An indemnity is a legal obligation by one party (the indemnitor) to compensate the other (the indemnitee) for specified losses, liabilities, costs, or damages arising from defined events. Indemnities transfer economic risk between contracting parties and are distinct from guarantees, warranties, and limitation of liability clauses.
Indian Contract Act 1872 Sections 124–125 define a contract of indemnity as one where one party promises to save the other from loss caused by the promisor's conduct or a third party's conduct. Section 125 specifies the promisee's right to recover damages, costs of defending suits, and sums paid under judgments.
English law enforces indemnities as contractual obligations. The Unfair Contract Terms Act 1977 (UCTA) and Consumer Rights Act 2015 restrict unreasonable indemnities in B2C contracts. Insurance-backed indemnities are common in M&A and commercial leases.
Anti-indemnity statutes in many US states (especially construction) limit indemnifying a party for its own negligence. Enforcement depends on whether the language is 'clear and unequivocal'.
An indemnity is a primary obligation to compensate for losses. A guarantee is a secondary obligation — the guarantor is only liable if the principal debtor defaults. An indemnitor can be sued directly; a guarantor's liability is conditional on the debtor's default.
In English law and India, the indemnitee generally has a duty to mitigate losses. However, the parties can agree to widen or narrow the duty by contract. The indemnitor cannot be required to compensate for losses the indemnitee could have reasonably avoided.
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