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Contract of indemnity

 

Contract of Indemnity

A contract of indemnity is a valid contract in which one party promises to save the other party from loss caused to him due to the conduct of the party or any other party. 

Example of Contract of Indemnity

One of the greatest examples of an indemnity contract is car insurance. When you get automobile insurance, you are promising to the insurance company that they would pay to repair your car if you are involved in an accident and that you will be compensated for it. Now, your automobile has been hit by a vehicle on the road, and it has been damaged. The auto insurance provider will now cover the damage to your vehicle.

Amit makes an indemnity agreement with Rakesh, stating that if he suffers a loss in his business, he will compensate him. Rakesh did not suffer any losses in the business, and Amit is not responsible for any losses. However, if Rakesh suffers a loss in his firm as a result of this situation, Amit will be obligated to compensate Rakesh for his losses.

A forms a deal with B to transport his products once a month for a monthly fee of $5,000. Now, C has formed an indemnity contract with B, promising to compensate B for any losses incurred if A fails to deliver his products on time. In this case, C is the indemnifier and B is the indemnified.

The indemnification might be paid in cash, through repair or replacement, or in any other method agreed upon by the indemnity parties. 

 

Types of Indemnity

There are basically 2 types of indemnity namely express indemnity and implied indemnity

  1. Express indemnity

Written indemnity is another term for this. All of the indemnity's terms and conditions are spelled out in detail in a contract under this arrangement. Both parties' rights and obligations are spelled out in detail in the contract. Contracts such as insurance indemnity, construction, and agency contracts are examples of this form of arrangement.

  1. Implied indemnity

It's the kind of indemnity where the duty is based on the facts and actions of the parties involved. This isn't a signed agreement. The master-servant relationship is a prime illustration of this form of indemnification. The master is responsible for compensating his servant for any damages incurred while carrying out his orders.

Special Provisions of Implied Indemnity


  1. Section 69 of Indian Contract Act, 1872-

According to this provision, if someone pays money on behalf of another person (who is legally obligated to pay), that person is entitled to reimbursement. Forex. If A is the owner of a leased store. A was out of town when the owner came to collect the monthly rent, so B paid it on his behalf. A is now responsible for reimbursing B.

  1. Section 145 of the Indian Contract Act

It deals with the surety's right under a guarantee contract. It specifies that if the surety (guarantor) pays the money on the debtor's behalf, the debtor is obligated to indemnify him by repaying the money. As an example. X took out a bank loan, and Y backed it up with a guarantee. X failed to reimburse the money, and Y was summoned to settle the bank's debts. Y paid it, but now X is responsible for compensating Y for the loss he suffered.

  1. Section 222 of the Indian Contract Act

This clause addresses a principal's obligation to indemnify his agent for all damages suffered while operating under the power delegated to him.

 
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