Rights and Duties of Indemnifier and Discharge

Rights and Duties of Indemnifier and Discharge: – The rights of the indemnity-holder are the duties of indemnifier, and duties of the indemnity-holder are the rights of the indemnifier. Discharge of contract means the termination of a contractual relationship between parties. The indemnity contract essentially involves one party promising to make good for the loss of the other. These losses may arise either due to the conduct of the other party or due to someone else and the discharge of a contract means the termination of contractual obligations.

Parties to the contract of Indemnity

The contract of indemnity consists of two parties: –

1. Promisor or Indemnifier: – The person who promises to bear the loss. For eg: ‘P’ is the indemnifier or promisor because he promises to bear the loss of ‘Q’.
2. Promisee or Indemnity holder: – The person whose loss is covered or who are compensated. For example: – ‘Q’ is the promisee or indemnity or indemnity-holder because his loss is covered by ‘P’.

Essentials of Contract of Indemnity

Essentials of contract of indemnity are as follows: –

1. Parties to a contract: – There should be two parties, namely, promisor or indemnifior and promisee or indemnity or indemnity holder.
2. Loss Prevention: – A contract of indemnity is entered into for the purpose of protecting against damage. Damage may be caused by the conduct of the promisor or any other person.
3. Express or implied: – A contract of indemnity may be expressed (i.e. made by spoken or written words) or implied (i.e. from the conduct of the parties or circumstances of a particular case).
4. Essentials of a valid contract: – A contract of indemnity is a special type of contract. The principles of common law of contract contained in Sections 1 to 75 of the Indian Contract Act, 1872 apply to them. Therefore, it must have all the essentials of a valid contract.
5. Number of contracts: – In a contract of indemnity, there is only one contract which is between the Indemnifier and indemnified.

RIGHTS AND DUTIES OF INDEMNIFIER

Rights of the Indemnity holder

1. Right to recover damages paid in a suit [Section 125 (1)]: – An indemnity holder has the right to recover from the indemnifier which he may be obliged to pay in any suit in respect of the contract of Indemnity applies.
2. Right to recover cost incurred in defending a suit [Section 125(2)]: – An Indemnity holder has the right to recover the cost incurred by him in defending a law suit in the court of law.
3. Right to recover amount paid under compromise [Section 125(3)]: – An Indemnity holder has the right to recover the amount paid by him in any compromise under the suit from the Indemnifier.

Rights of Indemnifier

It is a well-known principle of law that where one person has agreed to compensate another, he will agree to do well for his losses, so Indemnifier has right to protect or reimburse himself in any way or means from the losses.

Duties of Indemnifier

The duties of an indemnifier arise in the following circumstances: –

1. There must be a loss in accordance with the contract to make the indemnifier liable.
2. There must be an occurrence of the anticipated event. Without any occurrence of the prescribed event, there is no indemnity by the indemnifier.
3. Where the right of indemnity is used by the indemnity-holder prudently and the instruction of the indemnifier is not contravened or when there is no breach of contract.
4. If the costs demanded by the indemnifier are not caused by negligence, haphazard behaviour.

Duties of Indemnity holder = Rights of Indemnifier

Except as otherwise stated in the contract, the indemnifier shall not be liable for damages under the following circumstances. He is also called the duty of indemnity-holder.

1. Duty to Act Prudently: – Except as otherwise stated in the contract, the indemnifier shall not be indemnified for the loss caused by the negligence of the indemnity holder. In other words, it is the duty of the indemnity-holder to act prudently.
2. Duty not to cause any harm or loss: – If the indemnity-holder acts with the intention of causing any loss or damage, the indemnifier shall not be liable for such loss. In other words, it is the duty of the indemnity or holder not to cause harm or harm.
3. Duty to comply with the intentions of the Indemnifier: – If the indemnity-holder acts against the instruction of the other party or the promisor, the indemnifier shall not be liable for such damages as the Indemnity holder goes beyond the instructions given by the Indemnifier. In other words, it is the duty of the indemnity-holder to follow the intent of the promoter.

Case laws of Rights and Duties of Indemnifier and Discharge

1. Bihal Chandra vs. Chattur Sen (AIR 1976 ALL 506): – In this case, the seller had promised the other person to pay against the fees. Court held that the indemnification clause will only include the existing fees and not that subsequently imposed, retrospectively.
2. Jaswant Singh vs. Section of State 14 BOM 299: – It has been decided that the rights of the indemnifier are similar to the security under section 141 where it is the right to benefit from all the securities that the creditor has against the principal debtor, whether or not he has been aware of them.
3. Osman Jamal & sons ltd. vs. Gopal Purushottam (1928 ILR 56 Cal 262): – Repayment after the payment is not necessary to cover by the held Indemnity. Compensation requires that the compensated party is never called upon to pay.

What is Discharge of Contract?

Meaning of Discharge of Contract: – Discharge of contract means the termination of a contractual relationship between parties. A person is liable to perform contractual duties until he or she is discharged. If the person fails to act without being discharged, responsibility for the loss will arise. The contract may be discharged from full compliance or non-performance of the contractual obligation. Each contract contains an “implied covenant of goodwill” that the parties will act impartially, keep their promises, and not frustrate the other party’s reasonable expectations as to what has been given and what has been received.

