10 Solved Problems (IRAC Method) — Contract II (Special Contracts)

These ten problems are worked in the IRAC method — Issue, Rule, Analysis, Conclusion — the way a KSLU answer sheet expects. They span all five units; the full Question Bank has 40+ more.

Problem 1 — The Guarantee for Five Sacks of Flour (Unit I)

Problem: A guarantees to B the price of five sacks of flour delivered to C, to be paid within a month. B delivers five sacks (paid for), and later delivers four more sacks which C does not pay for. Is A liable for the price of the four sacks?

I — Issue. Whether A’s guarantee covered only the first transaction (specific) or extended to later supplies (continuing), and hence whether A is liable for the unpaid four sacks.

R — Rule. 1. Under s.126 a guarantee answers for a third person’s default; under s.129 a guarantee that extends to a series of transactions is a continuing guarantee, whereas one for a single transaction is specific and is exhausted when that transaction is complete. 2. Whether a guarantee is specific or continuing turns on its words and the parties’ intention (Hargopal v. People’s Bank, 1935).

A — Analysis. 1. The decoy is that a guarantee of flour “delivered to C” looks like an ongoing supply arrangement and therefore continuing. But the guarantee here is expressly tied to five sacks to be paid for within a month — a single, defined transaction. 2. Once those five sacks were delivered and paid for, the guarantee was exhausted. The later four sacks are a fresh transaction the guarantee never covered; there are no words such as “from time to time” or any ceiling of running liability that would show a series.

C — Conclusion. A’s guarantee was a specific guarantee, spent on the first five sacks. A is not liable for the price of the later four sacks.

Problem 2 — A Guarantee for a Minor’s Debt (Unit I)

Problem: A creditor advances ₹1,00,000 to a minor on the guarantee of a surety. The minor refuses to repay, pleading minority. Can the creditor recover from the surety?

I — Issue. Whether a surety is liable where the principal debtor is a minor whose agreement is void from the outset.

R — Rule. 1. A minor’s agreement is void ab initio, so there is no enforceable principal debt for the surety’s liability to be collateral to. 2. Where the principal debtor is a minor, the dominant view is that the surety is liable as a principal debtor — because there is no valid principal obligation behind which he can shelter, and he undertook the risk knowing the debtor was a minor.

A — Analysis. 1. The decoy is that, since the principal debt is void, the surety’s secondary liability must also fall away. But that reasoning would defeat the very purpose for which the guarantee was taken — the creditor guarded against exactly this incapacity of the minor. 2. Because there is no principal debtor who can be made liable, the surety is treated as the primary obligor. He cannot plead the minor’s incapacity, and the creditor may proceed directly against him for the ₹1,00,000.

C — Conclusion. The creditor can recover ₹1,00,000 from the surety, who is liable as a principal debtor notwithstanding the minor’s incapacity.

Problem 3 — The Radio Left for Repair (Unit II)

Problem: An owner gives a radio to a repairer to be repaired. What is the legal relationship between them?

I — Issue. What is the legal relationship created when the owner of goods delivers them to another for repair.

R — Rule. 1. Under s.148, the delivery of goods to another for a purpose, on terms that they shall be returned when the purpose is accomplished, is a bailment — possession passes but ownership does not. 2. A repairer who takes the goods for repair is therefore a bailee, owing a duty of reasonable care (s.151) and holding a particular lien for his charges (s.170).

A — Analysis. 1. The decoy is to treat the handing over of the radio as a sale or an agency. It is neither: ownership does not pass to the repairer (so it is not a sale), and the repairer does not represent the owner to third parties (so it is not agency). 2. The radio is delivered for the specific purpose of repair, to be returned when repaired — the classic bailment for work and labour. The repairer must take reasonable care of it and may retain it until paid for the repair.

C — Conclusion. The relationship is a bailment for repair (s.148): the repairer is a bailee, owing reasonable care and holding a particular lien over the radio for his repair charges.

Problem 4 — The Horse Lent ‘for His Own Riding Only’ (Unit II)

Problem: A horse is lent to B “for his own riding only”. B allows a family member to ride it carefully; the horse is injured accidentally. Must B compensate the bailor?

