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Contract

Contract

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Categories:Types, Business/Law
Published by: freebirdovk on Aug 31, 2010
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03/18/2011

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CONTRACT OF INDEMNITY AND GUARANTEE (SECTIONS 124-147)Introduction
The contract of indemnity and contract of guarantee are specific types of contract. Thespecific provisions relating to these contracts are contained in sections 124 to 147 of the Indiancontract act 1872. In addition to these specific provisions, the general principles of contracts areapplicable of such specific contracts.
CONTRACT OF INDEMNITYMeaning of Indemnity
The term “indemnity “means to make good the loss or to compensate the party who hassuffered some loss.
Meaning of Contract of Indemnity:
A contract, by which one party promises to save the other from loss caused to him by theconduct of the promisor himself, or by the conduct of any other person, is called a “contract of indemnity”.
Example:
A contracts to indemnity B against the consequences of any proceedingswhich C may take against B in respect of a certain sum of Rs. 200 This is a contract of indemnity.
Meaning of Indemnifier:
The person who promises to make good the loss is called the indemnifier.In the above example, A is indemnifier 
Meaning of Indemnity holder
The person whose loss is to be made good is called “indemnity-holder”In the above example, B is the indemnity-holder.The definition of contract of indemnity, as given in sec. 124 is not exhaustive. According to thedefinition, a contract of indemnity contains
o
Only express promises to indemnity &
o
Only those cases where the loss arises from the conduct of the promisor or of anyother persons.
 
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The section does not include:
Implied promises to indemnity
Cases where loss arises from accients and events not depending on the conduct of the promisor of any other person
Essentials of a Contract of Indemnity
1.There must be two parties in a contract of indemnity viz., indemnifier and indemnified.2.A contract of indemnity may be express or implied.3.This contract being a species of contract is subject to all the rules of contract, such as freeconsent, legality of object etc.4.A contract of indemnity is enforceable only when the promise suffers a loss thehappening of which the indemnity holder was promised to be proctected.5.Consideration in the case of contract of indemnity is essential to enable the indemnityholder to make claim to be compensated.
Rights of Indemnity-Holder (Indemnified) or Liabilities of Indemnifier sec.125
The rights of the indemnified shall be the liabilities of the indemnifier. According tosec.125 of the contract act, an indemnity holder or indemnified has the following rights whensued, to recover from the indemnifier.
1.Right to claim damages:
All the damages h may be supposed to pay in any suit to which the indemnityapplies.
2.Recovery of cost:
All costs which he may be made to pay in bringing or defending any such suit.
3.Recovery of all the sums paid:
 
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All sums which he may have paid under the terms of any compromise of any suchsuit. But this right may e exercised where;i.The indemnified has acted within the scope of his authority given by theindemnifier.ii.He acted as a prudent man in defending the action against him.iii.There has been an express direction by the indemnifier to compromiseiv.The costs incurred have been reasonable in amount
Rights of Indemnifier1.Right to refuse claim:
The indemnifier has the right to refuse the claim if the indemnified has not actedas a prudent man in defending the action against him or the loss was due to somesources outside the proximate cause.
2.Right to sue on behalf of the indemnified:
The indemnifier gets the right to sue the third party in the name and on behalf of the indemnified after discharging his claim by the indemnifier.
3.Right against the third party:
The right of the indemnifier against third party shall be to the extent of the sum paidto the indemnified.
4.Right of suborgation :
When he has paid the indemnity claim of the indemnified, he is entitled toexercise all rights of the indemnified against a third party.
When does the liability of indemnifier commence:

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