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HIRE-PURCHASE LAW

1. INTRODUCTION

A contract of hire-purchase is one by which the owner of goods transfers possession of it to


another party called the 'hirer' for agreed periodical payments and on condition that the hirer
may at his option return or buy the goods.

Under the Hire-Purchase Act (Cap 507) a hire-purchase is defined as "the bailment of goods
under which the bailee may buy the goods or under which the property in the goods will or
may pass to the bailee".

Bailment describes a legal relationship where physical possession of personal property, or a


chattel, is transferred from one person (the 'bailor') to another person (the 'bailee') who
subsequently has possession of the property.

2. FORMATION OF THE AGREEMENT.

A hire purchase agreement involves two people i.e. the owner and the hirer. Under the Act, the
hirer must first be apprised of the cash price of the goods. This requirement is fulfilled if:-

i. The hirer has inspected the goods or similar goods, and at the time of his inspection
tickets or labels were attached to or displayed with the goods clearly stating the cash
price either of the goods as a whole or of all the different articles or sets of articles
comprised there in.

ii. The hirer has selected the good as by reference to a catalogue, price list or
advertisement which clearly stated the cash price, either of the goods as a whole or of
all the different articles or sets of articles comprised therein.

The Form

The agreement must be contained in a note or memorandum signed by the hirer and by or on
behalf of all other parties to the agreement. The note or memorandum must contain the
following:

(i) The statement of the hire-purchase price.


(ii) The amount of each installments and date when it is payable.
(iii) The statement of the deposit paid.
(iv)A list of the goods to which the agreement relates sufficient to identify them.
(v) Notice showing the right of the hirer to terminate the agreement and the restriction of
the owner's right to recover the goods.

3. REGISTRATION OF HIRE PURCHASE AGREEMENTS

Every hire purchase contract shall be delivered for registration within 30 days of its execution.
In terms of Sec.5(4) of the Act, the non-registration of hire purchase contract produces the
following effects:

a) No person shall be entitled to enforce the agreement against the hirer or to enforce any
contract of guarantee relating to the agreement.

b) The owner of the goods shall not be entitled to enforce any right to recover the goods
from the hirer.

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c) No security given by the hirer in respect of money payable under the agreement or
given by a guarantor in respect of money payable under a contract of guarantee
relating to the agreement, shall be enforceable against the hirer or guarantor, by any
holder thereof.

A copy of the note or memorandum must be delivered or sent to the hirer within 21 days of
making of the contract.

4. IMPLIED TERMS OF HIRE-PURCHASE AGREEMENT

Apart from the above express terms, there are other implied terms which cannot be contracted
out by the parties. These are:

(i) Condition as to title


There is an implied condition that the bailor is the owner or has a right to sell at the date of the
delivery. Since the essence of the contract is that the buyer has an option to buy, the basis of
the contract will be destroyed if the bailor has no right to sell.

(ii) Peaceful and Quiet Possession.


The owner must not disturb the hirer's quiet enjoyment of the goods, for example, by
interfering with the hirer's possession.

(iii) Fitness for purpose


Where the hirer relies on the skill and judgment of the owner, there is an implied condition on
the part of the owner that the goods are reasonably fit for the particular purpose for which
they are hired.

(iv) Merchantable quality


Where the owner lets goods under a hire purchase agreement in the course of a business there
is an implied condition that the goods supplied under the agreement are of merchantable
quality, except that there is no such condition:

 as regards defects specifically drawn to the attention of the hirer before the agreement
was made
 if the hirer examines the goods before the agreement is made, as regards defects which
that examination ought to reveal.

v) Freedom from Charge or Encumbrance


Under section 8 (I), there is an implied warranty that the goods shall be free from charge or
encumbrances in favour of any third party at the time when property is to pass.

5. HIRE PURCHASE DISTINGUISHED FROM:-

(a) Credit sale


i) Hire-purchase contract is one whereby the owner of a chattel transfers possession of
it to another person called the hirer for agreed periodical payments and on condition
that the hirer may at his option return or buy the chattel. A credit sale on the other
hand is an unconditional contract for the sale of goods under which the whole or part
of the purchase price is payable by installments or at a future date.

ii) In a hire-purchase agreement the hirer has an option to buy or return the goods. In
credit sale, the buyer is under an obligation to buy.

iii) Where goods are delivered to the hirer under a hire-purchase agreement he becomes
a bailee of the goods but the property in the goods (ownership) remains in the owner.
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In a credit sale unless otherwise provided, the property passes to the buyer in
accordance with the sale of Goods Act.

iv) Since there is no title in the hirer until he exercises the option to buy,he cannot pass
title to a third party. On the other hand, in a credit sale, unless otherwise provided the
title passes and the buyer can transfer it to someone else.

