Distinguishing damages from indemnities

An important consideration while drawing up any contract is deciding between having an indemnity provision or the usual right to recover damages for breach. While the distinction between the two can sometimes be blurred, it is important to know both and distinguish between them as the rights and enforcement events associated with them are very different.

Cause for confusion

A 1923 Madras High Court case sums up the reason why the two terms are often confused: “these two rights are confounded and one reason for the confusion is when a contract is broken, indemnity is often found to coincide with the measure of damages. In such case, whether the right is called the right to indemnity or right to damages, the result is the same, yet the words express two fundamentally different legal ideas.”

In drafting a contract, while a lot of time and effort goes into predicting the whole gambit of events that may eventually lead to a loss, it is this fundamental difference that is often overlooked.

Soumya De Mallik is a senior associate at Amarchand & Mangaldas & Suresh A Shroff & Co. He can be reached at soumya.demallik@amarchand.com. The views expressed in this article are those of the authors and do not reflect the official policy or position of Amarchand Mangaldas.