DIPLOMA IN ISLAMIC BANKING AND FINANCE (DBF)

LAW 2013 – COMMERCIAL LAW

CHAPTER FIVE: LAW OF HIRE PURCHASE

1.0 INTRODUCTION

Hire Purchase is a system of acquiring goods on credit whereby the seller of the goods is regarded
as the dealer; the purchaser is regarded as the hirer and the finance company as the
owner.

A hire purchase agreement must be in writing and printed. Any oral agreement is not a valid hire
purchase agreement. The main legislation governing the hire purchase transactions in
Malaysia is the Hire Purchase Act 1967, which came into force on 11 April 1968.

The most common type of hire purchase agreement in Malaysia is for the purchase of motor vehicle

2.0 WHAT IS HIRE PURCHASE AGREEMENT?

2.1 Definition

According to Section 2(1) of the Hire-Purchase Act 1967, a hire-purchase agreement

includes the letting of goods with an option to purchase and an agreement for the
purchase of goods by installments;

 Where the property in goods passes at the time of agreement or upon any time
before the delivery of goods; or
 Where the dealer of the same goods contracts to buy the same goods from another.

2.2 Parties to Hire Purchase Agreement

Section 2 of Hire Purchase Act 1967:

 Hirer : The person who takes or has taken goods from an owner under a
hire-purchase agreement and includes a person to whom the
hirer’s rights or liabilities under the agreement have passed by
assignment or by operation of law.

 Owner : A person who lets or has let goods to a hirer under a hire-purchase
agreement and includes a person to who the owner’s rights
or liabilities under the agreement have passed by assignment or
by operation of law.

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 DIPLOMA IN ISLAMIC BANKING AND FINANCE (DBF)
LAW 2013 – COMMERCIAL LAW
CHAPTER FIVE: LAW OF HIRE PURCHASE

2.3 Goods covered by the Hire Purchase Act 1967

Section 1(2) of Hire Purchase Act 1967

“All goods as listed in the First Schedule.”

 All consumer goods

 Motor vehicles, namely-
i. Invalid carriages;
ii. Motor cycles;
iii. Motor cars including taxi cabs and hire cars;
iv. Goods vehicles (does not exceed 2,540 kilograms);
v. Buses, including stage buses.

Section 2(1) of Hire Purchase Act 1967 defined consumer goods as goods purchased for
personal, family and house hold purposes.

Case : Kesang Leasing Sdn.Bhd v. Mohd. Yusof b. Ismail

Facts : In this case, the parties agreed to be bound by the provisions of the Act
as the hire purchase agreement was designed for use in respect of goods
listed in the First Schedule of the Act.

The rationale behind Section 2 (1) :

 The limited application of the Hire-Purchase Act 1967 to goods within the First
Schedule clearly shows that the Act is meant to protect the consumers, although
certain non-consumer items such goods vehicles and buses are also included. Since
common law is based on freedom of contract, the terms of the contract could be
biased for the hirer.
 It would be better if the protection under the Hire-Purchase Act could be extended,
if not to all hire-purchase transactions, then at least to those transactions involving
entrepreneurs who run small businesses. This is because the latter may need to
enter into hire-purchase transactions to acquire goods such as refrigerators,
photocopy machine and other types of small machines.
 If the government policies are to encourage small and medium sized businesses,
then the Hire-Purchase Act should offer some protection to them.

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 DIPLOMA IN ISLAMIC BANKING AND FINANCE (DBF)
LAW 2013 – COMMERCIAL LAW
CHAPTER FIVE: LAW OF HIRE PURCHASE

3.0 THE PASSING OF OWNERSHIP

Case : Credit Corporation (M) Bhd v. The Malaysia Industrial Finance Corporation & Anor.
Facts : In that case the plaintiff purchased a car and entered into a hire purchase agreement
with a hirer. The car was registered in the name of the hirer with the plaintiffs claim
for ownership indorsed on the register and the registration card. The first
defendant purchased the car from a third party and entered into a hire purchase
agreement with the second defendant. After terminating the hire, the plaintiff
repossessed the car. The plaintiff thereupon sought a declaration that it was
the owner of the car. The defendant counterclaimed for trespass, conversion and
wrongful detention and damages.
Held : It was held that upon the true construction of the plaintiff agreement which was of a
type to which the Hire Purchase Act applied, until the hirer had exercised his option
to purchase the car by paying the total rentals and fulfilling all his
obligations under the agreement, no property in the car passed to the hirer.
The court was also of the view that even though the hirer was the registered
owner of the car he was only in law the person who had possession and use
of the car and this fact did not necessarily make him the legal owner of the
car. Even though the registration card of the car named the debtor as the "registered
owner" this fact does not make him the legal owner.

