indemnity
Section 124 of the Indian Contract Act defines a contract of indemnity as one by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or of any other person. The promisor is the indemnifier and the other the indemnity-holder. Section 125 gives the indemnity-holder the right to recover damages, costs and sums paid under a compromise, if he acted prudently and within the indemnifier's authority.
The Indian definition is narrower than English law, which covers loss from any cause; contracts of insurance (other than life) are indemnities in the wider sense. Indian courts have held that the indemnity-holder need not wait until he has actually paid: once his liability becomes absolute, he may call on the indemnifier to pay (Gajanan Moreshwar v. Moreshwar Madan, Bombay High Court, 1942). Unlike a guarantee, indemnity has two parties and the indemnifier's liability is primary.
Example
A promises B to make good any loss if B is sued for publishing A's article; this is a contract of indemnity under s.124.
In Indian law
- Sections 124–125, Indian Contract Act, 1872
- Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri (Bombay High Court, 1942)
See also
guarantee · surety · subrogation · uberrimae fidei
Read more in the study notes
- Contract of indemnity (Contract II)
- Kinds of accounts, opening an account, and special classes of customers (Banking Law)
- Public speaking, body language in presentation, influencing and conveyancing (Business Communications)
- Suits by or against firms, minors and persons of unsound mind, indigent persons, and interpleader suits (Civil Procedure Code and Limitation Act)
- Transfer and transmission of shares, judicial intervention and rights of shareholders (Company Law)
- Contingent contracts (Contract I)