Template:Indemnitycapsule: Difference between revisions

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Under an [[indemnity]] one party agrees to reimburse the other for specified losses it incurs in performing the {{tag|contract}}, even though they don’t arise from [[breach of contract]]. This is a fair allocation of loss if one party may incur definable losses which, [[but for]] its obligations to the indemnifying party under the contract, it would not. For example, a retrospective [[tax]] imposed unexpectedly upon a custodian by dint of its holding a client asset. But that is much more unusual that the incidence of an unnecessary [[indemnity]] in a standard form {{t|contract}}. Most of the time the remedies developed over centuries of the [[common law]] of {{t|contract}} do just fine. Since [[indemnities]] reallocate losses away from those on whom they would naturally fall, and are apt to short-circuit sensible limitations on contractual liability (also developed over  said centuries), one should resist [[indemnities]] where they are not absolutely necessary. Which is most of the time.
Under an [[indemnity]], one party (the “[[indemnifier]]”) agrees to pay the other the “[[indemnified]]”) an agreed amount should a specified event occur during the {{t|contract}}.<ref>When you put it like that it sounds rather like a {{t|derivative}}, doesn’t it?</ref>
 
The “events” covered by an {{t|indemnity}} are usually unexpected costs and expenses the [[indemnified]] party incurs while performing obligations under the {{t|contract}}, the benefits of which accrue exclusively to the [[indemnifying party]]: things like [[tax]] charges levied on a custodian relating to assets it holds for its clients. Without an indemnity, the party incurring these costs would just have to wear them. This would be a windfall for the benefiting party.
 
An {{t|indemnity}} thus creates a payment obligation under the {{t|contract}} where one would not otherwise exist. If the indemnified event occurs and the [[Indemnified|indemnifi''er'']] doesn’t pay, the [[Indemnified|indemnifi''ee'']] has an action in [[breach of contract]].
 
And that’s about it. An {{t|indemnity}} gives you a right to sue where, without it, you would not have one.
 
====[[Indemnity for breach of contract]]? ''No'', sir.====
In any case, '''[[indemnities]] should not, ''ever'', cover losses arising from [[breach of contract]]'''. Like, ''ever''. Anyone who tells you anything different — and in this old salt’s long and grim experience, many people who should know far better will — should be [[Get your coat|directed to the coat check]]. Here is why: if the other guy has breached the contract, [[Q.E.D.]] ''you have a right of action under the {{t|contract}}''. You don’t need an {{t|indemnity}}. This is self-evidently true.

Latest revision as of 11:58, 3 December 2021

Under an indemnity, one party (the “indemnifier”) agrees to pay the other the “indemnified”) an agreed amount should a specified event occur during the contract.[1]

The “events” covered by an indemnity are usually unexpected costs and expenses the indemnified party incurs while performing obligations under the contract, the benefits of which accrue exclusively to the indemnifying party: things like tax charges levied on a custodian relating to assets it holds for its clients. Without an indemnity, the party incurring these costs would just have to wear them. This would be a windfall for the benefiting party.

An indemnity thus creates a payment obligation under the contract where one would not otherwise exist. If the indemnified event occurs and the indemnifier doesn’t pay, the indemnifiee has an action in breach of contract.

And that’s about it. An indemnity gives you a right to sue where, without it, you would not have one.

Indemnity for breach of contract? No, sir.

In any case, indemnities should not, ever, cover losses arising from breach of contract. Like, ever. Anyone who tells you anything different — and in this old salt’s long and grim experience, many people who should know far better will — should be directed to the coat check. Here is why: if the other guy has breached the contract, Q.E.D. you have a right of action under the contract. You don’t need an indemnity. This is self-evidently true.

  1. ↑ When you put it like that it sounds rather like a derivative, doesn’t it?
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