Gajanan Moreshwar Parelkar v Moreshwar Madan Mantri

Facts

• The plaintiff obtained a lease of a plot of land from the Bombay municipality.
• At the plaintiff's request the lease benefit was transferred to the defendant, who agreed to construct a building on the plot.
• At the defendant's request the plaintiff mortgaged the property to a supplier of building material to secure the defendant's debt.
• The defendant undertook to get the mortgage released and to indemnify the plaintiff against liability under it.
• The defendant failed to discharge the mortgage, leaving the plaintiff exposed to the mortgagee's claim.
• The plaintiff sued to compel the defendant to obtain the release, without having himself paid the mortgage debt.

Issue

1. Whether an indemnity holder may enforce the indemnity before actually paying the loss, or whether he must first discharge the liability out of his own pocket and then claim reimbursement.

Held

• Chagla J held that the plaintiff was entitled to relief. If the indemnity holder has incurred a liability which is absolute, he is entitled to call upon the indemnifier to save him from that liability and to pay it off. He need not wait until he has actually been compelled to pay. The court observed that S.124 and S.125 of the Indian Contract Act are not exhaustive of the law of indemnity, and that the courts in India may apply the same equitable principles the English courts of equity applied.

Ratio Decidendi

The right to indemnity accrues when the indemnity holder's liability becomes absolute, not when he actually pays. To require prior payment would render the indemnity worthless for a person without the means to pay, and would defeat the very purpose for which the indemnity was taken. Sections 124 and 125 do not exhaust the field, so equitable principles supplement them.