Special Contracts
1) Define a contract of indemnity.
The term 'indemnity' simply means to make good the loss 01. to compensate the party who has
suffered some loss. The term 'contract of indemnity' is defined in Section 124 of the Indian
Contract Act as follows, "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" The person who promises to compensate for the loss is called the
"indemnifier" and the person to whom this promise is made: or whose loss is to be made good is
known as "indemnity-holder" or "indemnified". For example, A contracts to indemnify B against
the consequences of any proceedings which C may take against B in respect of a certain sum of
money. This is a contract of indemnity, here A is the indemnifier and B is the indemnified.
The above definition restricts the scope of contracts of indemnity as it covers only the losses
caused by the conduct of the promisor himself or by the conduct of any other person. If a strict
view is taken of this definition, it will exclude the losses caused by accidents. In that case
insurance contracts should not fall within the purview of contracts of indemnity. But the fact is
that all contracts of insurance (except life insurance) are also contracts of indemnity. The
intention of law makers had never been to exclude insurance contracts from the purview of
contracts of indemnity. That is why we follow the English definition which states "a promise to
save another harmless from loss caused as a result of a transaction entered into at the instance of
the promisor". This definition includes a promise to make good the loss arising from any cause
whatsoever e.g. fire, perils of sea, accidents etc. When a person expressly promises to
compensate the other from loss, it is termed as express indemnity. The contract of indemnity is
said to be implied when it is to be inferred from the conduct of the parties or from the
circumstances of the case. Even Section 69 of the Contract Act (discussed in Unit 8) implies a
duty to indemnity in case a person who is ' interested in the payment of money which another is
bound by law to pay, has paid the amount. Similarly, in an auction salk there is an implied
contract of indemnity between the auctioneer and the person who asks him to sell goods. For
example, A, an auctioneer, sold certain goods on the instructions of B. Later on, it is discovered
that the goods belonged to C and not B. So, C recovered damages from A for selling the goods
belonging to him. Here A is entitled to recover the compensation from B. In this case there was
an implied promise to compensate the auctioneer for any loss which he may suffer on account of
the defective title of B.
As you know that contract of indemnity is a special type of contract, therefore, to enforce such
contracts it is necessary that all the essentials of a valid contract (discussed in Unit 1) must be
present. In case any one of the essential is missing, the contract cannot be enforced. Thus, if the
object or consideration of an indemnity agreement is unlawful, it cannot be enforced. For
example, A asks B to beat C, promising to indemnify him against the consequences this cannot
be enforced. Suppose B beats C and is fined Ks. 500, B cannot claim this amount from A,
because the object of the agreement is unlawful.
