Write a short note Contract of indemnity.

Question: Write a short note Contract of indemnity. [MPJS 2010, 2014]

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Answer

The contract of indemnity as described in Section 124 of the Indian Contract Act,1872 is a contract between two parties where one party promises to indemnify the other party in case the latter one suffers from any loss or to incur any kind of expenses or to protect him from any legal consequences which have been caused by the conduct of the promisor himself or caused by the third party.

Like if ‘A’ states that he shall bear all the expenses or losses incurred by ‘B’ which are caused by the act of the third-party with whom ‘B’ has any type of contract, let it be ‘Z’ in this case. The whole point of instituting the indemnity clause in the commercial contract is to exclude the affected party from any type of loss or incurring any type of liability.

This type of contract is needed especially for companies dealing with high-risk businesses as they enable one party to be protected against the liability arising from the act of another party. This type of contract ensures that one party is protected from any unforeseen circumstances and contract like these promote the business as companies can trade without having to worry about incurring losses from the third parties as they are secured on that front.

The Contract of indemnity includes 3 parties; the first is the promisor, the second is the promisee and the last one is the indemnifier. Now, the indemnifier would choose to indemnify the promisor from any losses which he incurs in the transaction with the promisee or from any other person.

For instance, if ‘A’ promises ‘B’ to indemnify him from any losses which would arise in the course of a transaction with ‘C’ or from any third party, then the contract between ‘A’ & ‘B’ would be declared as an Indemnity contract. The only restriction it provides is the loss arising from the accidents like fire or perils of the sea.

In the famous case of Secretary of State for India v. Bank of India [AIR 1938 PC 191], a forged endorsement bill was given to the bank and gave the money as per the value and then the bill was sent to the Public Debt Officer. Now the original owner of the bill recovered the amount of the bill from the state and the state sent the notice to the bank for indemnifying the transactions as the implied promise of the indemnity.

The court held that since there was a contract of indemnity with the bank and the state to indemnify the state in case of any loss was a valid contract and that bank has the duty to indemnify the loss to the state.

In the landmark case of Adamson v. Jarvis [(1827) 4 BING 66], this concept of indemnity was immortalized. In this case, Jarvis asked Adamson to sell cattle at an auction, which was duly done also. Later, when the real owner turned up, Adamson had to pay up the damages.

The court held that Jarvis would have to indemnify Adamson for the losses that he had to suffer. The simple reason is that when Adamson was performing the tasks so allotted by Jarvis, it is reasonable to presume that all the eventualities that would arise in the future would be taken care of by him in the future.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X