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Indemnity clauses in contracts


An indemnity clause is a specific term in a contract between two contracting parties. Wherein (B) agrees to indemnify (A) for any liability that (A) may be under. (A), may incur liability in respect of a third party (C) in which case (B) must compensate (A) for any claim which is made by (C) against (A).

For example, a builder may get the owner of a house to agree to indemnify him for any injury or damage that his work on the house might cause to third parties. So if the builder negligently demolishes a wall and injures a next door neighbor, the builder can call on the house owner to make good any award of damages.

In some cases (B) is required to indemnify (A) in respect of a liability that ( A) m ay b e under to (B) himself. Such an indemnity clause has almost the same legal effect as an exclusion clause.

At one time earlier, it was common practice for guarantees given with goods to contain a clause exempting the manufacturer from liability in negligence if the product proved to be defective.

However, this issue was covered by the law which provides that, a manufacturer or distributor cannot exclude or restrict his liability in negligence for loss arising from defects in goods ordinarily supplied for private use or consumption by means of a term or notice contained in a guarantee.

The same goes as, the implied obligations to the title and supply of goods in hire-purchase, cannot be excluded or restricted by any contract term.

The implied terms as to description, quality, etc. cannot be excluded or restricted by any contract term against a person dealing as a consumer.

However, where the person is not dealing as a consumer, the exemption clause is subject to the “reasonableness test”.

Also, any clause in a contract to exclude or restrict liability for misrepresentation is ineffective unless it satisfies the requirement of reasonableness.

Of course this depends on the merits of each case. For example, in certain case, the deft agreed to remove the house of the plaintiff for certain amount.

The contract contained exemption clauses which limited the deft liability for losses or breakages to $20 per article and excluded all liability unless claims were made within three days.

It was held that these clauses were unreasonable. I concur.

(The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Daily Tribune)