Contract Law

Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri

AIR 1942 Bom 302

Facts

Gajanan held leasehold rights in a plot belonging to the Bombay Municipal Corporation.
At Moreshwar’s request, Gajanan allowed the property to be used for construction undertaken for Moreshwar’s benefit.
Moreshwar purchased building materials on credit from a supplier, Keshavdas.
To secure Moreshwar’s debts, Gajanan deposited the property’s title deeds and created mortgages in favour of the creditor.
Moreshwar expressly undertook to discharge those mortgage liabilities and free Gajanan’s property.
He failed to do so.
Gajanan remained absolutely liable under the mortgage but had not yet personally paid the creditor.
He sued Moreshwar, seeking enforcement of the indemnity.
Moreshwar argued that the claim was premature because Gajanan had not yet suffered actual monetary loss.

Whether an indemnity-holder must first pay the third-party claim before enforcing the indemnity.
Whether Sections 124 and 125 exhaust the Indian law of indemnity.

Sections 124 and 125 do not contain the entire law of indemnity.
Equitable principles supplement the statutory provisions.
Once the indemnity-holder’s liability becomes absolute, the indemnity-holder need not wait until actual payment.
The indemnifier may be ordered:
to discharge the liability directly; or
to provide sufficient funds for its discharge.
Indemnity means protection against liability, not merely reimbursement after ruinous payment.

Gajanan had undertaken mortgage obligations only because Moreshwar requested him to secure Moreshwar’s debts.
Moreshwar had expressly promised to release the property from those liabilities.
The mortgage debts had matured and Gajanan faced a definite enforceable claim.
His liability was therefore not merely possible or speculative; it had become absolute.
Requiring Gajanan first to satisfy the debt from his own resources would defeat the purpose of the indemnity.
An indemnity would be practically useless if the indemnified person had to suffer financial loss before receiving protection.
The Court therefore applied equitable principles and treated the indemnifier’s duty as arising once the liability became certain. The uploaded commentary similarly explains that the indemnity-holder may call upon the indemnifier once liability has accrued and become absolute.

The Bombay High Court granted relief to Gajanan.
It held that actual prior payment was unnecessary because his liability was already absolute.
Use this case for: an indemnity-holder may sue before actual payment once the indemnified liability has become absolute.