Chapter VIII - Of Indemnity and Guarantee
Section 143
Section 143: Guarantee obtained by concealment
A guarantee obtained by the creditor’s silence about material circumstances is invalid under this provision.
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This article is for general information. Refer to the Indian Contract Act, 1872 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
Any guarantee which the creditor has obtained by means of keeping silence as to material circumstances, is invalid.
Illustrations
(a)A engages B as clerk to collect money for him. B fails to account for some of his receipts, and A in consequence calls upon him to furnish security for his duly accounting. C gives his guarantee for B’s duly accounting. A does not acquaint C with B’s previous conduct. B afterwards makes default. The guarantee is invalid.
(b)A guarantees to C payment for iron to be supplied by him to B to the amount of 2,000 tons. B and C have privately agreed that B should pay five rupees per ton beyond the market price, such excess to be applied in liquidation of an old debt. This agreement is concealed from A. A is not liable as a surety.
Rule and business relevance
The illustrations address concealed prior collection misconduct and a hidden pricing arrangement designed to recover an old debt. They show why material facts about the risk matter.
Limits and related provisions
The inquiry concerns material circumstances and procurement of the guarantee. Do not label every undisclosed fact automatically material without considering the transaction.
Hypothetical business example
Hypothetical example: A creditor seeks an employee fidelity guarantee without revealing the earlier unaccounted receipts that prompted the request. That is the type of concealment addressed by the first illustration.
Practical decision flow
Identify the circumstances not disclosed when the guarantee was sought.
Assess their materiality to the guaranteed transaction.
Keep communications showing what the creditor disclosed and withheld.
Check the applicable legal framework
This guide explains the central provision. Applicable State amendments, the agreement, transaction date and other governing laws can affect its application. Check the current legal framework before relying on it for a commercial decision.
Practical checklist
Do
- Identify the circumstances not disclosed when the guarantee was sought.
- Assess their materiality to the guaranteed transaction.
- Keep communications showing what the creditor disclosed and withheld.
Avoid
- The inquiry concerns material circumstances and procurement of the guarantee. Do not label every undisclosed fact automatically material without considering the transaction.
Glossary
- Concealment
- Obtaining the guarantee by silence about material circumstances.
- Fidelity guarantee
- An undertaking relating to another person’s honesty or accounting performance, as illustrated here.
Frequently asked questions
Can silence invalidate a guarantee?
Yes, where the creditor obtains it by keeping silent about material circumstances.
Does the section contain practical examples?
Yes. It illustrates prior employee misconduct and a concealed arrangement to recover an old debt.
Is every omitted detail enough?
The circumstance must be material and relevant to obtaining the guarantee.
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026