I — Issue. Whether a bailee who uses the goods contrary to the terms of the bailment is liable for loss caused accidentally during that use.

R — Rule. 1. Under s.153, unauthorised use makes the contract of bailment voidable at the bailor’s option. 2. Under s.154, a bailee who uses the goods in a manner not according to the conditions of the bailment is liable for any damage arising from that use — even if caused by accident.

A — Analysis. 1. The decoy is that the family member rode the horse carefully and the injury was an accident, suggesting the bailee should not be liable. But once the bailee steps outside the authorised use, the absence of negligence is irrelevant. 2. The horse was lent for B’s own riding only; letting a family member ride it — however carefully — was unauthorised use. Under s.154 B answers for the whole loss that arose during that use, accidental or not.

C — Conclusion. B must compensate the bailor; unauthorised use of the horse (s.154) fixes B with liability even for the accidental injury.

Problem 5 — The Agent’s Negligent Debt Recovery (Unit III)

Problem: A principal employs an agent to recover a debt. Through the agent’s negligence the debt becomes irrecoverable. Can the agent still claim his remuneration?

I — Issue. Whether an agent who has lost the principal’s debt through his own negligence can nonetheless claim remuneration for that transaction.

R — Rule. 1. Under s.212, an agent must act with reasonable skill and diligence and is liable to the principal for loss caused by his negligence. 2. Under s.220, an agent guilty of misconduct — which includes negligence — in the business of the agency is not entitled to any remuneration in respect of that part of the business which he has misconducted.

A — Analysis. 1. The decoy is that the agent “did the work” and so earned his fee. But the agent’s right to remuneration is conditioned on faithful and skilful performance, not merely on effort. 2. Here the agent’s negligence allowed the debt to become irrecoverable — misconduct in the very business he was engaged for. Section 220 therefore denies him remuneration for that transaction, and section 212 makes him liable to the principal for the value of the lost debt.

C — Conclusion. The agent cannot claim remuneration for that transaction and is, moreover, liable to the principal for the debt lost through his negligence.

Problem 6 — The Retired Partner With No Public Notice (Unit IV)

Problem: A partner retires from a firm but no public notice of his retirement is given. An old customer, who did not know of the retirement, deals with the firm afterwards and seeks to hold the retired partner liable. Is he liable?

I — Issue. Whether a retired partner, no public notice of his retirement having been given, is liable to an old customer who dealt with the firm afterwards without notice of the retirement.

R — Rule. 1. Under s.32(3), until public notice of a partner’s retirement is given, the retiring partner and the continuing partners remain liable, as partners, to third parties who deal with the firm without notice of the retirement. 2. This builds on s.25, under which a partner is jointly and severally liable for the firm’s acts while he is held out as a partner.

A — Analysis. 1. The decoy is that the partner has, in fact, retired, so he should be free of liability. But retirement is effective against outsiders only from the public notice; until then an old customer is entitled to assume the firm’s composition is unchanged. 2. Here no public notice was given, and the claimant was an old customer who dealt with the firm without notice of the retirement, on the faith of its continued composition. Section 32(3) therefore keeps the retired partner liable to him.

C — Conclusion. The retired partner is liable to the old customer; in the absence of public notice, s.32(3) fastens continuing liability on him. (A new customer who had never known him would be treated differently.)

Problem 7 — The Minor Partner Who Stayed On (Unit IV)

Problem: A minor admitted to the benefits of a firm continues after attaining majority and elects to become a full partner. The firm had borrowed money during his minority. Is he liable to the lender for that loan?

I — Issue. Whether a minor who, on attaining majority, elects to become a full partner is liable for the firm’s borrowings taken during his minority.

R — Rule. 1. Under s.30(5), a minor admitted to the benefits must, within six months of attaining majority, elect by public notice whether to become a partner. 2. Under s.30(7), if he elects to become a partner — or fails to give notice and is deemed to have become one — he becomes personally liable to third parties for all acts of the firm done since he was first admitted to the benefits.

