Contract of Indemnity:
Section 124 of Contract Act 1872 states that “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 “Contract of indemnity”.
Variety Traders Karachi Vs. Government of Pakistan:
Contract of indemnity means contract by which one party promises to save other from the loss caused to him by the conduct of promisor himself or by the conduct of any other person.
[PLD 1980 KAR. 30].
Scope and applicability:
Section 124 deals only with one particular kind of indemnity which arises from a promise made by the idemnifier to save the indemnity holder from the loss caused to him by the conduct of the idemnifier himself or by the conduct of any other person.
[2003 CLC 1209].
An agreement between the seller and a purchaser whereby the consideration for the sale is to be paid by the purchaser to a creditor of a vendor amounts to contract of indemnity.
A contract of indemnity can be created either by oral or written instrument and need not necessarily be in writing, but may be oral.
Implied Contract of Indemnity:
A contract of indemnity 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 CLC 263].
Contract of insurance is in fact, contract of indemnity whereby insurer undertook to indemnify the insured in the manner and to the extent thereby agreed against losses.
Rights of Indemnity holder:
Section 125 of Contract Act states
The promise in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor.
- 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 cost which he may be compelled to pay in any such suit if, in bringing or defending it, he did not contravene the orders of the promisor, and acted as if it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorized him to bring to defend the suit.
- All sum which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the order or the promisor, and was one which it would have been prudent for the promise to make in the absence of any contract of indemnity, or if the promisor authorize him to compromise the suit.
The indemnity holder can recover costs properly incurred in resisting or ascertaining claims to which the indemnity or ascertaining claims to which the indemnity holder relates where a decree has been passed against the indemnity holder, the indemnifier is bound to pay the loss incurred by him. He cannot impeach the decree passed against the promise.