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THE INDIAN CONTRACT ACT

1971

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CONTRACT OF INDEMNITY According to Indian Contract Act 1872, SEC. 124A 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”.

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Indemnifier : the person who promises to protect another

Indemnity-holder: the person who is so protected

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PRECONDITIONS Existence of a contract of

indemnity Indemnity holder should have

acted within the scope of his authority

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INDEMNITY HOLDER ENTITLED TO RECOVER FROM THE INDEMNIFIER.. Damages All costs

Provided:1.Indemnity holder did not breach the orders of the indemnifier

2.Indemnity holder acted prudently

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CONTI… Any compromise payment

Provided:1.compromise is not contrary to the orders of the indemnifier

2.Indemnity holder acted prudently3.Indemnifier authorized indemnity holder to compromise the suit

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ESSENTIALS OF A CONTRACT OF INDEMNITY It must be a valid contract under section

10 of Indian Contract Act: 1.Free consent 2.parties competent to contract 3.lawful consideration, lawful object 4.not expressly declared void

Two parties: 1.Indemnifier (Promisor) 2.Indemnity holder (Promisee)

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CONTI… Loss to indemnity holder:

Occurrence of loss or damage is a contingency upon which liability of the indemnifier comes into existence.

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RIGHTS OF INDEMNIFIER Rights under doctrine of subrogation. To sue against third party after

indemnifying the indemnity holder. Not to compensate for losses not

covered under Contract of Indemnity.

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Sr. No

Basis Contract of Indemnity

Breach of Contract

1 Time of Agreement

It is agreed at the time of agreement of contract

Obligatory after losses

2 Anticipation of Loss

Meant for the compensation for anticipated loss

It is the compensation for the injured party if any

3 Relation between the Parties

Meant for the remedy based on the good relationship

Based on the disputes created by different circumstances

4 Nature Preventive Curative