Call 07 834 6000

Beware of your responsibilities when taking possession of chattels

30 May 2017

A dealer of farm machinery agrees to sell a tractor on behalf of the owner. The owner leaves the tractor with the dealer to sell. Before the tractor is sold, a customer of the dealer expresses interest in hiring the tractor. The dealer contacts the owner about the hire. The owner confirms he is interested in hiring out the tractor and asks the dealer to “make it happen” and “sort out the paperwork”.

The dealer lets the customer have the tractor for hire but does not sort out the paperwork. While the tractor is being hired to the customer it catches fire as a result of an electrical fault and is destroyed. The tractor is not insured.

Who must bear the loss of the uninsured tractor? The owner who has not insured the tractor? Or the dealer who has hired out the tractor on the owner’s behalf without sorting out any paperwork?

This case came before the court recently (Power Farming New Zealand Limited v McCaw Contracting Limited [2017] NZHC 441). The judge said that the decision turned on the answers to two questions:

  1. At the time the tractor was destroyed, was the original arrangement between the dealer and the owner at an end and replaced by a contract of hire between the owner and the customer?
  2. If the original arrangement still existed when the tractor was destroyed, was the loss of the tractor caused by the dealer’s failure to fulfill its obligations under the arrangement?

Bailments

The arrangement between the owner and the dealer is known as a “bailment”. A bailment arises where one person (the bailee) is voluntarily in possession of goods belonging to another person (the bailor). By taking possession of the goods the bailee assumes responsibility for the safekeeping of the goods.  The terms of the bailment may be agreed upon between the bailor and the bailee, but if there is no agreement then the terms are implied under the law.

A bailee must take reasonable care of the goods. The standard of care required will depend on the circumstances. If a bailee deals with a chattel in a way which has not authorised by the bailor, then the bailee will be liable for any loss or damage caused.

A bailment may be gratuitous or for reward. Examples of bailments are: a chattel is left with someone for safekeeping; a chattel is lent to someone to use; a chattel is hired to someone; or a chattel is found by someone who voluntarily takes possession of it.

The decision

In the case mentioned above the judge commented that the “looseness of the arrangements” between the dealer and the owner meant it was not easy to answer the questions before him. In the end the judge decided:

  • The owner had not intended the dealer to hire out the tractor on the owner’s behalf until the terms of hire had been finalised properly. The bailment was therefore in place at the time the tractor was destroyed;
  • The dealer had breached the terms of the bailment when it released the tractor to the customer without sorting out the paperwork. If the tractor had remained with the dealer it would not have been destroyed by fire. The dealer was therefore liable for the loss of the tractor.

If you take possession of someone else’s chattels (for whatever reason) then you should make sure that the terms on which you do so are clear and the chattels are insured against loss. The more valuable the chattels the more desirable it is to record the arrangement in writing. If you fail to take these simple steps you do so at your peril.

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.

 

Barbara McDermott