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Civil Law Contracts of Indemnity and Guarantee
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Civil Law Contracts of Indemnity and Guarantee
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Civil LawContracts of Indemnity and Guarantee
Introduction
■ The contract of indemnity and the contract guarantee are the special contracts under the
Indian Contract Act, 1872. The contract of indemnity is the contract where one person
compensates for the loss of the other.
■ Contract of guarantee is a contract between three people where the third person intervenes
to pay the debt if the debtor is at default in paying back.
■ The contract of guarantee and contract of indemnity perform similar commercial functions
in providing compensation to the creditor for the failure of a third party to perform their
obligation.
■ Chapter VIII of the Indian Contract Act, 1872 contains the legal provisions governing a
contract of indemnity and a contract of guarantee in India.
Contract of Indemnity
■ The term indemnity is derived from the Latin word “indemnis” which denotes uninjured or
suffering no damage or loss. It is a sort of security or protection against loss.
■ Indemnity is to indemnify one person by bearing his losses incurred to him by the conduct
of promissory or by any other party.
■ Section 124 of the Indian Contract Act, 1872 defines a contract of indemnity as a contract
wherein 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.
■ In an indemnity contract, there are only two parties i.e.,
, ○ The Indemnifier: The promisor, who agrees to make up the damage caused to the
other group.
○ The Indemnified: The person who is assured of compensation for the damage incurred
(if any) is referred to as the indemnity holder or the indemnified.
Essentials in the Contract of Indemnity
■ Valid contract: An indemnity contract must have all parts of a valid contract. The Indian
Contract Act of, 1872 applies to indemnity contracts.
■ Loss protection: The indemnity contract is for loss protection. The indemnifier is bound to
recover the losses.
■ Parties: The indemnity contract shall have two parties. The indemnifier and the holder.
■ Contracts: There is one contract only between the holder and the indemnifier.
■ Express or implied: The indemnity contract can either be spoken or written. The parties can
also imply it.
Types of Indemnity
■ Express Indemnity:
○ This is also known as written indemnity. Under this, all the terms and conditions of
the indemnity are mentioned specifically in the contract.
○ The rights and the liabilities of both parties are clearly set out in the agreement.
○ This type of agreement includes insurance indemnity contracts, construction
contracts, agency contracts, etc.
■ Implied Indemnity:
○ It refers to that indemnity wherein the obligation arises from the facts and the
conduct of the parties involved. This is not a written contract.
○ The core example of this type of indemnity is the master-servant relationship.
○ The master is liable to indemnify his servant for the losses that he incurred while
working as per his instruction.
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