Most business people have heard the term “indemnity”, and at some point may enter into contracts, leases or agreements in which they agree to indemnification. But to what exactly are they agreeing?
The duty to indemnify may arise in express or implied contracts, or the court may grant indemnification under circumstances which call for equitable relief. In commercial lease agreements it is not uncommon to find a provision that if the tenant makes improvements to the real property, he or she agrees to indemnify and hold the landlord free, clear and harmless from and against any liability with respect to such improvements. In effect, the tenant is agreeing that if a lawsuit or claim arises from damages incurred on the leased premises caused by the tenant’s improvements, the equitable remedy of indemnification shifts the obligation to pay damages from the landlord, who, without active fault, may be responsible legally, to the tenant who actually caused the damages.
For example, in a landlord-tenant relationship, the lease may specify that the tenant is responsible to maintain the sidewalk. If an injury results from the tenant’s failure to maintain the sidewalk, the injured person may sue the landlord as legal owner of the property. If the injured person is successful in obtaining a judgment against the landlord, who is required to pay damages, the landlord may seek indemnification from the tenant. The lease may also provide for reasonable expenses and attorneys’ fees incurred in defending the lawsuit.
Another common area in which the obligation of indemnity arises is products liability cases. The general rule is that the manufacturer of a product is under a duty to indemnify persons in the chain of distribution where injury results from a defect in the product. There are a number of exceptions to the rule; as an illustration, when an independent act of negligence by someone other than the manufacturer is the cause of the injuries, the manufacturer is relieved of the duty to indemnify.
How does this differ from “contribution”? The difference is that while indemnity transfers from one party to another the entire burden of payment, contribution requires that co-obligors must pay their respective shares of the liability, not the entire debt alone.
Contribution is generally governed by state law, but may be modified by contract. It is the right of one person, jointly liable with others, to compel reimbursement from the others when he or she has paid a disproportionate share of a joint obligation. The right may arise under a number of different circumstances. It has been found to exist between co-obligors on bonds, owners and operators of automobiles involved in an accident, landowners, proprietors of businesses, and mortgagors. For example, where there are two joint obligors on a mortgage and the whole amount due is paid by only one of the two, the paying mortgagor can look to the other for contribution.
The right of contribution arises when each of the obligors is equally bound to pay an obligation, and one obligor pays more than his proportionate share. Further, if the debt has not yet matured, or if one obligor volunteers to pay the debt for another, the other is under no legal obligation to provide contribution. Determining when the right to contribution arises is essential if the joint obligor intends to seek reimbursement.
The duty to indemnify may arise in express or implied contracts, or the court may grant indemnification under circumstances which call for equitable relief. In commercial lease agreements it is not uncommon to find a provision that if the tenant makes improvements to the real property, he or she agrees to indemnify and hold the landlord free, clear and harmless from and against any liability with respect to such improvements. In effect, the tenant is agreeing that if a lawsuit or claim arises from damages incurred on the leased premises caused by the tenant’s improvements, the equitable remedy of indemnification shifts the obligation to pay damages from the landlord, who, without active fault, may be responsible legally, to the tenant who actually caused the damages.
For example, in a landlord-tenant relationship, the lease may specify that the tenant is responsible to maintain the sidewalk. If an injury results from the tenant’s failure to maintain the sidewalk, the injured person may sue the landlord as legal owner of the property. If the injured person is successful in obtaining a judgment against the landlord, who is required to pay damages, the landlord may seek indemnification from the tenant. The lease may also provide for reasonable expenses and attorneys’ fees incurred in defending the lawsuit.
Another common area in which the obligation of indemnity arises is products liability cases. The general rule is that the manufacturer of a product is under a duty to indemnify persons in the chain of distribution where injury results from a defect in the product. There are a number of exceptions to the rule; as an illustration, when an independent act of negligence by someone other than the manufacturer is the cause of the injuries, the manufacturer is relieved of the duty to indemnify.
How does this differ from “contribution”? The difference is that while indemnity transfers from one party to another the entire burden of payment, contribution requires that co-obligors must pay their respective shares of the liability, not the entire debt alone.
Contribution is generally governed by state law, but may be modified by contract. It is the right of one person, jointly liable with others, to compel reimbursement from the others when he or she has paid a disproportionate share of a joint obligation. The right may arise under a number of different circumstances. It has been found to exist between co-obligors on bonds, owners and operators of automobiles involved in an accident, landowners, proprietors of businesses, and mortgagors. For example, where there are two joint obligors on a mortgage and the whole amount due is paid by only one of the two, the paying mortgagor can look to the other for contribution.
The right of contribution arises when each of the obligors is equally bound to pay an obligation, and one obligor pays more than his proportionate share. Further, if the debt has not yet matured, or if one obligor volunteers to pay the debt for another, the other is under no legal obligation to provide contribution. Determining when the right to contribution arises is essential if the joint obligor intends to seek reimbursement.
– Denise Turner