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PAPER-05
SPECIAL CONTRACTS
ASSIGNMENT - EXTENT OF LIABILITY
[SECTION 125 - INDIAN CONTRACT ACT]
TABLE OF CONTENTS
3. Extent of Liability 6
4. Conclusion 7
5. Bibliography 8
3
INTRODUCTION
The law of Contract is one of the most familiar legal concepts in our
society as it is so central to the essence of our political, economic, and social life.
In order for a contract to exist there are many factors to be considered like the
‘consent’ between the parties performing the contract, the object of the contract,
competency of the parties, lawful purpose, etc;.
There are many aspects of contract which are used by the public in their
everyday life. One such aspect is the contract of indemnity, the contract of
indemnity is a contract by which one party promises the other to save him from
loss occurring due to the promisor’s or any other person’s actions. This
assignment aims to confer the idea of contract of indemnity and its various
aspects.
4
INDEMNITY
The person who gives the indemnity is called the “indemnifier” and the
person for whose protection it is given is called the “indemnity-holder” or
“indemnified”. For example, if ‘A’ promises ‘B’ to indemnify him for any loss
or consequences which may arise as a result of ‘B’ giving a beating to ‘C’. This
example is a clear definition of a contract of indemnity, but it cannot be said to be
legally binding, as one of the important and pre-requisite of a contract is ‘lawful
purpose’ & assaulting another is not permissible by the law.
As per this section, the rights of the indemnity holder are not absolute or
unfettered. He must act within the authority given to him by the promisor and
must not contravene the orders of the promisor. Further, he must act with normal
intelligence, caution, and care as if there were no contract of indemnity.2
We can clearly see the difference of the Contract of Indemnity in the Indian law
and the English law.
1
Dr. S R Myneni, Contract-II, Asia Law House, 1st edition 2010-11, pg.1
2
http://hanumant.com/IndemnityGuarantee.html
3
M Krishnan Nair, Contract-II, Lekha Publications, 1st edition 1986, pg.55
5
Indian Law:
Indemnity in Indian law has a more narrow approach, thus the scope of
indemnity is restricted to cases where there is a promise to indemnify against
loss, caused: (a) by the promisor himself, or (b) by any other person. The
contract of indemnity in Indian law excludes the situations where the loss
happens due to accidents or due to natural calamities. The Indian law only
accepts the contract of indemnity if it is caused by human means or through
human agency4, i.e. in a case of contract of insurance the Indian law does not
apply the principle of indemnity. Indian Courts apply the English definition to
contracts of indemnity. As was observed by Justice Chagla, “Sections 124 and
125 of the Contract Act are not exhaustive of the law of indemnity and the courts
here would apply the same principles that the courts in England do”.5
English Law:
4
See Gajanan Moreshwar Parelkar v Moreshwar Madan Mantri, [AIR (1942) Bom 302]
5
https://sol.du.ac.in/mod/book/view.php?id=644&chapterid=370
6
[(1938) 65 1A 286]
6
EXTENT OF LIABILITY
Section 125 of the Indian Contract Act lays down the extent of liability of
the indemnity-holder when sued. The promisee in a contract of indemnity, acting
within the scope of his authority, is entitled to recover from the promisor-
a) All damages the promisee is compelled to pay in any suit to which the
promise to indemnify applies,
b) All costs which the promisee bears to defend or sustain such a suit,
c) All sums which the promisee pays under the terms of any compromise of
any such suits.
In short, section 125 states that the indemnity holder can recover from the
indemnified all damages, all costs of the suit and compromise money. It is also
to be noted that a contract of indemnity being a contract must possess its basic
requisites like consensus between parties, competency, lawful object, etc;
otherwise it will not be valid.
One person’s right is the others liability, so we can say that the extent of
indemnity holder's right will be treated as the extent of the indemnifier's liability
under the contract of indemnity7, i.e. the right of the indemnity-holder to get
compensated for any loss is the liability of the indemnifier.
Commencement of Liability
7
http://escontract2.blogspot.in/2013/06/125-rights-of-indemnified-liabilities.html
7
The liability commences when the indemnifier or any other person does an
act which causes the indemnity-holder to suffer loss for which the contract of
indemnity is taken. The indemnifier has the liability to pay off the amount he
promised to the indemnity-holder.
CONCLUSION
8
Avtar Singh, Contract & Specific Relief, Eastern Book Company, Eleventh edition 2013, pg.576
9
The court distinguished the case from its earlier decision in Shanker Nimbaji v Laxman Sapdu, AIR 1940 Bom161
10
[ ILR (1929) 56 Cal 262]
8
BIBLIOGRAPHY
4. https://sol.du.ac.in/
5. http://escontract2.blogspot.in/2013/06/125-rights-of-indemnified-
liabilities.html
6. http://hanumant.com/IndemnityGuarantee.html
7. https://kanwarn.wordpress.com/2010/11/25/indemnity-under-indian-
contract-act-1872-part-2/
8. http://www.lawteacher.net/free-law-essays/contract-law/contract-of-
indemnity-and-law-of-guarantee-contract-law-essay.php