A contract is said to be discharged when the object or obligations is fulfilled, the liability of either party under the contract comes to an end.

Types of Discharge

1. Discharge by Full Performance: – A contract can be discharged when the parties to the contract fulfill their obligations or duties according to the terms of the contract. However, the obligations and duties must be performed within the prescribed time and in the prescribed manner. For example: – Ali enters into the contract with Akram for the sale of watch for 1000 rupees. Akram receives the watch and Ali get his consideration in return. Here, both the parties did their part after this they will be discharged from the contract. Discharge of full performance is of two types: –
   1. Actual Performance: – When the contracting parties perform what they have mentioned in the contract, it is called the actual performance.
   2. Attempt to Perform: – A promise made is when one side of the contract attempts to fulfill its promise, but the other party refuses to accept it.

2. Discharge of Contract by Time Lapse: – The Limitation Act, 1963 provides for a specific period for the performance of a contract. If the party to the contract does not perform its duties or obligation within a specified period and if the aggrieved party fails to take any action within the specified time, then this lapse of time will lead to the discharge of the contract. For example: – Shashank gives his house on rent to Kanan on a condition that Kanan will pay her rent to him every month. He went to US and forget about the rent then he came back India after 10 years. Then he asked for the rent from Kanan, she refused. He filed the suit in the court against Kanan for the recovery of rent. The court dismissed the plea as he crossed the time limit for the recovery of rent.

3. Discharge of Contract from Impossibility of Performance: – The contract can be discharged from the impossibility of performance where it is almost impossible for the parties to fulfill their obligations or duties as per the contract. Usually the non-performance of the contract is due to circumstances beyond the control of the parties i.e. natural calamities, unforeseen circumstances, government policies, wars/riots, destruction of content, etc. If a contract is impossible from the beginning, it is void-ab-initio. For example: – Akram enters into a contract with Keshav for the supply of 10kg rice for 30,000rs. But the crops gets destroyed due to heavy rain and the Keshav is unable to perform his obligation. Here, in this case, the impossibility of performance leads to discharge of contract.

4. Discharge of Contract by Mutual Agreement: – The contract is said to be discharged by the mutual agreement, when the parties to the replace the contract with the new one. For example: – Karan enters into agreemen with Shikha for the sale of his black car worth rupees 5lacs. Later Karan changed his mind and decided to sell his white car to Shikha. Here the old contract of black car was replaced by the new contract of the sale of white car.

5. Discharge of Contract by Operation of Law: – A contract can be discharged from the operation of the contract. When the parties’ obligations to the contract cease due to interference with the law, it is said that the contract is discharged from the operation of the law. Discharge of contract from operation of law includes death, insolvency / bankruptcy, merger, court decision, unauthorized change of terms of a written agreement and the rights and obligations vested in the same person. For example: – Anand enters into the contract for the sale of his house with Reena. Anand dies before the parties could perform their obligations. Here, in this case the contract will be discharged by the operation of laws.

6. Discharge of Contract by the Breach of Contract: – A contract is said to be discharged from breach of contract when the parties to the contract fail to fulfill their obligations and duties at the scheduled time and in the manner specified in the contract. For example: – Shikha give his house on rent to Shurti on a condition that she will not further rent the house to any other person for the monetary benefits. But Shikha further rent the house to the third person. This is amount to discharge of contract by the breach of contract as Shikha did not comply with the terms of the contract. There can be two types of breach of contract: –
   1. Actual Breach: – Actual breech refers to when the contracting party refuses to perform its contractual duties and obligations on the due date.
   2. Anticipatory Breach: – Anticipatory breech refers to when the contracting party refuses to perform its duties and obligations before the due date of performance.

7. Discharge of Contract by Remission: – A contract is discharged by a waiver when the parties are waive or remit the performance of the contract completely or partially. For example: – John and Raman enters into a contract for the sale of watch, where the Raman has to pay the price of watch in installments. Raman paid two installments on time so John later free him from the payment of final installment. This is called the discharge by remission where the John waive his right to get the final installment

8. Discharge of Contract by Merger of Rights: – A contract can be discharged when an inferior right available to one party merges with a superior available to the same party under another contract. This is called discharge of contract by merger of rights. For example: – Aakash gives his house to Nandan on rent for 8 months. Later Nandan gave offer to buy the same house and Aakash accepted the offer. Here, there are two contract between them one is of lease and another is of sale. The contract of sale (superior contractt) will merge with the contract to lease (inferior contract) and this will lead to discharge of contract.

9. Discharge of Contract by the Non-Provisioning of Facilities: – Sometimes, the party/parties to the contract (promise) agrees to give the promisor appropriate facilities for the performance of the contract. If the promisee fails to fulfill, the promisor will be discharged from all liabilities arising due to non-performance of the contract. For example: – Sam agrees to fix Adam’s watch provided he leaves his watch at Sam’s shop for a week. Adam refused to leave his watch at the shop for a week, despite constantly asking him to do so. Sam fails to give Adam proper facilities. In this circumstance, Sam will be discharged of all obligations arising due to non-performance of the contract.