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Unit 9: Contract of Indemnity

Notes
Example: A contracts to indemnify B against the consequences of any preceding which C
may take against B in respect of a certain sum of ` 200. This is a contract of indemnity.

Note Indemnification is a type of insurance which protects the one party from the
expenses of other. Indemnification clause cannot usually be enforced for intentional

torturous conduct of the protected party.

9.1.1 Rights of the Indemnified (i.e., the Indemnity Holder)
He is entitled to recover from the promisor: (i) All damages which he may be compelled to pay
in any suit in respect of any matter to which the promise to indemnify applies; (ii) All costs
of suit which he may have to pay to such third party, provided in bringing or defending the
suit (a) he acted under the authority of the indemnifi er or (b) if he did not act in contravention

of orders of the indemnifier and in such a way as a prudent man would act in his own case;
(iii) All sums which may have been paid under the terms of any compromise of any such suit, if
the compromise was not contrary to the orders of the indemnifier and was one which it would

have been prudent for the promisee to make.

9.1.2 Rights of the Indemnifi er

The Act makes no mention of the rights of indemnifier. However, his rights, in such cases, are
similar to the rights of a surety under s.141, viz, he becomes entitled to the benefit of all the

securities which the creditor has against the principal debtor whether he was aware of them or
not.
9.1.3 Commencement of Indemnifi er’s Liability

Indemnity requires that the party to be indemnified shall never be called upon to pay. Indemnity is

not necessarily given by repayment after payment. The indemnified may compel the indemnifi er

to place him in a position to meet liability that may be cast upon him without waiting until the

promisee (indemnified) has actually discharged it.

Task B, the proprietor of a newspaper, publishes at A’s request libel upon C, in the
paper. “A” promises to indemnify B against the consequences of the publication and all
costs and damages of any action in respect thereof. B is sued by C and has to pay damages
and also incur expenses. Is A liable to make the loss to B? [Hint: A is liable].

9.1.4 Distinction between a Contract of Guarantee and a Contract of
Indemnity

L.C. Mather in his book “Securities Acceptable to the Lending Banker” has very briefl y, but
excellently, brought out the distinction between indemnity and guarantee by the following
illustration. A contract in which A says to B, ‘If you lend £20 to C, I will see that your money
comes back’ is an indemnity. On the other hand undertaking in these words, “If you lend £20 to
C and he does not pay you, I will is a guarantee. Thus, in a contract of indemnity, there are only
two parties, indemnifier and indemnified. In case of a guarantee, on the other hand, there are

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