Rahul owns an electronics store. Pankaj visited the store to buy a water purifier priced at 54,000/-. He specifically requested Rahul for a purifier…

As per section 126 of the Indian Contract Act,1872, the contract of guarantee is defined as a contract to perform the promise or discharge the liability of a third person in case of his default. In this case, Sooraj has given a guarantee for Pankaj's payment obligation towards Rahul. When Pankaj defaulted after making four monthly instalments and became insolvent, Sooraj's liability as a guarantor will come into existence. According to Section 128 of the Act, the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. Since Pankaj failed to pay the remaining instalments due to insolvency, Sooraj, as the guarantor, is liable to pay the balance price of the water purifier to Rahul. In the given situation, Sooraj will have to pay the balance amount of 30,000 to Rahul. [₹ 54,000 -(4x 6,000)] In the second situation, Rahul sold the water purifier misrepresenting it as having a copper filter, while it actually has a normal filter; this changes the situation significantly. According to Section 142 of the Act, 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. Here, guarantee is obtained by means of misrepresentation made by the creditor (Rahul), and therefore the guarantee is invalid. Furthermore, under Section 143, any guarantee which the creditor has obtained by means of keeping silence as to material circumstances, is invalid. Here Rahul misrepresented the filter type and both Pankaj and Sooraj were unaware of this fact. The creditor (Rahul) has obtained the guarantee by remaining silent as to material circumstances. Therefore, the guarantee obtained from Sooraj will be considered to be invalid. Consequently, Sooraj cannot be held liable to pay the balance price of the water purifier to Rahul.