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Contract of indemnity

Q. Define a contract of indemnity and what are the rights of an indemnity holder when sued.
(2002)
1. Introduction:
Indemnity means a promise to sae a person harmless from the conse!uences of an act. "he
promise may #e e$press or it may #e implied from the circumstances of the case. %o it include a
promise of indemnity against loss arising from any cause what so eer. Insurance contracts are
its e$ample.
2. Definition:
&ccording to %ec 12' of contract act.
(& contract #y which one party promises to sae the other from loss caused to him #y the
conduct of the promise himself or #y the conduct of any other person is called contract of
indemnity).
*. +arties of contract of indemnity:
"here are two parties in the contract of indemnity.
(I) Indemnifier:
"he person who promises to ma,e good the loss is called the indemnified or promisor.
(II) Indemnity holder:
"he person whose loss is to #e made is called indemnity holder or indemnified.
'. -$ample:
& par,ed his cycle at of .. /e lost his to,en. . refuses to return the cycle to &. & promises
to compensate . against the loss he may suffer. If any other person claims the cycle from ..
0. -ssentials of the contract of indemnity:
Contract of indemnity #eing a part of law of the contract must hae all attri#utes of a alid
contract e. g. (i) free consent1 (ii) lawful o#2ect (iii) consideration (i) capacity to ma,e
contract etc.
3. 4inds of indemnity:
(I) -$press:
5hen indemnity is e$pressed or stated clearly.
( II) Implied:
5hen inferred from the circumstance of particular cases.
6. "ime of commencement of indemnifier7s lia#ility:
5here indemnifier has incurred an a#solute lia#ility through the actual loss1 he may call upon
the indemnified to sae him from that lia#ility and pay of his lia#ility.
8. 9ights of indemnity holder when sued:
&ccording to sec. 120 an indemnity holder when sued is entitled to the following rights against
the indemnifier.
(I) 9ight of damages:
Indemnity holder is entitled to recoer all damages which he may #e compelled to pay in any
suit in respect of any matter to which the promise to indemnify.
(II) 9ight of recoering all costs:
/e is entitled to all costs which he may #e compelled to pay in #ringing or defending such
suit.
(III) 9ight of recoering all sums:
/e is entitled to all sums which he may hae paid under the terms of any compromise of any
such suit.
:. 9ights of indemnified:
"he rights of indemnified are the same as the rights of guarantor:
(/e is entitled to the #enefit of all the securities which the creditor has against the principal
de#tor1 wheter he was aware of them or not.)
10. Conclusion:
"o conclusion it can #e said that1 indemnity is a compensation paid #y one party to another. It is
made in order to protect the promise against anticipated loss. It depends upon happening of
loss. In contract of indemnity there are two parties. It is direct engagement and may #e made
independently of the e$istence of third party.