4.0 FORMATION OF HIRE PURCHASE AGREEMENT

 Obligations on the owner, dealer or their agents.

Authority Formalities
( as provided in HPA 1967)
Section 4(1) Imposes on the owner or its agents to serve on the prospective
hirer document which contains the description of the goods and the
prospective hirer’s financial obligations under the agreement.
Section 4(4) Failure to obey Section 4(1) will render the HP Agreement void.
Section 4(5) An owner shall be guilty of an offence.
Section 4A(1) Requires the agreement to in writing is void if the handwriting is ‘is
not clear and legible”.
Section 4A(2) HPA which is not in writing shall be void.
Section 4A(3) The owner shall be guilty of an offence if does not comply Section
4A(1).
Section 4B (1) Requires the agreement to be signed by or on behalf of all the
parties to the agreement.
Section 4B(2) HPA must duly completed before the hirer is required to sign.
Signing of blank forms is illegal; as decided in Ming Lian
Corporation Sdn Bhd v. Haji Noordin.
Section 4B(3) HPA that does not comply with Section 4A & 4B shall be void.

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CHAPTER FIVE: LAW OF HIRE PURCHASE

Section 4B(4) The owner or dealer shall be guilty of an offence if does not comply
with Section 4A and 4B.
Section 4C(1) The agreement must contain these information: the date the hiring
starts; the number of installments to be paid by hirer; the amount of
each installments, the time for payment; the description of goods;
and the address where the goods are kept
Section 4D Requires where more than one item is purchased, there must be a
separate hire-purchase agreement for each item. Any contravention
renders the agreement void.
Section 39 No addition or alteration can be made to the agreement; if there are
alterations or additions, they will have no effect unless the hirer
consented by signing or initializing the agreement in the margin
opposite the change-
Section 5(1) Requires the owner to serve on the hirer and the guarantors a copy
of the hire-purchase agreement within fourteen days after it is
made. Failure to comply will render the agreement unenforceable
by the owner but it is not void [ Section 4(1A)]
Section 31(1) In the absence of a prescribed minimum deposit required of a hirer,
an owner entering into the hire-purchase agreement must first
obtain from the hirer a deposit in cash or in goods, or partly in cash
and partly in goods, to a value not less than one-tenth of the cash
price of the goods.

5.0 TERMS OF CONTRACT : PROTECTION OF HIRERS AND GUARANTORS

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LAW 2013 – COMMERCIAL LAW
CHAPTER FIVE: LAW OF HIRE PURCHASE

Part III of the Act lays down various warranties and conditions to protect hirers and guarantors.

5.1 Implied Warranties

(a) Section 7 (1) (a) of Hire Purchase Act 1967

 The hirer shall have and enjoy quiet possession of the goods.

(b) Section 7 (1) (c) of Hire Purchase Act 1967

 The goods shall be free from any charge or encumbrance when the property
in the goods is to pass.

5.2 Implied Conditions

(a) Section7 (1)(b) of Hire Purchase Act 1967 – Right to Sell

 The owner has the right to sell the goods at the time when the property is to
pass.

Case : Krishnasamy a/l Supramany v. Arab Malaysian Finance Bhd.

Facts : The issue before court was whether the defendant had a good
title to the said car when the hire purchase agreement was
entered into and whether they could give a good title to the
plaintiff.

(b) Section 7(2) of Hire Purchase Act 1967 – Merchantable Quality

 The goods shall be of merchantable quality except where the hirer has
examined the goods and the goods are second-hand.
 Such condition shall not be implied when :
(i) Where the hirer has examined the goods or a hereof, as regards
defects which the examination ought to have revealed.
(ii) If the goods are second-hand goods and the agreement contains a
statement to the effect that the goods are second hand and all
conditions and warranties as to quality are negative.
(ii) The hirer has acknowledged in writing that he had notified
(Section 7 (2) (b) of HPA 1967)
(c) Section 7(3) of Hire Purchase Act 1967 – Fitness of the goods
 The goods must reasonably fit its purpose except for second-hand good.

