where thereexists a relationshipeither in law or in equity. There

should be an obligation to indemnify the otherparty. Where there is no contract of

indemnity no claims can be made for the damages. Where there is no express

contract of indemnity, even if the facts are true as mentioned by the defendant, the

defendant will not be indemnified.

31. Sec125. Rights of indemnity-holder when sued -Thepromisee in a contract of indemnity, acting within the scope of his authority, is


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entitled to recover from thepromisor

a) All damages which he may be compelled to pay in any suit in respect of any

matter to which thepromise to indemnify applies;

b) 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 thepromisor, 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;

c) all sums which he may havepaid under the terms of any compromise of any

such suit, if the compromise was not contrary to the orders of thepromisor, and was

one which it would have been prudent for thepromisee to make in the absence of

any contract of indemnity, or if thepromisor authorized him to compromise the suit.

32. Sub-sec (1) requires that the suit must be in the respect of any matter to which

thepromise to indemnify applies. Sub-sec (2) and (3) also state that in bringing or

defending or compromising, such suit, the indemnity holder should have been either

authorized by thepromise or he did not contravene the orders of thepromisor or in

absence of such authority or orders, his acts should be acts of a prudent.18

33. Controversies.There are controversies regarding the point that whether the

indemnifier can be asked to indemnify before the indemnity-holder has actually

suffered the loss or his liability arises only after the loss has been suffered by the

indemnity-holder.

a) In English Law no action can be brought against the indemnifier until the

indemnity-holder has suffered actual loss. But a problem arises in such cases.

There are situations where the indemnity-holder is not in a position to pay from his

own. In the court of English law an equity relief is provided. So a rule has evolved

it was nomore necessary for the indemnity-holder to be demnified before he could

be indemnified. That is the indemnity-holder can now compel the indemnifier to


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save him from loss in respect of liability against which the indemnity has been

promised. In India it is a rule that no indemnity can be claimed until the indemnity-

holder has actually suffered loss.

b) But in 1942 (Gajanna Moreshwar Parelkar v Mereshwar Madan Mantri 20) the

Indian courts applied the rules of the Court ofequity that the indemnity-holder can

compel the indemnifier to indemnify even before the indemnity-holder has actually

suffered losses. It was held by Chagla J. in the case Gajanna Moreshwar Parelkar

v Mereshwar Madan Mantri The Court of equity held that if his liability hadbecome

absolute then he was entitled either to get the indemnifier to pay off the claim or to

pay into Court sufficient money which would constitute a fund for paying off the

claim whenever it was made. He also heldI have already held that Sections 124

and 125 of the Indian Contract Act are not exhaustive of the law of indemnity and

that the Courts here would apply the same equitable principles that the Courts in

England do. Therefore, if the indemnified has incurred a liability and that liability is

absolute, he is entitled to call upon the indemnifier to save him from that liability

and to pay it off.

c) Where a person contracts to indemnify another in respect of any liability which

the latter may have undertaken on his behalf, such otherperson may compel the

contracting party, before actual damage is done, to place him in a position to meet

the liability that may be cast upon him. May be compelled to pay cannot have a

narrow meaning so as to signify that indemnity cannot be claimed unless and until

damages have already been made.

d) Halsburys Laws of England says that as soon as the liability to a third person

has arisen, the indemnity-holder can obtain reliefeven before he as suffered losses.

When A has agreed to indemnify B against any loss or injury, B is entitled to have

recourse to this indemnity and to call upon A to discharge his liability as soon as the

loss or injury becomes imminent. Indemnity holder B is going to wait until he has


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actually suffered loss or injury.

e) In Sec 125 there is no provision in the Act for the rights of a promisor in such a

contract. The absence, however, of such a provision does not take away the rights

which such a promisor has according to English Law, and which are same as the

rights of surety mentioned in Sec 141.

34.Contract of indemnity and guarantee. In contract of indemnity there are two

parties and in contract of guarantee there are three parties. In order to create a

contract of surety ship there must be a creditor, a principal debtor and a guarantor or

surety, who makes himself liable for the liability of the principal debtor. The

relationship may beestablished in an agreement between theprincipal debtor and the

surety to which the creditor is theparty. It may also beestablished by an agreement to

which the creditor is not a party, where there is a collateral contract between the

surety and theprincipal debtor that one shall be liable to the default of the other. But

where the contract between the surety and the creditor is not collateral undertaking

but creates an original liability, then it is a contract of indemnity.

35. Distinction between contract of indemnity and a contract of guarantee-

S.NO CONTRACT OF INDEMNITY CONTRACT OF GUARANTEE

1. It contains only one contract It contains three contracts

2. There are only two parties

involved.

There are three parties involved.

3. The promiser gives the promise

on his own without being asked

by anyone

The promiser gives the promise

at the request of the debtor

4. Promisers liability is primary Promiser's liability is secondary,

i.e it arises on default by debtor.

5. The promise of indemnity is The promise of guarantee is


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construction leads to absurdity. Theextent of liability under a contract of indemnity

depends on the nature and terms of the contract, and each case must be governed by

its own facts and circumstances. Interpretation of the contract or clause of indemnity

thus plays a crucial role in fixing the liability.

assignment-contract of indeminity

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