Contract of Indemnity A 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 . Sec 124 Ingredients One party promises to save the other from loss caused to him Such loss may be happened to occur by the conduct of the promisor himself; or By the conduct of any other person

Section 124 deals only with express contracts of indemnity The 13 th law commission report also said that the definition under section 124 is not exhaustive Kinds of Indemnity Express contract of indemnity Implied contract of indemnity Statute or the common law imposses

The contract of indemnity is protecting the promisee against anticipated loss The right of indemnity arises from the original contract. The right of damages accrues from breach of contract. Adams v Jarvis (1827) 4 Bing 66 The plaintiff was an auctioneer. The defendant handed over cattle and instructed for sale in auction. Plaintiff sold them in good faith. The defendant was not the true owner. The true owner sued the auctioneer and obtained damages from him. Auctioneer sued the defendant for indemnity for the loss he suffered. It was held that the plaintiff is entitled to get indemnified.

Indemnity English Law wider in scope than section 124 of ICA 1872 Loss may be by conduct of persons or by accident, independent of anybodys conduct Indian Law

S 124 covers only express contracts of indemnity. The implied contracts of indemnity are covered by judicial decisions As per s 124, The loss has to be by the conduct of some person English Law Contract of insurance is a contract of indemnity Can be assigned Indian Law Contract of insurance will not come within the meaning of sec 124, however a contract of marine insurance, fire insurance, motor insurance, etc ., are deemed to be contracts of indemnity Is an Actionable claim An indemnity contract is not valid if it is agains public policy and unlawful. There is no contract of indemnity as defined in section 124 or even by implication in a contract of life insurance and personal accidents. According to sections 222, 223 and 224 of the ICA 1872 the liability is imposed upon the principal to indemnify the agent. Rights of Indemnity Holder Section 125 explains only the rights of indemnity holder and not the rights of the indemnifier The indemnity holder is entitled to All damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies All costs which he may be compelled to pay in any such suit All sums which he may have paid under the terms of any compromise of any such suit

Also entitled to loss due to change of law not forseen at the time of making the contract. Liability of the indemnifier Liable only after the actual loss occurs A remote chance of occurring loss will not make him liable Section 124 does not provide for assessment of future damages But section 125 provides that the indemnifier is liable to pay the damages which may occur in future.

It is not necessary that the actual payment has been made. It is sufficient that the liability has arisen. Osman Jamal & Sons Ltd vs Gopal Purushottam (1928 ILR 56 Cal 262) Plaintiff was a commission agent of the defendant firm and placed an order of supply to a supplier. The supplier supplied goods to the defendant, who failed to take the delivery. The supplier sued the plaintiff for damages. The court held that the defendant was liable. The plaintiff company before having actually made any payment to the vendor in respect of liability to him was held entitled to recover from the indemnifier under the contract of indemnity. There are contrary views also.

The cause of action arises when the money is actually recovered from the indemnified. In Ranganath v Pachusao AIR 1935 Nag 147 it was held that the payment which gives the surety the right of action against the principal debtor must be a payment of money or moneys worth and not a mere liability to pay. The limitation Act The cause of action arises when the damage is suffered. Any suit filed before the actual loss has accrued will be dismissed as premature as per Art. 113 of the Limitation Act, 1963. Rights of the Indemnifier Is entitled to succeed to all the ways and means by which the person indemnified might have protected himself against or reimbursed himself for the loss. S 141 applies this principle to surety. But sections 124 and 125 are silent on this. The law is thus based on natural equity.

Gajanan Moreshwar Parelkar v Moreshwar madan Mantri (AIR 1942 Bom 302)