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6.0 STATUTORY RIGHTS OF THE HIRER
Rights
Section 9 of HPA 1967
The right to a copy of statement
relating to his financial position
Section10 of HPA 1967
Right to appropriation of payment
Section 11 of HPA 1967
Right to apply for an order of goods to the goods at the address stated in the agreement. The
be removed
Section 12 of HPA 1967
Right to assign
Section 13 of HPA 1967
Right by operation of law
Section 14 of HPA 1967
Right to early completion of agreement- completion of the hire-purchase agreement. The hirer
Section 15 (1) of HPA 1967
Right to terminate the agreement
Section 18 of HPA 1967
Right of hirer on repossession by hirer may within twenty-one days give notice to the
owner
7.0 DUTIES OF HIRER
 Goods must be stored in the place specified in the hire purchase agreement.
DIPLOMA IN ISLAMIC BANKING AND FINANCE (DBF)
LAW 2013 – COMMERCIAL LAW
CHAPTER FIVE: LAW OF HIRE PURCHASE
Explanation
At any time before the final payment, upon written
request the hirer has a right within 14 days to be
supplied such information: the amount paid to the
owner; the amount due; the amount payable and
amount of interest on overdue installment if any.
The hirer can direct payment to a particular agreement
or payment to any two or more agreements in such
proportions he thinks fit.
It is common under the agreement that hirer must keep
hirer may apply to the court to move the goods to a new
address.
The rights may be assigned with the consent of the
owner but if the consent unreasonably withheld, then
consent may be waived.
The right, title and interest of a hirer can pass by
operation of law to the personal representative of the
hirer. This occurs on the death or the bankruptcy of the
hirer.
This section confers the hirer the right to an early
need to give written notice to the owner on or before
the day specified in the notice to tender payment to the
owner the net balance due.
The section confers the right on the hirer to terminate
the agreement at any time by returning the goods to the
owner
Upon receipt of repossession notice from the owner, the
owner requiring him to: redeliver the goods that has
been repossessed (subject to compliance of Section 19)
and sell the goods to any person introduced by the hirer
who is prepared to buy for cash at a price not less the
estimated value of the goods set out in the notice.
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CHAPTER FIVE: LAW OF HIRE PURCHASE

 To pay his installments regularly.

 Given that the hirer has no title to the goods comprised in the hire purchase
agreement, he may not remove, sell or dispose of any of the goods so as to defraud
the owner.
 Section 20A of HPA 1967 - To prepare guarantor if requested
 To pay arrears

8.0 REPOSSESSION BY THE OWNER

The owner is entitled to recover of the goods the hirer has committed a breach of his
contractual obligations relating to the payment of installments under the hire purchase
agreement.

8.1 Before repossession

Section 16(1) of Hire Purchase Act 1967:

An owner may repossess the goods from the hirer where there was non-payment for two
successive months. However, notice of 21 days must be given to the hirer when
goods are to be repossessed. Goods can only be repossessed not less than 21 days after the serve
of the notice.

Case : Phang Brothers Motors Sdn Bhd v. Lee Aik Seng

Facts : A car was taken by the respondent on hire-purchase with the appellant. The
respondent failed to pay the installments due and the appellant
issued a notice under Section 16(1).
Issue : Whether the notice under Section 16(1) was in facts served.
Held : Section 16 clearly specifies that the period before which the seizure can take
place shall be not less than 21 days after the service of the notice. However,
the date specified in the notice was 21 days short of the statutory
minimum and the notice was therefore bad in law even if served and its
effect was therefore null and void. Appeal dismissed.

Section 16A further provides that where a hirer is deceased, an owner shall not exercise
any power of taking possession of goods comprised in a hire-purchase agreement
arising out of any breach of the agreement relating to the payment of installment unless
there have been four successive defaults of payments.

Section 16A provides that a hirer who returns goods comprised in a hire-purchase
agreement within 21 days after the service on him of the notice in the form set out
in the Fourth Schedule shall not be liable to pay:

(a) The cost of repossession;

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CHAPTER FIVE: LAW OF HIRE PURCHASE

(b) The cost incidental to taking possession; and

(c) The cost of storage

8.2 At Repossession

 Owner may repossess after fulfils a procedure. The procedures are provide under
Hire Purchase Act and Recovery of possession and maintenance of Records 1976
 Section 16(1) of Hire Purchase Act 1967
 The right of the owner to repossess arises if there is a default of the hirer to
pay two successive payments. To repossess, the owner must serve a notice
of 21 days to the hirer as in the 4 th Schedule. Period of 21 days is given to the
hirer to surrender the goods or pay the arrears.
 After the period of 21 days has expired (the period is to be calculated from
the day notice to repossess is delivered), owner or his agent may repossess
by showing his identification.
 If the hirer has deceased, Section 16 (1A) of Hire Purchase Act 1967 provides that
repossession only arises after default to pay FOUR (4) successive months.
 Section 16 (2) of Hire Purchase Act 1967
 The owner need not serve the 4 th Schedule Notice if there are reasonable
grounds for believing for believing that the hirer will remove or conceal the
goods.

