Interpretation of contract indemnity provisions - Essay Example

Indemnity can be broadly defined as the promise to pay money; with one party to a contract making a promise to be responsible for any losses which are suffered by other parties to the contract and this occurs when there has been a breach of a contract or a warranty. In the event that one party suffers a loss, the other party may have provided a guarantee in the contract to make up for such losses and would then be obliged to make good the losses which have been suffered, whether through damages or any other kind of loss which occurs.

These losses can be compensated in the form of cash payments, repairs or a replacement of the item that has been lost or damaged. This study proposes to examine how indemnity differs from warranties and exclusion contracts and how the manner in which the indemnity provisions are spelt out can influence the manner in which such provisions are interpreted. According to Parker and Slavich, an indemnity is a contract between two parties in which one party agrees to be liable for the losses or damage that are sustained by another party, whether the party is a signatory to the contract or a third party, on the basis of a specified act or a condition or the damage that results from a claim or a demand1.

The purpose of a contractual indemnity is to ensure that the risk inherent in the performance of the contract is distributed among all the parties to the contract, although in reality, the net result will be based upon the relative bargaining power of the parties. One of the different forms of the indemnity provision in contracts is the survival provision, whereby the survival of representations, warranties and indemnities are limited to an agreed period of time from the execution of the contract.

Another aspect of indemnity contracts are releases, i.e., releases of claims and liabilities Indemnity clauses are offered in