A contract of indemnity is really a part of the general class of ‘contingent contracts.’ It is entered into with the object of protecting the promisee against anticipated loss. The contingency upon which the whole contract of indemnity depends is the happening of loss.
The person who promises to make good the loss is called the ‘indemnifier’ (promisor), and the person whose loss is to be made good is called the “indemnified or indemnity-holder’ (promisee).
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Illustrations:
(a) The R/R (Railway Receipt) pertaining to certain goods is lost by B. A as also B claims the goods from Railway Company. In view of the rival claimants of goods, the Railway Co. asked A to give an ‘indemnity bond’. A, accordingly, gets the goods on executing the ‘indemnity bond.’
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A is the indemnifier and the Railway Co. is the indemnity-holder. Later, B. the real owner sues the Railway Co. for damages and gets a decree against the Railway Co. The Railway Co. (indemnity-holder) can claim indemnity from A, the indemnifier, for the loss caused to it by his conduct.
(b) A lost his share certificate. He applied to the company for the issue of a duplicate certificate. The Company asked A to furnish an ‘indemnity bond’ in its favour to protect it against any claim that may be made by any person on the original certificate.
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A, accordingly executed the ‘indemnity bond’. It is a contract of indemnity between A and the Company. A is the ‘indemnifier’ and the Company is the ‘indemnified’ or ‘indemnity-holder’.
A contract of indemnity, being a species of contract, must have all the essential elements of a valid contract; and an indemnity given under coercion or for an Illegal object cannot be enforced. Further, a contract of indemnity may be express or implied.
For example, there is an implied promise to indemnify agent by the principal in a contract of agency. Similarly, when shares are transferred the transferee is impliedly bound to indemnify the transferor against future calls made before the registration of transfer.