You may encounter the term promise of indemnity in ordinary contracts, business relationships, and in your personal life. Although this is a seemingly simple institution, in practice, disputes often arise as to whether the promise was validly made, what exactly it was supposed to cover and whether it is actually enforceable.
A promise to indemnify is an undertaking by the promisor to indemnify the promisee if the promisee incurs damages from a particular act which the promisor asks the promisor to do and which the promisee is not obliged to do. However, current practice often applies the term to similar warranty arrangements that cover the risks of other events. In practice, therefore, it is a guarantee obligation which performs a similar function to a security, providing the injured party with the assurance that he will not be left without financial compensation.
This institute appears in Czech law in Section 2890 of the Civil Code and allows for a very flexible use. Unlike traditional liability for damages, which is usually linked to wrongful conduct and fault, the promise of compensation can break these criteria. All that is required is that the promisor undertakes to bear the risk of certain damages regardless of fault.
For example:
Importantly, the promise of indemnity must be sufficiently specific, or it must be clear what damage it covers and under what circumstances it is performed. Otherwise, it may be considered vague and therefore unenforceable.
Do you need to assess whether your indemnity promise is valid or create a new one that will reliably protect you? Take advantage of our legal advice and we will take care of everything.
Tip: A contractual penalty gives the creditor the assurance that the debtor will be more motivated to fulfil the obligations imposed by the contract. It is easy to negotiate and apply. However, it may not always be advantageous for the creditor. Find out its advantages and what to look out for.
Yes, a promise of compensation can be enforced, but in practice it may not always be easy. Although it is a flexible legal institution, its enforceability depends mainly on how precisely it is formulated and whether it is possible to clearly determine what should have been performed.
The most common obstacle is the vagueness of the promise itself. If it is not clearly described what situations the indemnity is supposed to cover and to what extent, the counterparty often argues that its obligation has not arisen at all, which makes subsequent enforcement much more difficult.
Another difficulty tends to arise from disputes as to whether the event that should have triggered the indemnity occurred at all. In practice, there is much debate as to whether there was, for example, a technical defect, a defect in the work or an error by the contractor, and therefore whether the particular situation falls within the scope of the agreed promise. Although fault alone is not decisive for the creation of a liability, the amount of damages must usually be proven – unless the parties have agreed on a lump sum. It is proving the actual amount of damages that is one of the most common problems.
Enforceability may also be complicated by the existence of other security institutions in the contract, such as contractual penalties or other forms of liability, which may interfere with the promise of compensation. If the provisions contradict each other or create an unclear regime of claims, this may even lead to the promise itself being called into question or limited.
Overall, therefore, it is true that a promise of indemnity can be enforced, but success always depends on how well and clearly it has been drafted. This is also why you should always enlist the help of an attorney to draft it.
Under the law, if the conditions are met, the promisee is entitled to recover costs and any damages incurred in connection with the required conduct, while at the same time taking reasonable steps on behalf of the promisor to keep the extent of the damages as small as possible.
The promise of compensation is simple at first glance, but the legal consequences can be very extensive. We recommend using an attorney in these situations:
You are entering into a high-value contract: For development contracts, real estate transfers, technology deliveries and similar contracts, a poorly worded promise can have millions of dollars in consequences.
You are unsure of the wording of the promise: A single sentence can determine whether a promise will be enforceable. The certainty of the arrangement is absolutely crucial.
The counterparty refuses to perform: In this case, you need to quickly assess the legal position, prepare arguments and often a pre-suit demand.
Litigation is imminent or underway: Legal representation greatly increases the chances of success while minimizing the risk of missteps.
You want to set up contractual relationships correctly for the long term: we often help companies create template contracts with promises of compensation, which they then use repeatedly without having to do it all over again.
So if you want to make sure your indemnity promise is valid and enforceable, write to us. We will be happy to tailor it for you or analyse your existing contract.
Under Civil Code section 2890, a promise of indemnity is a unilateral legal act by which one person assumes the risk of a particular loss regardless of fault, and thus constitutes an effective security instrument in commercial and personal relationships. It allows compensation to be negotiated in specific situations and is therefore used in transactions involving large investments, in the construction industry, in transfers of property or in corporate relationships. In order to be valid and enforceable, it must be clear as to the scope, reason and time of the obligation, adequately define the scope of the compensation, and ideally be in writing; vagueness is the most common cause of disputes and failure to enforce. Unlike traditional liability for damages, it does not require a breach of duty or fault, and is thus often chosen as a safeguard where the victim would find it difficult to prove the cause or occurrence of the damage. It can be enforced, but success depends on clear wording and proper alignment with other provisions in the contract. Complications arise in particular in disputes as to whether the compensable event occurred, the amount of damages or whether the provisions are mutually exclusive. Legal assistance in drafting, reviewing and enforcing it is therefore advisable, particularly in the case of major contracts or in the event of a dispute, to ensure that the promise actually fulfils its protective function and does not fall outside the scope of an enforceable obligation.
Yes, as long as it clearly shows the intent of the promisor and the specific content of the promise, and it can be proven that the email was actually sent by the promisor. However, in terms of evidence, a traditional written contract or a separate written statement is preferable.
Yes, but it’s not usual. It is recommended to set a limit on compensation to ensure that the arrangement is reasonable.
In the case of a promise to indemnify, the claim arises when the damage (or loss of profit) actually occurs. If you want the obligation to pay to arise from the event itself without damage, you must negotiate another type of obligation (e.g. a fixed compensation amount or a contractual penalty).
Yes, but their purpose needs to be carefully aligned so that the arrangement does not conflict. A contractual penalty is linked to the breach of an obligation, whereas a promise of indemnity is linked to the loss resulting from the required conduct; i.e. they are two different instruments.
Vague definition, lack of form, unclear limits, poor linkage to the contract or failure to address the situation where a dispute arises.
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Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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