Section 142 of Indian Contract Act, 1872: Guarantee Obtained by Misrepresentation

Section 142 protects a surety where a guarantee has been procured through a material misrepresentation made by the creditor, or made with the creditor's knowledge and assent. In that situation, the guarantee is invalid.

Text of Section 142

Section 142 - Guarantee obtained by misrepresentation invalid.
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.

Meaning and scope of Section 142

A contract of guarantee involves a promise by the surety to discharge the liability of a third person in case of that person's default. Section 142 deals specifically with the quality of the information on which the surety's consent is obtained. If the creditor makes a misrepresentation, or knowingly assents to one, and that misrepresentation concerns a material part of the transaction, the guarantee is invalid.

What is "misrepresentation"?

Section 18 of the Indian Contract Act defines misrepresentation broadly. It includes an unwarranted positive assertion that is not true even though the maker believes it to be true, certain breaches of duty that mislead another to that person's prejudice, and innocently causing a party to make a mistake about the substance of the subject matter of an agreement.

What must be shown under Section 142?

The statutory language focuses on three connected matters: there must be a misrepresentation; it must be made by the creditor or with the creditor's knowledge and assent; and it must concern a material part of the transaction. A representation about an insignificant or unrelated matter does not satisfy the wording of Section 142 merely because it is inaccurate.

Why materiality matters

A "material" part is one that is significant to the transaction and to the basis on which the guarantee is undertaken. The practical inquiry therefore concerns the representation, the creditor's role in it, its connection with the guaranteed transaction, and whether the subject represented was material.

Section 142 and general rules on consent

Section 142 is a specific rule for contracts of guarantee. It should also be read with the Act's general provisions dealing with consent and misrepresentation, particularly Sections 18 and 19. Section 19 generally addresses the voidability of agreements where consent is caused by coercion, fraud or misrepresentation, while Section 142 expressly states the consequence for a guarantee obtained in the circumstances specified in that section.

Difference between Sections 142 and 143

Section 142 concerns a guarantee obtained by misrepresentation. Section 143 separately deals with a guarantee obtained by keeping silence as to material circumstances. Both provisions protect the integrity of the surety's consent, but they address different forms of defective disclosure.

Practical legal effect

Where the statutory requirements of Section 142 are established, the guarantee is invalid. In a dispute, the precise representation, who made it, the creditor's knowledge or assent, and the materiality of the represented fact will therefore be important factual and legal questions.

Official text: The Indian Contract Act, 1872 is available on the official India Code portal. The statutory text should be checked for authoritative wording and any applicable legislative updates.