The perils of lending equipment to fellow farmers

In days when such machinery and equipment had significantly lower values this was not such an issue, but with today's insurance law and the high values at stake this can turn into a serious problem.

One example related to a farmer lending to his friend a tractor worth £15,000. The tractor was left by the friend in a field overnight and the next day it was discovered that the tractor had been stolen. First on that case, the insurance company sidestepped payment under the policy as the insured had not kept care and control of the vehicle and the policy did not extend to the vehicle being lent to a third party. Secondly, in view of the value of the machine the owner had little alternative but to seek compensation from the borrower for the loss. There was no contract in writing between the lender and the borrower but there was a process of legal redress which has been around from the Middle Ages and which still applies today. This is the law of bailment.

Under this law the borrower takes on duties of care which are owed to the lender. Different duties apply depending on the type of bailment. Duties include taking reasonable care of the goods and using them for a promised task.

In the above case, the lender issued legal proceedings against the borrower and the matter was settled prior to a court hearing with the borrower agreeing to make a substantial payment towards the loss.

There can also be duties on the lender such as making sure the goods are safe and fit for the purpose of the loan.

If someone is considering lending plant and equipment and machinery to a third party it is important to check the extent of the insurance cover beforehand.

If parties are thinking of lending machinery and equipment it is better at the outset if both sides are clear as to who will be responsible for losses. A short agreement drawn up by a lawyer would make this clear.

* Steven Corfield is a partner and agricultural specialist at Shropshire law firm FBC Manby Bowdler LPP