Definition of Indemnity:
Under English law Indemnity means a promise to save a person from the harmful consequences of an act or in other words it means a promise to save another from harm or form loss caused as a result of a transaction entered into the instance of the promisor. According to Section 126 of the Contract Act, 1872:
Contract of indemnity is a contract by which one party promises to save another from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person.
Case Laws Definitions:
"Indemnity is to save indemnity-holder from genuine loss likely to be suffered by him from conduct of promisor or any other person"(2019 CLC 950 KARACHI-HIGH-COURT-SINDH)
Indemnity was a collateral Contract or assurance, by which one person engaged to secure another against an anticipated loss or to prevent him from being damnified by the legal consequences of an act or forbearance on the part of one of the parties or of some third person. (2017 PLD 1 SUPREME-COURT)
Example:
A sold certain cattle on the instructions of B. It subsequently turned out that the livestock does not belong to B, but some other person who made A liable. A in his tum sued the defendant (B) for indemnity for the loss was caused due to his acting on the instructions of B. Held, A having acted at B’s request was entitled to assume that B will indemnify him if something turned out to be wrongful.
Contract of insurance is in fact a Contract of indemnity whereby insurer undertook to indemnify the assured in the manner and to the extent thereby agreed against losses.1988 CLC 1381 KARACHI-HIGH-COURT.
Wider scope of indemnity in English Law:
Common law definition of indemnity is wide enough to include a promise of indemnity against loss arising from any cause whatsoever For example loss caused by fire or some other accident. Indeed every contract of insurance other than life insurance is a contract of Indemnity. The definition of the contract of indemnity in English law includes the loss caused by events or accidents which may not or do not depend upon the conduct of any person, or liability arising form something done by the promisor at the request of the promisee. The English definition is more happily worded and the English law in respect of indemnity has been followed by Pakistani courts. Compared to English Law of indemnity, Indian contract seems to be narrower in scope so far as ‘indemnity’ is concerned. Sec. 124 defines indemnity as, “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 other person.
Illustration:
A agreeing to indemnify B against the consequences of any proceedings which C may take against B in respect of certain sum of Rs. 200. B is ordered to pay Rs. 200 to C and also the cost of suit. A shall be required to pay him (B) the full amount.
Parties to the contract of indemnity:
Person giving the indemnity is called ‘indemnifier’ and the person for whose protection it is given is called the ‘indemnity holder’ or ‘indemnified.’
Scope of indemnity in Contract Act is restricted to those losses that are caused:
- By the promisor himself
- By another person.
Definition excludes cases of loss arising from accidents like fire and perils of sea. Loss must be caused by some human agency. Thus provision of Sec. 124 and 125 are not exhaustive and have to be supplemented by English equitable principles or indemnity.
Kinds of Indemnity:
Promise of indemnity may be:
A contract of indemnity may either be express or implied,
- Express: stated clearly or expressed.
- Implied: inferred from the circumstances of particular cases.
Person transferring property under a valid Contract also impliedly would bind himself to indemnify the transferee of said property against any loss sustained by transferee due to some defective title and a right to indemnify existed in every Contract irrespective of any express clause existing to that effect. (2007 CLC 1433 LAHORE-HIGH-COURT
Contract of indemnity can be created either by written instrument and need not necessarily be in writing, but may be oral. Such Contract may be expressed by words of mouth or may be tacit or implied and may be inferred from course of conduct of parties concerned. 2003 CLD 363 HIGH-COURT-SINDH
Promisor shall be liable for all damages sustained by the indemnity holder plus any cost plus any sum bona fide paid at law, provided indemnity holder had acted as s prudent person. A contract of indemnity, being a species of contract, is subject to all the rules of contract, such as, genuine consent, legality of object, etc., and an indemnity procured by fraud will not be enforced.
Illustration:
Where A asks B to beat C and promise to indemnify him against the consequences thereof. B beats C and is fined Rs. 500. B can't recover the money from A.
Time of Commencement of Indemnifier's Liability:
The contract Act does not mention the time of the commencement of indemnifier’s; liability under the contract of indemnity. However, the recent decisions on the point say that if the indemnified has incurred a liability and that liability is absolute, he is entitled to call upon the indemnifier to save him from that liability and put it off.
IN LIVERPOOL INSURANCE CO’S CASE: The court on equitable principles remarked as, "To indemnify does not merely mean to reimburse in respect of moneys paid, but to save from loss in respect of liability against Which the indemnity is given, If it is hold that payment is condition precedent to recovery, the contact may be of little value to the person to be indemnified, who may be unable to meet the Claim in the first instance.”
Rights of Indemnity Holder When Sued:
According to Section 125, an indemnity holder (i.e., indemnified), when sued is entitled to the following rights against the indemnifier:
(1) Damages:
He is entitled to recover all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies.
(2) Costs:
He is entitled to all costs which he may be compelled to pay in bringing or defending such suits. But the indemnified should have acted as any prudent man would act under similar circumstances in his own case, or with the authority of the indemnifier.
(3) Compromise payment:
He is entitled to all sums which he may have paid under the terms of any compromise of any such suit.
