Contract of Indemnity
Section 124 of the Indian Contract Act 1872 contains the definition of a contract of indemnity which states, “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 a contract of indemnity.”.
There are two parties in a Contract of Indemnity:
Party 1- Indemnifier: An indemnifier is the person who promises to protect or save the other party from any loss or damage.
Party 2- Indemnity Holder: The indemnity holder is the person to whom the promise to save or protect from any loss or damage is made.
For example, Aman may agree to indemnify Rahul for any loss or damage that may occur if a tree on Rahul’s neighboring property blows over. If the tree then blows over and damages Rahul’s fence, Aman will be liable for the cost of fixing the fence.
For example, Aman may contract to indemnify Bhavesh against the consequences of any proceedings that Chinu may take against Bhavesh in respect of a sum of ₹ 5,000/- advanced by Chinu to Bhavesh. In consequence, when Bhavesh, who is called upon to pay the sum of money to Chinu, fails to do so, Chinu will be able to recover the amount from Aman as provided in Section 124.
Contract of Indemnity: Meaning & Features (Indian Contract Act)
Indemnity means security against losses. When two parties come together to commence a business, the main intention for both parties to formally enter into a contract is to be shielded from any type of probable loss or damage due to the uncertainty of the business. Contract of Indemnity relates to such special circumstances, where it establishes the duties and rights of the parties in a contract in the event of any uncertainty. Contract of Indemnity establishes that one party will pay the other party to the contract in case of any losses or an unprecedented and uncertain event. The Indian Contract Act, 1872, contains provisions related to the Contract of Indemnity under Section 124.
Geeky Takeaways:
- Indemnity means security against loss, or it can also be referred to as making good the loss. Indemnity protects a party from losing money or being affected by uncertainty.
- In an indemnity contract, one party pays another for possible losses or damage.
- The main objective is to get the party that was compensated back to where it was financially before.
- Insurance contracts are a classical example of a Contract of Indemnity.
Table of Content
- Contract of Indemnity
- Features of Contract of Indemnity
- Rights of an Indemnity Holder
- Liabilities under Contract of Indemnity
- Conclusion
- Contract of Indemnity- FAQs
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