Contract of Indemnity (Section 124 – 125)
The Legal Lock
Introduction
- Contract of Indemnity (Section 124)
As per Indian Contract Act under section 124, Indemnity is defined as a promise which is enforced by a contract from one party to another party so that the parties to the contract so that the parties to the contract can safeguard themselves from the loss caused by the another from their conduct of act.
In contract of indemnity two parties are been involved, one is Indemnifier and the another one is the indemnity holder.
Parties of contract of indemnity are :
- Indemnifier – It is the person who promises to compensate the another person for a loss or who promises to protect another person from a loss. Such a person is called Indemnifier or he also may be called as the promisor.
- Indemnity holder – It is a person who gets protected of any loss by the Indemnifier either it is caused by the Indemnifier or by any third party. Such a person is called indemnity holder or he also may be called as the promisee.
Indemnifier promises to compensate to indemnity holder if because of his conduct of act the indemnity holder has to bear any loss.
For Example – Ashu, made a contract with Sohail that he will indemnity Sohail against the consequences of proceeding which Rahul may take against Sohail. If Sohail has to pay 50,000 as to consequences of such proceedings, Ashu will have to pay that amount because he has promised to indemnity Sohail.
The Contract of Indemnity should either be expressed or should be implied. Expressed contract are those contract are either written or spoken and implied contract is related to the circumstances and situation of the contract. Implied contract is apparent from the circumstances.
A contract of indemnity is just like other contract which has to fulfil all the essential of a valid contract such as :
- Free consent
- Consideration
- A lawful object
- Competencies of parties
For Example – A told B to burn the house of C and promises to pay for the consequences against B. B set the house on fire of C and is fined of Rs 80,000. B cannot recover the amount from A as the object of the contract wad not lawful.
Contract of indemnity is of contingent nature. Contingent contract comes under contract of indemnity. Contingent contracts are those contract in which things can be of happening or non happening of non settlement nature.
Life Insurance is not a contract of indemnity because loss of life cannot be made good. A life of a person is precious and cannot be made good though there can a amount of sum can be given to the aggrieving party but a loss of life cannot be made into good. It is a contingent contract but not a contract of indemnity. It is non-gratuitous contract because the money is given with interest.
The key fundamental of contract of indemnity are :
- The promise is been made to compensate for damages or loss caused to another party.
- It is an independent contract which includes all the contract of insurance as well as guarantee. It is not a Collateral contract.
- It is a tool basically used by the parties in case of allocating contingent liabilities related to the risk.
- Indemnity clauses should be made clear and specific by the parties considering the possible circumstances which can arise due to this and what are the possible damages that should be payable if the clauses are being revoked.
The two types of indemnity of contract are which are gratuitous contract and non gratuitous contract.
Gratuitous contract of indemnity – without any consideration. When a promisor promises promisee without any consideration then it is called Gratuitous contract of indemnity.
Non Gratuitous contract of indemnity – with consideration. When a promisor promises promisee with any consideration then it is called non gratuitous contract of indemnity.
The enforcement of contract of indemnity are as follows :
- according to the specific term, the contract indemnity cannot be enforced.
- An indemnity holder Can claim for the compensation, legal costs related to the adjudication under this section or any other monetary damages if they also wants to compromise in case.
- The Promiser is responsible for his cause to the another parties and has to pay for the damages it is which is been promised by him under the indemnity contract.
- Indemnifier should also be informed of the legal proceedings which is headed against him or he can also join as a third part.
- It is not much important to show the actual loss or breach of contract which has been already done.
- Rights of indemnity holder when sued
(section 125)
Under section 125 of Indian Contract Act, the rights of indemnity holder are given to recover the losses and damages from the Indemnifier. When a indemnifier promises something to the indemnity holder but because of a certain act he couldn't fulfil his promise or causes any damages to the indemnity holder then it is said that the Indemnifier has breached his contract with the indemnity holder as he is not able to keep his promise.
Some of the following rights are :
- All damages which the indemnity holder has to pay or was compelled to pay under the contract in any of the suit will be recovered by the Indemnifier as per their contract of indemnity.
- All the legal cost and expenses proceedings which are made by the indemnity holder during the proceedings of the case will also be recovered from the Indemnifier.
- All the amount of sum paid by the indemnity holder under a term of compromise during any such suit will also be recovered from the indemnifier, only if the promises were not contrary to the Promises of the indemnifier.
Thus, the indemnity holder is entitled to claim for his damages under his rights and these rights are provided him to act within the scope of authority. Indemnity holder can access all these rights only if he works under his authority but if he doesn't works under his authority or does something which he is not supposed to do then he cannot access this right under Indian Contract Act.
Also, Some of the right of the Indemnifier apart from the sections are :
- Once the indemnifier has paid the damages to the indemnity holder under indemnity, then he can regain the rights which had been passed upon to the indemnified. He can only access those rights once he has paid for the damages and not before that.
- The indemnifier gets the right to sue the third party on behalf of indemnified once he has indemnified the indemnity holder.
- In case of indemnified suffers from any loss which doesn't come under the contract of indemnity then the indemnifier is not bound to pay such expenses by the law.
- The indemnifier can sue the third party up to the extent of damages he has paid only to the Indemnified. https://thelegallock.com/final/contract-of-guarantee-sec-126
Conclusion
The article defines the contract of indemnity under section 124 of India contract act which says Indemnity is a promise which is enforced by a contract from one party to another party so that the parties to the contract so that the parties to the contract can safeguard themselves from the loss caused by the another from their conduct of act. It also defines how in contract of indemnity two parties are been involved, one is Indemnifier and the another one is the indemnity holder. They are subsequent examples which are being given to explain the contract of indemnity in this paper. And then it last under section 125 of Indian Contract Act, the rights of indemnity holder are also been defined which are given to recover the losses and damages from the Indemnifier. At the end the article concludes with the rights of Indemnifier as well.
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