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Under an [[indemnity]], one party agrees to pay the other an agreed amount should a certain event occur during the {{t|contract}}.<ref>When you put it like that it sounds rather like a {{t|derivative}}, doesn’t it?</ref>
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 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.
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 indemnifi''er'' doesn’t pay, the indemnifi''ee'' has an action in [[breach of contract]]. It can sue.
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 {{isdaprov|indemnity}} gives you a right of suit where, without it, you would not have one.
And that’s about it. An {{t|indemnity}} gives you a right to sue where, without it, you would not have one.
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 — is, [[for the time being]], [[without limitation]] and [[notwithstanding anything to the contrary in the foregoing]] contained, a ''moron''.  


For two reasons:  
====Indemnity for breach of contract? ''No'', sir.====
{{drop|I|n 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. An indemnity claim for a defined amount of money. It requires no proof of breach, causation, or quantification. All of these things are ''vital'' to the allocation of losses following breach of contract.


Firstly, 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}} to give you a right to sue. This is self-evidently true.  
There is, we think, a common misconception amongst eaglery that an indemnity can vouchsafe a claim for breach: that it can, somehow, make recovery under a contract quicker, more certain or more straightforward.  


Secondly, there are important limitations on one’s liability for [[breach of contract]] — questions of [[causation]], [[remoteness of damage]], [[foreseeability]] and proof of [[loss]] — developed over centuries in the Darwinian crucible of the [[common law]] — that are there for very good reasons, and about which the parties are certain to disagree vigorously. An indemnity is meant to be a pre-agreed amount, so is quite unsuitable for a contractual damages claim. There are those — as above, they are morons — who believe that overlaying the basic right to sue for breach with an indemnity will somehow subvert the need for adversarial inquiry into the breach. It won’t. <br>
It ''cannot''.
 
At the limit, a [[The Well-Crafted Indemnity|well-crafted indemnity]] would stipulate a fixed sum payable on breach of contract, regardless of loss, and this the courts would regard as an ''unenforceable [[penalty]]''.

Latest revision as of 09:48, 2 September 2024

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. An indemnity claim for a defined amount of money. It requires no proof of breach, causation, or quantification. All of these things are vital to the allocation of losses following breach of contract.

There is, we think, a common misconception amongst eaglery that an indemnity can vouchsafe a claim for breach: that it can, somehow, make recovery under a contract quicker, more certain or more straightforward.

It cannot.

At the limit, a well-crafted indemnity would stipulate a fixed sum payable on breach of contract, regardless of loss, and this the courts would regard as an unenforceable penalty.

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