v) Since the title is in the owner in a hire-purchase, the right to seize the goods is a very
potent remedy of the owner. In a credit sale, if the title passes to the buyer as it will
often do, he may validly dispose of the goods. He may not repossess the goods unless
there was an agreement to that effect.

vi) The rights and liabilities of the parties to a credit sale agreement are determined by
reference to the provisions of the sale of Goods Act.(Cap 31) while those of parties to
a hire-purchase agreement are determined reference to Hire-purchase Act (Cap 507)

(b) Conditional sale.


i) A conditional sale agreement is an agreement for the sale of goods by which the
purchase price is to be paid in future but the property in goods is to remain in the seller
(even though the buyer has possession of the goods until such time as the stipulated
conditions are fulfilled. But a hire purchase agreement is an agreement of hire where
the hirer may opt to buy the goods.

ii) The buyer under a conditional sale agreement must buy the goods. There is no such
stipulation in the hire-purchase agreement. There is only an option to buy the goods
which may or may not be exercised.

iii) Being an agreement to sell, a conditional sale is governed by the provisions of the Sale
of Goods Act whereas hire purchase agreements are governed by the Hire purchase
Act.

iv) Conditional sale agreements invariably contain a provision for resumption of


possession of the goods in the event of default. The repossession of the goods
determines the agreement. The owner of goods in Hire-Purchase cannot repossess the
goods if the hirer has paid two-thirds of the Hire purchase price without court order.

v) A conditional sale means an agreement to sell goods or land but a hire-purchase


agreement only covers goods.

vi) Parties-The seller under a conditional sale agreement is referred to as the "creditor"
and the buyer as the “debtor” whereas the parties in a hire purchase agreement are the
"hirer " and the "owner".

vii) A conditional buyer can pass a good title to a third party (unless it is a consumer credit
agreement) whereas a hirer can never pass a good title to a third party.

6. RIGHTS AND DUTIES OF PARTIES TO HIRE-PURCHASE AGREEMENT.

a) Duties of the Hirer.


These duties arise both at common law and under the Act. These include:

(i) To take delivery of the goods


It is an implied term that the owner will deliver the goods and that the hirer will accept them.
If, therefore, the hirer fails to accept them, he will be liable in damages.

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(ii) To take reasonable care of the goods
The hirer must take reasonable care in looking after the goods and he will be liable in
damages if he fails to do this. He is liable for his own negligence and that of this own servants
and agents acting within the scope of their authority and also for loss due to his authorized
dealings with the goods.

(iii) Duty to repair


The only duty on the hirer to repair is to do so in compliance with the duty to take reasonable
care, if the agreement provides that the hirer shall keep the goods in repair during the hiring,
he will be under a duty to arrange for executing necessary repairs.

(iv) Not to deal with the goods in a manner inconsistent with the owner's title.
If for example the hirer sells or wrongfully refuses to return the goods, this will determine the
hiring and the hirer will generally be liable to the owner in an action for damages or detinue
as the case may be.

(v) Duty to pay installments


This is the consideration for the agreement and the hirer must pay as agreed.

(vi) Re-delivery
The hire-purchase agreement gives the hirer the option to purchase the goods within a
stipulated period. If he does not, then he is under obligation to redeliver the goods to the
owner.

(vii) Supply of information and production of documents.


The hirer is under a duty to notify the owner of any change of address so that the owner would
know where the goods are.This he requires to know because of his right to reposes them.

b) Rights of Hirer.

(i) Determination of hire purchase agreement.


Section 12 of the Act gives the hirer indefeasible right to determine, at any time before final
payment the hire purchase agreement. This may be by notice or by returning the goods.

(ii) Title to goods


If the after the payment of the final installment the hirer wishes he has a right to exercise or
the option to buy the goods and the owner has a duty to ensure this.

(iii) Quiet Possession.


As stated above, the hirer has a right to quiet possession of the goods. The owner is not
entitled to enter any premises to take possession of goods under the hire-purchase agreement.

(iv) Right to complete the agreement and exercise the option.


When the hirer has paid the required installments in full he has the right to exercise the option
and buy the goods.

(v) Fitness for purpose


Where the hirer makes known to the hirer the purpose far which he is hiring the goods there is
an implied duty on the owner that the goods shall be fit for the purpose.

7. RIGHTS OF OWNER OF GOODS

(i) Termination of Agreement


The terms of the contract of hire purchase confers on the owner a power to terminate the
agreement or the bailment in the event of any breach by the hirer.
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(ii) Repossession of the goods
Obviously where the hirer is in default and the agreement terminates, the owner has the right
to repossess the property. Again the owner is entitled to repossess the property through a court
action.

