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CS Professional · Drafting, Pleadings and Appearances · Commercial Contract Management

Under a supply agreement, Kaveri Pharma Ltd. promises to compensate Distributor Arun Traders for any loss that Arun suffers if a third party sues Arun for patent infringement over Kaveri's product. Which description fits this undertaking in the contract?

It is a contract of indemnity. The Indian Contract Act, 1872 defines it as a contract where one party promises to save the other from loss caused by the promisor's own conduct or by any other person's conduct. Kaveri covers Arun against a third party's patent claim.

  1. AA contingent contract only, since no loss to the promisor is involved
  2. BA contract of indemnity, as Kaveri promises to save Arun from loss caused by another person's conductCorrect
  3. CA novation, as the liability shifts from Arun to Kaveri
  4. DA rescission of the supply agreement

Explanation

A contract of indemnity is one by which a party promises to save the other from loss caused by the conduct of the promisor or any other person. Kaveri promises to save Arun from loss arising from a third party's suit. Novation requires substitution of a new contract by agreement, which is absent here.

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