Gray vs. Lewis
Parker vs. Lewis
(1873) 8 Ch App 1035
A shareholder, when initiated suit for damages against plaintiff-bank and defendant (who was the director of the plaintiff bank as well), director of a liquidated company for fraud and mala fide holding of accounts, got judgment against the bank and the defendant (Gray v. Lewis). However, Bank, in appeal to aforementioned decree, compromised the suit with the share-holder, and initiated the suit claiming indemnity against the defendant on “absolute, unconditional obligation” to indemnify the bank for alleged ‘breach of trust’ (Parker v. Lewis).
While disapproving the contention raised by defendant that the judgment of Gray v. Lewis was not conclusive as it could have been appealed against, such that the compromise was not legal, the Court held that “law with reference to express contracts of indemnity is, that if a person has agreed to indemnify another against a particular claim or a particular demand, and an action is brought on that demand, [indemnified] may then give notice to the [indemnifier] to come in and defend the action, and if he does not come in, and refuses to come in, [indemnified] may then compromise at once on the best terms he can, and then bring an action on the contract of indemnity. On the other hand, if [indemnifier] does not choose to trust the [indemnified] with the defence to the action, he may, if he pleases, go on and defend it, and then, if the verdict is obtained against him, and judgment signed upon it…at law that judgment, in the case of express contract of indemnity is conclusive”, such that defendant was held to be liable to indemnify but for express indemnity contract.
Hence, this case conclusively holds:
Once a suit is decided against the indemnified and he, being the judgment debtor, pays the money to the judgment creditor, or, when in a compromise, he prudently settles the dispute by paying the damages; indemnifier becomes absolutely liable to indemnify him (i.e. the decree becomes conclusive for the purpose of invoking indemnity), notwithstanding that the suit could have been brought or could have been appealed against.
Also, if the indemnifier trusts indemnified to further appeal against the judgment, he will still be liable to pay under the indemnity contract to the indemnified, if latter had paid the decreed amount under the previous suit. It is only if indemnified finally wins the case, shall the judgment debtor will pay the decreed amount to the indemnifier.
Author: Vishrut Kansal