A — Analysis. 1. The decoy is that the loan was taken while he was still a minor, when his liability was limited to his share and he was not personally liable. But the election on majority changes his position retrospectively. 2. Because he elected to become a full partner, s.30(7) makes him personally liable for all firm acts since he was first admitted to the benefits — which necessarily includes the loan taken during his minority.

C — Conclusion. He is personally liable to the lender for the loan; by electing to become a partner, s.30(7) fastens on him liability for the firm’s acts since he was first admitted, including debts incurred during his minority.

Problem 8 — The Unseen Second-Hand Machine (Unit V)

Problem: A buyer buys a second-hand cutting machine which he has not seen, and which the seller describes as “new”. On delivery it does not match the description. Advise the buyer.

I — Issue. Whether the buyer may reject a machine he bought unseen on a description (“new”) which proves to be false.

R — Rule. 1. Under s.15, where goods are sold by description — and especially where the buyer has not seen them and relies on the description — there is an implied condition that the goods shall correspond with the description. 2. Breach of that condition entitles the buyer to reject the goods (s.12(2)).

A — Analysis. 1. The decoy is caveat emptor — that the buyer should have inspected the machine. But he bought it unseen, relying wholly on the seller’s description that it was “new”, so caveat emptor gives way to the s.15 condition. 2. The machine is in fact second-hand, not “new”, and so does not correspond with the description. This is a breach of an implied condition, and the buyer may reject the machine rather than being confined to damages.

C — Conclusion. The buyer may reject the machine; a sale by description of unseen goods that do not answer the description is a breach of the condition in s.15.

Problem 9 — Unfit Food Bought for Consumption (Unit V)

Problem: A buyer buys food (milk or bread) from a dealer for consumption; it is unfit and the buyer or a member of the buyer’s family is harmed. Is the seller liable?

I — Issue. Whether the seller of food unfit for consumption is liable, and whether it matters that a member of the buyer’s family, rather than the buyer, was harmed.

R — Rule. 1. Under s.16(1), where the buyer makes known the particular purpose and relies on the seller’s skill or judgment for goods of a description the seller deals in, there is an implied condition of fitness — an exception to caveat emptor (Grant v. Australian Knitting Mills, 1936). 2. Food impliedly must be wholesome, and loss flowing from a breach of the condition is recoverable by the buyer.

A — Analysis. 1. The decoy is that the harm was suffered by the buyer’s wife or family member, not the buyer, which might suggest there is no remedy for want of privity. But the buyer’s claim is for the seller’s breach of contract to him, and the loss (including harm to his family) flows from the unfit goods. 2. The purpose (human consumption) was known, the buyer relied on the dealer, and the food was unfit — squarely within the s.16(1) exception. Caveat emptor therefore gives no protection to the seller.

C — Conclusion. The seller is liable; caveat emptor yields to the implied condition of fitness (s.16(1)), and the buyer may recover even though it was a family member who was harmed.

Problem 10 — The Car Obtained by Fraud, Then Sold (Unit V)

Problem: A obtains a car from B by fraud and immediately sells it to C, a bona fide buyer for value without notice. Before B rescinds the contract, C buys the car. Is the sale to C valid?

I — Issue. Whether a person with a voidable title, not yet rescinded, can pass a good title to a bona fide purchaser for value.

R — Rule. 1. Under s.29, where the seller has a voidable title to the goods (for example, obtained by fraud) which has not been rescinded at the time of sale, a buyer who buys in good faith and without notice of the seller’s defect of title acquires a good title (Phillips v. Brooks, 1919). 2. This is to be contrasted with a void title — as where the contract is void for a mistake as to identity — which passes no title (Cundy v. Lindsay).

A — Analysis. 1. The decoy is that A was a fraudster who “had no title”, so C should get nothing. But fraud makes the contract voidable, not void; A’s title was good until B rescinded it. 2. B had not rescinded before A sold the car to C, and C bought in good faith, for value, without notice of the fraud. Under s.29, C therefore acquires a good title, which B cannot defeat.

C — Conclusion. The sale to C is valid; A’s voidable title, not yet rescinded, passed a good title to the bona fide buyer C under s.29, and B cannot recover the car from C.

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