“Contract of indemnity” defined.— 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”.
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A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of 200 rupees. This is a contract of indemnity.
What is Contract of Indemnity?
A contract of indemnity is an agreement where one person (promisor) promises to protect another person (promisee) from loss. The loss may happen because of:
- the actions of the person who made the promise, or
- the actions of any other person.
In simple words, one party agrees to compensate the other if a loss happens.
Examples of Section 124 of Indian Contract Act
1. Legal Case Protection
A tells B, “If C takes any legal action against you about ₹200, I will cover your loss.” This is called a contract of indemnity because A is promising to protect B from any loss caused by C.
2. Business Agreement
A tells B, “If your shop gets damaged because of my delivery work, I will pay for the loss.” A is protecting B from loss caused by his own actions.
3. Insurance Example
Insurance is a common example. When you take bike insurance, the insurance company promises: “If your bike is damaged or stolen, we will cover your loss.” This is a contract of indemnity.
4. Property Transaction
A sells land to B and promises to compensate B if someone later claims ownership of the property and B suffers a loss. This promise is a contract of indemnity.