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| ===How is an indemnity different from a breach of contract?=== | | ===How is an indemnity different from a breach of contract?=== |
| Contracts are simple things: each party has something the other wants; by contract, they memorialise their willing exchange. And, should you fail to keep up your end of a bargain, your counterpart must have a means of redress. This is a claim for [[breach of contract]]. However plain your promise, the theoretical extent of the loss you cause should you fail to keep to it is limited only by the depraved imagination of the opposing lawyer: loss of bargain, hedge break costs, lost opportunity, [[consequential loss]], taxes, reputational damage, [[restitution]], emotional distress, nervous shock, (needless to say, but inevitably said) legal costs and even [[exemplary damages]] to punish you for your high-handed and contumelious disregard for another merchant’s reasonable commercial expectations.
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| These things have a nebulous air to them. They will require evidence: claim and counterclaim, examination and cross, and the law has developed techniques — principally [[causation]] and [[remoteness of damage]] — to limit unnecessary excess. But in general note this: the parties to a contract expect to carry out their respective parts of the bargain: it would be a perfidious contractor who did not. No-one enters a contract planning to sue on it. The difficulties in proving your claim are thus counterbalanced against the general expectation that, a merchant's word being its bond, it will be a glum day when you have to do so.
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| But, as economists will tell you, there can be undesirable consequences of commercial activity: outcomes that neither party wants, nor can avoid, even if each keeps faithfully to its side of the bargain. For these contingencies we have indemnities. Indemnities compensate for losses that do not arise from ''breach'' of contract, ''but from faithful performance of it''. They address a contingency that ''neither'' party wants: An unexpected financial loss; legal action by a third party against one or other party to the contract as a result of its performance. Indemnities allocate these unwanted, "third party" risks ''away from the person on whom they would naturally fall''.
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| {{box|The example ''par excellence'': | | {{box|The example ''par excellence'': |
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