Contract of Indemnity | Definition, Essentials and Rights with Examples?

CONTRACT OF INDEMNITY

 

Meaning and Definition 

The indemnity means to compensate the party who suffers a loss. It is a contract in which one person promises to compensate the other for the loss suffered by him due to conduct of promisor or any other person. The person who promises to compensate is called the indemnifier (promisor). 

The person whose loss is to compensated is called the indemnity holder or indemnified ( promisee) 

Section 124 states, " 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 

Example 

a. C parked his cycle at a cycle stand and got a token from B. C lost the token. B refused to return the cycle. To get his cycle, C promised to compensate B if any other person claims the cycle. 

b. A transport company possesses certain goods. X claims that he is the owner and takes the goods from the company. Later, Y proves that he is the true owner and gets compensation from the company. X is liable to indemnify the company for such loss. 

Essentials Of Valid Contract Indemnity 

The following are essentials of a valid contract of indemnity: 

1. Special Contract 

It is special type of contract. All the essentials of a valid contract are also required for a contract of indemnity. It may be express or implied. It is a kind of contingent contract. 

2. Loss of Party 

A person can indemnity another person if such other person suffers a loss. A contract of indemnity will be performed when the promisee suffers a loss. 

3. Indemnity by promisor 

The purpose of the contract of indemnity is to protect the indemnity holder from loss which may be caused to the indemnity holder in future. 

4. Reason for loss 

The contract of indemnity may specify that indemnity holder shall be protected from loss caused by the action of the promisor or any other person or any act, event or accident which is not in the control of the parties. 

Rights of Indemnity 

The following are rights of indemnity holder: [Sec. 125] 

1. Right to Recover Damages

Indemnity holder can recover from indemnifier all damages which he may be compelled to pay in respect of any suit filed against him. 

2. Right to Recover Cost of Suit 

The indemnity holder can recover from indemnifier expenses in respect of any suit filed by him with the authority of indemnifier. 

3. Rights to Recover Sums 

The indemnity holder can recover from indemnifier all amount which he has paid as a result of any compromise of the suit. 

Rights of Indemnifier 

There is no provision in the law about the rights of indemnifier. However, the rights of indemnifier are the same as the rights of a guarantor. When one person agrees to indemnify another, his rights will be similar to the rights of a guarantor.