Section 142 The Indian Contract Act, 1872
Section 142 ā The Indian Contract Act, 1872
š Title: "Guarantee obtained by misrepresentation invalid"
Text of Section 142:
"Any guarantee which has been obtained by means of misrepresentation made by the creditor, or with his knowledge and assent, concerning a material part of the transaction, is invalid."
š Explanation of Section 142:
This section protects the surety (guarantor) from being bound by a guarantee obtained through misrepresentation.
š§ Key Elements:
Misrepresentation:
A false statement of fact made to deceive or mislead.
It must be about a material part (important aspect) of the transaction.
By the creditor:
The misrepresentation must be made by the creditor or
The creditor knew about it and allowed it to happen (gave assent).
Effect:
Such a guarantee is invalid in law ā meaning the surety cannot be held liable.
āļø Illustration:
X applies for a loan from Bank Y.
Y tells Z (the proposed guarantor) that X has never defaulted on any loan.
In reality, X has a history of defaults, and Y knows this.
Z agrees to be the surety based on Yās statement.
This is a misrepresentation of a material fact.
Under Section 142, Zās guarantee is invalid.
š§āāļø Case Law:
š¹ Pawan Kumar Agarwal v. Oriental Bank of Commerce (2007):
The court held that concealment of material facts by the creditor invalidates the guarantee under Section 142.
ā Conclusion:
If a guarantee is obtained by dishonest means or misleading the guarantor, it has no legal value.
The law protects the surety from being unfairly bound by such acts.
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