Indemnity

==English common law==
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===Indemnity clauses===
{{See also|Unfair Contract Terms Act 1977}}
Under section 4 of the [[Statute of Frauds]] (1677), a "guarantee" (an undertaking of secondary liability; to answer for another's default) must be evidenced in writing. No such formal requirement exists in respect of indemnities (involving the assumption of primary liability; to pay irrespective of another's default) which are enforceable even if made orally.<ref name="Peel">{{cite book |last1=Peel |first1=Edwin |last2=Treitel |first2=Guenter H. |title=The law of contract |date=2010 |publisher=[[Sweet & Maxwell]] |location=London |isbn=9780421948402 |edition=12th |url-access=registration |url=https://archive.org/details/lawofcontract0000peel }}</ref>

Under current English law, indemnities must be clearly and precisely worded in the contract in order to be enforceable.<ref>{{cite web|last1=Sweigart|first1=Raymond|title=English Indemnity Law–Parsing the Promise: Words Are Important, But So Are Actions|url=http://www.pillsburylaw.com/publications/english-indemnity-lawparsing-the-promise-words-are-important-but-so-are-actions|publisher=Pillsbury Winthrop Shaw Pittman|access-date=26 February 2015|archive-url=https://web.archive.org/web/20150226103119/http://www.pillsburylaw.com/publications/english-indemnity-lawparsing-the-promise-words-are-important-but-so-are-actions|archive-date=26 February 2015|url-status=dead}}</ref> The [[Unfair Contract Terms Act 1977]] stated that a consumer cannot be made to unreasonably indemnify another for their [[breach of contract]] or [[negligence]], though this section was repealed by the [[Consumer Rights Act 2015]] schedule 4 paragraph 6.<ref name="CRA2015.15.Sch4">{{Cite legislation UK|type=act|act=Consumer Rights Act|year=2015|chapter=15|schedule=4|access-date=3 December 2019}}</ref>

===Contract award===
In [[England and Wales]] an "indemnity" monetary award may form part of [[Rescission (contract law)|rescission]] during an action of [[restitutio in integrum]]. The [[property]] and funds are exchanged, but indemnity may be granted for costs necessarily incurred to the innocent party pursuant to the [[contract]]. The leading case is ''[[Whittington v Seale-Hayne]]'',<ref>(1900) 82 LT 49</ref> in which a contaminated [[farm]] was sold. The [[contract]] made the buyers renovate the [[property|real estate]] and, the contamination incurred medical expenses for their manager, who had fallen ill. Once the [[contract]] was rescinded, the buyer could be indemnified for the cost of renovation as this was necessary to the [[contract]], but not the medical expenses as the [[contract]] did not require them to hire a manager. Were the sellers at [[fault (legal)|fault]], [[damages]] would clearly be available.

The distinction between indemnity and [[damages]] is subtle and may be differentiated by considering the roots of the [[law of obligations]]: how can money be paid if the [[defendant]] is not at fault? The [[contract]] before [[Rescission (contract law)|rescission]] is voidable but not void, so, for a period of time, there is a legal [[contract]]. During that time, both parties have legal obligation. If the [[contract]] is to be voided ''[[ab initio]]'' the obligations performed must also be [[payment|compensated]]. Therefore, the costs of indemnity arise from the (transient and performed) obligations of the claimant rather than a [[breach of contract|breach of obligation]] by the defendant.<ref name="Furmston">{{cite book |last1=Furmston |first1=Michael P.|author1-link=Michael Furmston |title=Cheshire, Fifoot, and Furmston's Law of contract. |date=2001 |publisher=Butterworths/LexisNexis |isbn=9780406947178 |edition=14th }}</ref>

===Distinction from guarantees===
An indemnity is distinct from a [[guarantee]], which is the promise of a third party to honor the obligation of a party to a contract should that party be unable or unwilling to do so (usually a guarantee is limited to an obligation to pay a debt). This distinction between indemnity and guarantee was discussed as early as the eighteenth century in ''Birkmyr v Darnell''.<ref>(1704) 1 [[William Salkeld (legal writer)|Salkeld]] 27.</ref> In that case, concerned with a guarantee of payment for goods rather than payment of rent, the presiding judge explained that a guarantee effectively says "Let him have the goods; if he does not pay you, I will."<ref>See also: ''Mountstephan v Lakeman'' (1871) LR 7 QB 196.</ref>

===Distinction from warranties===
An indemnity is distinct from a [[warranty]] in that:<ref>{{cite web|last1=Wallace|first1=Byrne|title=Warranties and indemnities: what's the difference?|url=http://www.inhouselawyer.co.uk/index.php/ireland/7833-warranties-and-indemnities-whats-the-difference|website=The In-House Lawyer|access-date=26 February 2015|date=5 February 2010|archive-url=https://web.archive.org/web/20150226105319/http://www.inhouselawyer.co.uk/index.php/ireland/7833-warranties-and-indemnities-whats-the-difference|archive-date=26 February 2015|url-status=dead}}</ref>
* An indemnity guarantees compensation equal to the amount of loss subject to the indemnity, while a warranty only guarantees compensation for the reduction in value of the acquired asset due to the warranted fact being untrue (and the beneficiary must prove such diminution in value).
* Warranties require the beneficiary to mitigate their losses, while indemnities do not.
* Warranties do not cover problems known to the beneficiary at the time the warranty is given, while indemnities do.

{{Anchor|US Contracts}}