CAIIB BRBL Module D Unit 4 : Contract Of Bailment

17/11/2023

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CAIIB Paper 4 BRBL Module D Unit 4 : Contract Of Bailment (New Syllabus)

IIBF has released the New Syllabus Exam Pattern for CAIIB Exam 2023. Following the format of the current exam, CAIIB 2023 will have now four papers. The CAIIB Paper 4 (BANKING REGULATIONS AND BUSINESS LAWS) includes an important topic called “Contract Of Bailment”. Every candidate who are appearing for the CAIIB Certification Examination 2023 must understand each unit included in the syllabus.

In this article, we are going to cover all the necessary details of CAIIB Paper 4 (BRBL) Module D (COMMERCIAL & OTHER LAWS WITH REFERENCE TO BANKING OPERATIONS) Unit 4 : Contract Of Bailment, Aspirants must go through this article to better understand the topic, Contract Of Bailment and practice using our Online Mock Test Series to strengthen their knowledge of Contract Of Bailment. Unit 4 : Contract Of Bailment

Contract Of Bailment

As per Section 148 of the Indian Contracts Act 1872 defines bailment, bailor and bailee. “A bailment” is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.
The person delivering the goods is called the “bailor”. The person to whom they are delivered is called, the “bailee”.
The contract of bailment will specify the time for which the goods will remain with the person taking them. Also, the person who gives the goods can direct the other, either to return the goods after the requisite time has expired or, direct him to dispose of the goods in a particular manner.

Essential Features Of Bailment

Contract – There must be a contract between the party who delivers the goods i.e. bailor and the party which receives the goods, i.e. bailee, which may be express or implied.
Delivery of Goods – It is imperative that goods are delivered by one party to another. Delivery may be actual or constructive.
Delivery of Possession – Bailment compulsorily involves the delivery of ‘possession’ of goods from bailor to bailee. Possession involves control and intention to exclude others.
Purpose – There must be delivery of goods from the bailor to the bailee for some purpose and not by mistake.
Return of Specific Goods – In a bailment contract, it is agreed between the bailor and bailee that as soon as the purpose of the contract is achieved, the goods shall be returned or disposed of as per the directions given by the bailor.
No Transfer of Ownership- Goods as has been defined in Section 2(7) of the Sales of Goods Act 1930, includes every kind of movable property only excluding money and actionable claims. Bailment is the delivery of goods alone. In a contract of bailment the possession passes from the bailor to the bailee, the ownership does not. Thus in transactions where money is exchanged for something, there is sale and not bailment since ownership passes to the buyer.

Bailor Bound To Disclose To Bailee

The bailor is bound to disclose to the bailee faults in the goods bailed (Sec. 150):

Of which the bailor is aware and
Which materially interfere with the use of them or
Expose the bailee to extraordinary risk

If bailee does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults.

If the goods are bailed for hire, the bailor is responsible for any damage whether he was aware of the existence of such faults in the goods bailed or not.

Example: A hires a carriage of B. The carriage is unsafe, though B is not aware of it and A is injured. B is responsible to A for the injury.

Bailee To Take Care Of Goods

The bailee is bound to take care of the goods bailed to him as he would do for his own goods. The bailee (in the absence of any special contract) is not responsible for the loss, destruction or deterioration of the thing bailed if he takes such care.
On the other hand, if the bailee does anything different or inconsistent with what was supposed to be done with the goods, the bailor can demand that the bailee must pay the damage suffered as a result of these acts. A contract of Bailment is voidable at the option of the bailor, if the bailee does any act with regard to the goods bailed, inconsistent with the conditions of the bailment.

Example: A hires a horse in Mumbai from B to go to Lonavla. A rides with due care but goes to Khandala instead of Lonavla. The horse accidentally falls and is injured. A is liable to make compensation to B for the injury to the horse.

Effects Of Mixing Of Goods And Expenses

If the bailee (with the consent of the bailor), mixes the goods of the bailor with his own goods, the bailor and the bailee shall have an interest, in proportion to their respective shares, in the mixture thus produced.
If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods and the goods can be separated or divided, the property in the goods remain with the parties respectively. The bailee is bound to bear the expense of separation or division, and any damage arising from the mixture.

Example: If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods in such a manner that it is impossible to separate the goods bailed from the other goods, and deliver them back, the bailor is entitled to be compensated by the bailee for the loss of the goods.

Duties Of The Bailee With Regard To Goods

It is the duty of the bailee to return the goods bailed as soon as the time, for which those were bailed has expired or the purpose for which they were bailed has been accomplished.
The bailee is responsible to the bailor for any loss, destruction or deterioration of the goods if the goods are not returned on time.
In the absence of any contract to the contrary, the bailee is bound to deliver to the bailor any increase or profit which may have arisen from the goods bailed.

Example: A leaves a cow in the custody of B. B agrees to take care of the cow. The cow delivers a calf. B is bound to deliver the calf as well as the cow to A.

Rights of Bailee with Regard to Goods

The bailor is responsible to the bailee for any loss which the bailee may sustain because of the reason that the bailor was not entitled to make the bailment or to receive back the goods.
If the bailor has no title to the goods and the bailee, in good faith delivers them to the bailor or according the directions of the bailor, the bailee is not responsible to the owner in respect of such delivery.
If the goods are to be kept or to be carried, or to have work done upon them by the bailee for the bailor, and the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of the bailment.

Bailee’s Lien

If the bailee has rendered any service involving the exercise of labour or skill in respect of the goods bailed to him, he has a right to retain such goods until he receives due remuneration for the services he has rendered.

Example: A delivers a rough diamond to B, a jeweller, to be cut and polished which is accordingly done. B is entitled to retain the stone till he is paid for the services he has rendered.

Bankers, factors (financiers who purchase receivables and also offer related services), Attorneys of a High Court and policy brokers can, in the absence of a contract to the contrary, retain any goods bailed to them as a security for a general balance of account. Others do not enjoy such right unless there is express contract to that effect.

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CAIIB Paper 4 (BRBL) Module D Unit 4-Contract Of Bailment ( Ambitious_Baba )