Q: "A" engages 'B" as a clerk to collect rents from his tenants. 'B' fails to account for the sums collected. 'A' in consequence call upon 'B' to fur- nish security and 'C' stand as security for 'B"s due. But 'A' does not inform 'C' about 'B's previ- ous defaults. Decide whether 'C' is bound by the guarantee ?

Ans: No. Sec. 143 of the Indian Contract Act, 1872 talks about Guarantee obtained by concealment.

This section states that any guarantee which the creditor has obtained by means of keeping silence (concealment) as to material circumstances is invalid and so the surety is discharged.

The instant case is a classic example of the provision u/s 143. B is engaged by A for collection of rent from his tenants and B fails to account for the sums collected. As B proved to be unreliable, A sought for a guarantee to be furnished.

When C stood as a surety for B, he is not informed of the defaults committed by him on previous occasion. Thus it is concealment of a material fact which could affect the decision of C as to whether he would stand as a surety to B or not.

In case B defaults in future again, C is not bound by the guarantee as he was innocent of the previous record of B.