Section 105 The Indian Contract Act, 1872
Section 105 of the Indian Contract Act, 1872 relates to contracts of indemnity and guarantee, specifically under the chapter dealing with contracts of guarantee.
📜 Section 105 – Liability of Surety when Guarantee Obtained by Misrepresentation
"A 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."
✅ Explanation:
This section states that if a guarantee (a type of contract where one person promises to discharge the liability of a third person) is obtained by misrepresentation—either:
Made by the creditor, or
With the knowledge and approval of the creditor,
and that misrepresentation relates to a material part of the transaction, then the guarantee is not valid.
📌 Key Elements:
Misrepresentation must be about a material fact.
It must be done by the creditor or with their consent.
The guarantee becomes voidable, i.e., legally invalid.
🧑⚖️ Example Case Law:
In Punjab National Bank v. Bikram Cotton Mills (1970), the court held that if a surety enters into a contract due to material misrepresentation by the creditor, the surety is not liable, and the guarantee is void.
🧠 Illustration:
Suppose a bank tells a person (surety) that the borrower has good credit history, which is false, and the surety agrees to guarantee a loan. If the bank knew the borrower had defaulted in the past but did not disclose it, the surety is not bound by the contract under Section 105.
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