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Table of Contents

I. Introduction
II. Contract of INDEMNITY
 Definition and Nature along with essentials.
 Provisions in U.K.
i. Oriental fire and general insurance co. v Savoy Solvent Oil
Extractions Ltd.
ii. Richardson Re, ex parte The Governors of St. Thomas
Hospital.
 Provisions in India.
i. Gajanan Moreshwar v Morehwar Madan
ii. Osman Jamal And Sons Ltd. vs Gopal Purshottam
 Validity of contract of indemnity
 Right of indemnity holder when sued
III. Difference between Contract of Indemnity and Guarantee.
IV. Conclusion
V. Bibliography

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I. INTRODUCTION

This project is an effort and research to explore the different provisions in different countries
of India, U.K which share a common law background.

The term ‘indemnity’ literally means security against loss. Indemnification refers to the act of
being held not liable or being protected from costs by shifting them to another party. If a
person is promised by another that he will be protected or compensated in case of loss or
damage, he is said to be indemnified.

A contract of indemnity is an express promise to compensate for defined loss or damage used
to ensure that a contracting party has an express remedy to correct defects in goods or
services delivered under the contract. Section 124 of the Indian Contract Act, 1872 defines a
contract of indemnity as the contract wherein 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.
The person who promises to protect or compensate is called the indemnifier. The person to
whom the promise of indemnity is given is called the indemnity holder.

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II. CONTRACT OF INDEMNITY

 Definition and Nature

“Indemnity” is a widespread expression used not only in a contractual context. It can be defined
as-

a. duty to make good any loss, damage or liability incurred by another,” or alternatively
b. right of an injured party to claim reimbursement for its loss, damage or liability from a
person who has such duty.

If we see the literal meaning Indemnity means “Security from the loss”. This term was
generally used for insurance contracts. But Life insurances is not a contract of indemnity.

Its legal meaning is when one person promises to another to save him from the loss incurring
from his performing any duty.

An agreement of indemnity, as a concept developed under common law, is an agreement


wherein the promisor, promises to save the promisee harmless from loss caused by events or
accidents which do not or may not depend on the conduct of any person or from liability for
something done by the promisee at the request of the promisor.

In common law Indemnity was established in the case of Adamson v Jarvis1.

The plaintiff an auctioneer, sold certain cattle on the instruction of the defendant. It
subsequently turned out that the livestock didn’t belong to the defendant, but to another person,
who made the auctioneer liable and the auctioneer in turn sued the defendant for the loss he
had thus suffered by acting on the defendant’s direction. The court laid down that the plaintiff
having acted on the request of the defendant was entitled to assume that, if, what he did turned
out to be wrongful, he would be indemnified by the defendant.

Thus Indemnity in English Law means a promise to save a person from the consequences of
an act.

1
Adamson v Jarvis

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Whereas Section 124 of the Contract Act, 1872 defines a contract of Indemnity as "a contract
by which one party promises to save the other from loss caused to him by the contract of
the promisor himself, or by the conduct of any other person." In simple words, an indemnity
is a promise to compensate for another's loss.

 Provisions in U.K.

Provisions of the common law on the contract of indemnity are different as to the provisions
in the Indian law. Earlier there was a maxim used in English law for the contract of indemnity
i.e. “YOU MUST BE DAMNIFIED BEFORE YOU CAN CLAIM TO BE INDEMNIFIED”.

The original English rule was that indemnity was payable only after the indemnity-holder has
suffered actual loss by paying off the claims. No action could be brought against the
indemnifier until the indemnity-holder had suffered actual loss. Only after a loss has been
suffered by the indemnity holder by acting on the instructions of the promisor or indemnifier
and all damages beard by him in defending the suit or to prevent it or while compromising on
it are paid, then only afterward he can sue the indemnifier for the payments of all the costs
beard by him. These were the earlier provisions.

This situation created a great hardship in those cases where the indemnity-holder was not in a
position to meet the claim . Relief was provided to indemnity-holder in such cases by the
Court of Equity. According to the rules evolved by the Court of Equity, it was no more
necessary for the indemnity-holder to be damnified before he could be indemnified. In other
words, the indemnity-holder can now compel the indemnifier to save him from the loss in
respect of liability against which indemnity has been promised, in the case of:

Richardson Re, ex parte The Governors of St. Thomas Hospital.2

Where Buckley LJ observed: “Indemnity is not necessarily given by repayment after


payment. Indemnity requires that the party to be indemnify in the first instanced shall never
be call upon to pay”

2
Richardson Re, ex parte The Governors of St. Thomas Hospital.

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Oriental fire and general insurance co. v Savoy Solvent Oil Extractions Ltd

Life insurance contract is, however not a contract of indemnity because in such a contract
different considerations apply. A contract of life insurance, for instance, may provide the
payment of a certain sum of money either on the death of a person, or on the expiry of a
stipulated period of time (even if the assured is still alive). In such a case, the question of
amount of loss suffered by the assured, or indemnity for the same does not arise. Moreover,
even if a certain sum is payable in the event of death, since, unlike property, the life of a
person cannot be valued, the whole of the amount assured becomes payable. For that reason
also, it is not a contract of indemnity.

