Contract of Indemnity

Indemnity – Literal Meaning

Security against loss.
Sec. 124 of Indian Contract Act
 One Party promises to other party to save from
the loss.
 Either caused by the conduct of the promisor
himself or,
 Caused by the conduct of any other person.
e.g. A tells B “let C have these goods. I shall see
you are paid”.
 Debtor

Indemnifier Creditor
Gajanan Moreshwar V Moreshwar
Madan, AIR 1942 Bom 302 –
 Every contract of insurance, other than
life insurance, is a contract of indemnity.
Other Sections dealing with Loss –
Section 30 – Loss caused by fire etc; Contingent
Contract.
Section 22 2 – Loss occasioned to the agent
under the principle liability.
Moreshwar “ Section 124 deals with one
particular kind of indemnnity which arises from
a promise made by an indemnifier though it does
not include loss caused by the events or accident
which does not arise out of the parties conduct”.
Implied Indemnity – Section 69, 145,
222.
Sec. 124 does not seem to include the
implied indemnity – Secretary of State V
Bank of India [(1938) 65 IA 286(PC)].
English Law – A Contract of Indemnity
has been defined as a promise to save
another harmless from loss caused as a
result of a transaction entered into at the
instance of the promisor.
Distinction – Wider scope in English
Law.
Commencement of Liability –
Liability of the indemnifier commences as
soon as the loss of the indemnified
becomes absolute, certain or imminient –
Moreshwar case.
Rights of indemnity holder – 125
1. All damages paid in connection with
any suit to which the promise of
indemnity applies.
2. All costs and sums which he may have
paid in bringing or defending any suit.
Rights of the Promisor –
S. 125 is silent about the right to
promisor.
Right to subrogation. (See Sec. 141)
 Contract of Guarantee
Definition – S.126 of Indian Contract Act.

A "contract of guarantee " is a contract to

perform the promise, or discharge the
liability, of a third person in case of his
default.
Distinction between Indemnity and Guarantee –

Surety

Principle
Debtor
Creditor