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CONTRACTS II

WEEK 1: INDEMNITY

PALLAVI GOEL

COURSE STRUCTURE  Week 1 & 2: Indemnity  Week 3, 4 & 5: Guarantee  Week 5 & 6: Bailment  Week 7: Pledge  Week 8, 9 & 10: Agency  Week 11, 12, 13 & 14: Sale of Goods  Week 15: Negotiable Instruments

TOPIC I / WEEK I

CONTRACT OF INDEMNITY

INTRODUCTION  An indemnity is a promise by one party to compensate another for the loss suffered as a consequence of a specific ''trigger” event.  Trigger event can be anything: breach of contract; party's fault or negligence; specific action.  Indemnity clauses allow parties to manage the risks attached to a contract  The scope and effect depends on the intention of the parties.

PARTIES IN A CONTRACT OF INDEMNITY

 INDEMNITY : Is the promise to

make good the loss

 INDEMNIFIER - Is the one who

makes promise to make good

the loss caused to indemnity

holder / indemnitee

 INDEMNITY HOLDER / INDEMNITEE

• Is the one whose loss is made

good

EXAMPLE

A manufacturer sells products to

a retailer. The retailer may fear

that, if the products are

defective, it will be exposed to

product liability claims by

consumers. The retailer will

usually seek an indemnity from

the manufacturer against those

claims, in order to be

compensated if such claims

arise.

REQUIREMENTS

 In addition to the implied or

express promise to indemnify,

all the essentials of a valid

contract must also be present.

 LOSS CAUSED BY CONDUCT OF

PROMISEE OR ACT OF GOD IS

NOT COVERED

REQUIREMENTS

 Promise between the two parties:

Express or implied

 Protection against loss: promise

should be to protect the other

party from loss caused to him

 Loss by promisor himself or other

person: Loss may be caused by

promisor himself or by any other

person. It does not include loss

caused by natural reasons which

are beyond human control, fire,

perils of sea etc.

TYPES OF INDEMNITY CLAUSES Types of indemnity clauses:  Bare Indemnities – Party A indemnifies Party B for all liabilities or losses incurred in connection with specified events or circumstances, but without setting out any specific limitations.  Third Party Indemnities – Party A indemnifies Party B against liabilities to or claims by Party C  Financing Indemnities – Party A indemnifies Party B against losses incurred if Party C fails to honour the financial obligation (ie the primary obligation) to Party B (most often these are coupled with a guarantee), and  Party/ Party Indemnities – Each party to a contract indemnifies the other(s) for losses occasioned by the indemnifier’s breach of the contract.

Except for Lessor’s gross negligence or wilful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. EXAMPLES OF CONTRACT OF INDEMNITY

Each party agrees to indemnify, defend, and hold harmless the other party from and against any loss, cost, or damage of any kind (including reasonable outside attorneys’ fees) to the extent arising out of its breach of this Agreement, and/or its negligence or wilful misconduct. EXAMPLES OF CONTRACT OF INDEMNITY

EXCLUSION OF INDEMNITY  Loss caused by the receiving party's deliberate acts: eg in an insurance contract, the insured should not be indemnified if the trigger event results from their own intentional act (for example if the insured burns their own house intentionally).  Loss caused by the receiving party's own fraud or crimes: indemnities do not cover the consequences of the receiving party's own illegal acts.

TYPICAL RECOVERABLE DAMAGES Losses Liabilities Claims Causes of action Personal injury and death Real and personal property damage Infringement of intellectual property Breach of confidentiality Violation of law

INDEMNITY v/s DAMAGES INDEMNITY DAMAGES indemnity claim may be brought before breach of contract claim can only be brought after the breach of a contract Section 124 of the Act puts no obligation to mitigate losses on the indemnified party Section 73 of the Act puts a duty on the claimants to mitigate their losses and states that they may not claim losses which arise due to their failure of mitigation Indemnity can be claimed for loss arising out of the action of a third party to a contract Damages can only be claimed for loss arising out of the actions of the parties upon breach of contract. relief may be claimed for loss caused by the action of a third party which may not necessarily result from the breach of contract damages can only be claimed when there is a breach of contract by either party to a contract The main principle behind indemnity is to put a person back into the place he was before the loss occurred. Hence when a person is indemnified he will never make a profit or a loss out of it, he will be restored to his original position in case of monetary damages, award may be awarded more than the actual loss occurred or less than the actual loss occurred.