 Provision in INDIA
As such the scope of “Indemnity”, as a concept developed under the common law, is much
wider in its scope and application than the scope of “Indemnity” as defined under Section 124
of the Indian Contract Act 1872 . “Indemnity”, as developed in common law, includes losses
caused by events or accidents which may not depend on the conduct of any person and therefore
includes losses due to accident or events which have not been caused by the indemnifier or any
other person. Section 124 of the Act, in contrast, limits itself to losses caused by the
indemnifier or any other person. It does not, within its scope, include indemnity to losses
arising out of any natural event or any accident not caused by any person.

Thus the very process of definition is restricted to cases where there is a promise to indemnify
against loss caused by -

(i) by the promiser himself,


(ii) or by any other person, so the definition excludes from its purview cases of loss
arising from acidents like fire or perils of the sea. i.e. the loss must be covered by
some Human Agency.

In the case of Gajanan Moreshwar Parelkar v Moreshwar Madan Mantri:3

3
Moreshwar Parelkar v Moreshwar Madan Mantri

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Section 124 of the Act, deals only with one particular kind of indemnity which arises from a
promise made by the indemnifier to save the indemnified from the loss caused to him by the
conduct of the indemnifier himself or by the conduct of any other person, but does not deal
with those classes of cases where the indemnity arises from loss caused by events or accidents
which do not or may not depend upon the conduct of the indemnifier or any other person, or
by reason of liability incurred by something done by the indemnified at the request of the
indemnifier. Section 125 of the Act, deals only with the rights of the indemnity-holder in the
event of his being sued. It is by no means exhaustive of the rights of the indemnity-holder, who
has other rights besides those mentioned in the section. It was further discussed that an
indemnity might be worth very little indeed if the indemnified could not enforce his indemnity
till he had actually paid the loss. If a suit was filed against him, he had actually to wait till a
judgment was pronounced, and it was only after he had satisfied the judgment that he could
sue on his indemnity. It is clear that this might under certain circumstances throw an intolerable
burden upon the indemnity-holder. He might not be in a position to satisfy the judgment and
yet he could not avail himself of his indemnity till he had done so. Therefore the Court of equity
stepped in and mitigated the rigor of the common law and held that where the indemnified has
incurred a liability and that liability is absolute, he is entitled to call upon the indemnifier to
save him from that liability and to pay it off.

Thus we find out that the basic difference between the indemnity in English law and
Indian law is that, the English law is wide enough to cover the losses by fire and sea
peril whereas the Indian law doesn’t approve this. Moreover in the Indian law the loss
should be caused by some human agency i.e. the promisor himself or by the conduct of
any other person. Whereas in English law loss caused by a natural calamity and the
promisor are considered but not by any third party.

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 VALIDITY OF INDEMNITY AGREEMENT
A contract of indemnity is one of the species of contracts. The principles applicable to contracts
in general are also applicable to such contracts so much so that the rules such as free consent,
legality of object, etc., are equally applicable. Where the consent to an agreement is caused by
coercion, fraud, misrepresentation, the agreement is voidable at the option of the party whose
consent was so caused. As per the requirement of the Contract Act, the object of the agreement
must be lawful. An agreement, the object of which is opposed to the law or against the public
policy, is either unlawful or void depending upon the provision of the law to which it is subject.

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III. CONCLUSION
We can see here that though the concept of indemnity and prevalent in India was introduced
by the government of the crown, when India was a colony under the British empire. the
indemnity in English law and Indian law is that, the English law is wide enough to cover
the losses by fire and sea peril whereas the Indian law doesn’t approve this. Moreover
in the Indian law the loss should be caused by some human agency i.e. the promisor
himself or by the conduct of any other person. Whereas in English law loss caused by a
natural calamity and the promisor are considered but not by any third party.

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BIBLOGRAPHY
1. The Indian Contract Act, 1872
2. Pollock and Mulla the Indian Contract

3. Contract & Specific Relief

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