Define a contract of indemnity and what are the rights of indemnity holder when sued

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Contract of indemnity

Q. Define a contract of indemnity and what are the rights of an indemnity holder when sued. (2002)
1. Introduction:
Indemnity means a promise to save a person harmless from the consequences of an act. The promise may be express or it may be implied from the circumstances of the case. So it include a promise of indemnity against loss arising from any cause what so ever. Insurance contracts are its example.
2. Definition:
According to Sec 124 of contract act.
“A contract by which one party promises to save the other from loss caused to him by the conduct of the promise himself or by the conduct of any other person is called contract of indemnity”.
3. Parties of contract of indemnity:
There are two parties in the contract of indemnity.
(I) Indemnifier:
The person who promises to make good the loss is called the indemnified or promisor.
(II) Indemnity holder:
The person whose loss is to be made is called indemnity holder or indemnified.
4. Example:
A parked his cycle at of B. He lost his token. B refuses to return the cycle to A. A promises to compensate B against the loss he may suffer. If any other person claims the cycle from B.
5. Essentials of the contract of indemnity:
Contract of indemnity being a part of law of the contract must have all attributes of a valid contract e. g. (i) free consent, (ii) lawful object (iii) consideration (iv) capacity to make contract etc.
6. Kinds of indemnity:
(I) Express:
When indemnity is expressed or stated clearly.
( II) Implied:
When inferred from the circumstance of particular cases.
7. Time of commencement of indemnifier’s liability:
Where indemnifier has incurred an absolute liability through the actual loss, he may call upon the indemnified to save him from that liability and pay of his liability.
8. Rights of indemnity holder when sued:
According to sec. 125 an indemnity holder when sued is entitled to the following rights against the indemnifier.
(I) Right of damages:
Indemnity holder 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.
(II) Right of recovering all costs:
He is entitled to all costs which he may be compelled to pay in bringing or defending such suit.
(III) Right of recovering all sums:
He is entitled to all sums which he may have paid under the terms of any compromise of any such suit.
9. Rights of indemnified:
The rights of indemnified are the same as the rights of guarantor:
“He is entitled to the benefit of all the securities which the creditor has against the principal debtor, wheter he was aware of them or not.”
10. Conclusion:
To conclusion it can be said that, indemnity is a compensation paid by one party to another. It is made in order to protect the promise against anticipated loss. It depends upon happening of loss. In contract of indemnity there are two parties. It is direct engagement and may be made independently of the existence of third party.

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