(iii) Retention of sums paid by hirer.


Upon the termination of the hire-purchase agreement the owner is prima facie, entitled to
retain all sums already paid by the hirer whether by way of deposit, initial payment or
installments of hire.

(iv) Recovery of installments in arrears


The owner is entitled to recover from the hirer any installment of hire in arrears at the
termination of the hiring and the right to receive payment. Such a debt is a separate cause of
action from the right to recover possession of the goods let on hire.

(v) Right for damages


Any breach by the hirer of the terms of the hire purchase agreement will entitle the owner to
sue for damages for breach of contract.

8. DUTIES OF OWNER OF PROPERTY

(i) Delivery of goods


In the absence of any term to the contrary, it is the duty of the owner to deliver the goods to
the hirer whose hiring commences when the goods are delivered to him.

(ii) Title to goods


It is the duty of the owner to confer title to the hirer when the goods are delivered to the hirer
at the time he may exercise his option to purchase.

(iii) To deliver goods fit for the purpose


Where the purpose for which the property is required is stated by the hirer, the owner must
ensure that the property delivered are reasonably fit for the purpose.

(iv) Warranty of quiet possession


The owner must not disturb the hirer's quiet enjoyment of the goods for example by
interfering with the hirer's possession.

(v) Merchantability of goods


The owner must ensure that the goods are of merchantable quality. Goods are of merchantable
quality when they have the quality such that a reasonable man acting reasonably would after
full examination accept the goods in performance of his offer.

(vi) Supply of information.


At the request of and in writing by the hirer and on tender by him specified to the owner, the
owner of such goods is bound within 14 days of the request to supply the hirer with a copy of
the written agreement together with a statement signed by him or his agent showing:-

(a) The total of the payments made under the agreement by or on behalf of the hirer and
the date of each payment.

(b) The total amount due under the agreement and unpaid and the amount of each unpaid
installment and the date on which it became due.

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(c) The total amount which is to become due and the amount of each installment which is
to become due and the date when it will become due.

9. RECOVERY OF POSSESSION BY SUIT

Section 15(1) provides that where two-thirds or more of the hire-purchase price has been paid
or has been tendered by or on behalf of the hirer or guarantor, the owner shall not enforce any
right to recover possession of the goods from the hirer otherwise than by suit, unless the hirer
has defaulted in payment or terminated the agreement.

If the owner violates this provision, the hire-purchase agreement if not previously terminated,
shall terminate and:
a) the hirer shall be released from all liability under the agreement and shall be entitled to
recover from the owner by suit all sums paid by him or any security given by him
under the agreement; and

b) the guarantor shall be entitled to recover by suit all sums paid by him under the
contract of guarantee or any security given by him.

Section 16(1) provides that where the owner has instituted a suit in order to recover
possession of the goods, he is not entitled to take any steps to enforce payment of any sum
due under the hire-purchase agreement except by claiming the said sum in the suit.

Pending the hearing of the suit, the court may take steps as it may deem necessary for the
purpose of protecting the goods from damage or depreciation. On hearing of the suit the court
may make the following orders:
i) for delivery of all the goods to owner; or
ii) for delivery of part of the goods to the owner and for the transfer to the hirer of the
owner's title to the remainder of the goods; or

iii) for delivery of all the goods to the owner, and postpone the operation of the order on
condition that the hirer or guarantor pays the unpaid balance of the hire purchase price
at such times and in such amounts as the court thinks fit.

10. TERMINATION OF HIRE-PURCHASE AGREEMENT

The hire purchase agreement usually specifies the circumstances under which the agreement
is to be terminated. In addition,the agreement may ipso facto be determined by:
(a) performance,
(b) by agreement
(c) by notice independent of agreement
(d) by frustration and ;
(e) by affluxion of time.

These apply to other contracts and the general principles are the same. We will only examine
termination of the agreement under its own terms and also termination by frustration and by
breach.

(1) Termination by owner for breach by hirer.


A breach of a fundamental term of the contract of hire-purchase by the hirer will enable
the owner to terminate the contract on the general principles of contract.

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(2) By return of the goods by the hirer
The hire-purchase agreement usually gives an option to the hirer to buy or return the
goods,therefore, the hirer may obviously nevertheless pay any outstanding arrears of
installments and perhaps compensation for depreciation where this is enforceable.

(3) By notice of termination


By notice of termination by the owner when the agreement provides that the owner may
terminate the agreement by notice, the notice must be properly given and the agreed or usual
mode of communication adopted.

(4) Exercise of the option to purchase


The agreement may be terminated by the hirer exercising his option to purchase the goods. It
is this exercise that terminates the hiring and confers title on the hirer.

(5) Frustration
The contract may be terminated by a supervening frustrating event.

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