8.3 After Repossession

Section 16(3) of Hire Purchase Act 1967

 Within 21 days, the owner will need to serve a notice (as set out in the Fifth
Schedule) to the hirer.
Section 16(4) of Hire Purchase Act 1967
 Serves a document acknowledging the receipt of the goods

Section 17 of Hire Purchase Act 1967

 After repossession, the owner must not sell or dispose of the goods for 21 days. The
hirer can regain possession of the goods if within 21 days after giving notice to the
pursuant to Section 18(1)(a), the hirer does the following:

(i) Pays or tenders to the owner any amount due by the hirer under the hire-
purchase agreement in respect of thee period of hiring up to the date
of payment or tender;
(ii) Remedies any breach of the agreement or pays or tenders to the owner the
costs and expenses reasonably and actually incurred by the owner in
doing any act, matter, or thing necessary to remedy the breach; and

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LAW 2013 – COMMERCIAL LAW
CHAPTER FIVE: LAW OF HIRE PURCHASE

(iii) Pays or tenders to the owner the reasonable costs and expenses of the
owner of incidental to his taking possession of the goods and of his
returning them to the hirer. [Section 19(1)]

Section 19 (2) of Hire Purchase Act 1967

 Provides that where goods are returned to the hirer pursuant to the subjection (1)
above and any breach of the hire-purchase agreement has not been remedied, the
owner has no right arising out of breach to take possession of the goods unless:

(i) By notice in writing given to the hirer at the time of the return of the goods
he specifies the breach and requires it to be remedied; and
(ii) The hirer fails within 21 days or within the time specified in the notice
(whichever is the longer) after receiving the notice to remedy the
breach.

In contrast, for hire-purchase contracts not governed by the Hire-Purchase Act, the owner
can proceed to recover the hire-purchase facility in the usual way.

9.0 PROVISIONS THAT ARE VOID

Section 34 of Hire Purchase Act 1967 declares certain provisions in a hire-purchase agreement to
be void. They are as follows:
 A provision that restricts any rights conferred on the hirer to determine a hire-purchase
agreement;

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CHAPTER FIVE: LAW OF HIRE PURCHASE

 A provision imposing on the hirer greater responsibility on the determination of the

agreement than he would be subject to in accordance with the Act;
 A provision requiring the hirer to pay more than 8 percent per annum simple interest
calculated on daily basis on overdue installments;
 A provision relieving the owner from liability for the acts of his agents involved in
negotiations leading to the agreement;
 A provision authorizing the owner or his agents to enter any premises for the purpose of
repossessing goods and such provision is inconsistent with the Act;
 A provision permitting the agreement to be terminated or modified or giving any person
authority to repossess goods if the hirer becomes bankrupt or commits any act of
bankruptcy;
 A provision excluding, modifying or restricting the operation of any provision of the Act
which is not expressly allowed by the Act.

10.0 LATEST AMENDMENTS TO HIRE PURCHASE ACT 1967

 The Hire Purchase Act 1967 (Amendment 2010) came into force on June 15, 2011
 Purpose : To give more protection to consumers and covers hire purchase ranging
from refrigerators to furniture, as well as motor vehicles.

10.1 Major amendments to the Hire Purchase Act

(i) Section 30A - Booking fees:

 Booking fees can only be collected by the bank, car seller, or its agent, after
the intending buyer has received a completed Part II of the Second Schedule,
listing the financial obligation of the buyer. Booking fees cannot exceed 1%
of the cash price of the car. In the event of cancellation, 90% of the booking
fees are refundable. If the car is not delivered according to the agreement,
the salesman must refund the full amount of the booking fee to the buyer.

(ii) Section 16 - Car repossession

 The amendments make it difficult for banks to repossess cars when 75% or
more of the cash price is already paid. In these cases, the bank will need to
get a written permit issued by the Controller of Domestic Trade, as well as a
court order. Upon the bank issuing a notice of intention to repossess, the
hirer then has to pay up within 21 days.

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CHAPTER FIVE: LAW OF HIRE PURCHASE

(iii) Section 17B – Car Repossessors

 Car repossesors (repo-men) must now be authorized by the Controller of
Domestic Trade. Previously, repo-men were simply agents accredited with
an association of banks and financial institutions.

(iv) Car inspection

 While previously, car inspection is voluntary, it is now compulsory for used
cars to be certified by a relevant body to be roadworthy, free of illegal
modifications, and/or made up by joining "half-cuts", before it can be sold
under hire purchase. This is to ensure that car buyers get to know the real
condition of the used vehicles that they are buying.
 The new B7 inspection package for used cars covers 18 check-points,
including brakes and air-cond system. The inspection cost of RM90 is to be
borne by the car seller. While Puspakom is a relevant body for inspection,
the amended Act allows other bodies (e.g. automotive franchise holders such
as UMNW-Toyota, for example) to apply to the Ministry of Domestic Trade
to conduct car inspection and issue B7 certification.
 The new Act forbids the hire purchase of modified used cars.

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