Page 96 - DCOM103_COMMERCIAL_LAW

Unit 9: Contract of Indemnity

From the above case decisions it can be inferred that indemnity can be invoked on Notes
demand
1. Indemnity may be invoked where the claimant has a pre-existing condition that caused
a loss of use of a member of the body and there is proof that the loss of use is suffi ciently
pronounced that an ordinary person could discover it.
2. In accordance with developed practice it is proposed that any indemnity is limited to
exclude losses caused by the accountable body’s negligence and that the indemnity
can only be invoked once the accountable body has made reasonable endeavors to
recover any reclaimed grant from the relevant project manager, which may include
taking legal action.
3. Included procedures, terms and conditions in the contract to be followed for invoking
the indemnity by the customer.
4. A letter of indemnity, on the other hand, permits a misrepresentation and, in
consequence, it should not be invoked against consignees or third parties and, if used
against them, it should have no effect. The misrepresentation must, of course, be
directly related to the loss or damage complained of.
5. A letter of indemnity is a corollary to a fraud on a third party and cannot be invoked
against a third party in good faith who, on the contrary, may use the letter as evidence
of the bad order and condition of the goods.

Source: http://legalservicesindia.com/article/article/indemnity-in-a-contract-379-1.html
9.2 Summary

Contract of indemnity is a contract whereby one party promises to save the other from loss
caused to him (the promisee) by the conduct of the promisor himself or by the conduct of
any other person.
The liability of the surety is co-extensive with that of the principal debtor.
A surety is discharged from liability: (i) by revocation, (ii) by conduct of creditor, or (iii) by
invalidation of contract.
9.3 Keywords

Contract of indemnity: It is a contract of indemnity is a contract whereby one party promises to
save the other from loss caused to him by the conduct of the promisor himself.
Creditor: The person to whom the guarantee is given.

Principal debtor: The person for whom the guarantee is given.
Surety: The person who gives the guarantee.

9.4 Self Assessment

Fill in the blanks:
1. Between co-sureties there is equality of ............................ and benefi t.
2. ............................. is a contract of indemnity is a contract whereby one party promises to
save the other from loss caused to him by the conduct of the promisor himself.
3. ............................. is a guarantee which extends to a series of transactions.
4. When a debt is guaranteed by two or more sureties, they are called ............................. .

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