17 HIRE PURCHASE AGREEMEN; Introduction Definition Forms of Hire Purchase Agreemeny ‘onditions of Hire Terms and Condi of Hire Purchase Agreemen; ; 5, Main Features of Hire Purchase Ag jis 4 reement 76, Contents of Hire Purchase Agreemen, 17 ia it 177. Termination of Hire Purchase 4 greemeny 107. 178. Distinction between Sale and Hire p, urchase Agreement 179. Difference between Leasing and Hi; let on hire, the Purchase price js to be aid in instalments and hirer is allowed an option to purchase the goods by paying all the asulments. Hire purchase is a method of selling goods, In a hire goods are let out on hir e by a finance company (creditor) to the hire Purchase Customer (biter). The buyer is Tequired to Pay an agreed amount in Periodical instalments during a sea period. The Ownership of the Property remains with cieditor and passes on to hirer cathe payment of the last instalment, Purchase and Sale of goods under Hire-Purchase system is governed’ by the Hire- Purchase Act, 1972. This Act Was passed on 8th June, 1972 and came into force wef, r t 1, 1973 Here, the word “hire” denotes, the Mrerunder @ hi I'€-purchase agreement. Under the Hire Purchase $: 04s ets is 800ds on hire and sives an option to the hirer to With a specific agreement c:; alled Hire Purchase Agreement. 1 2. DerNmon tiga’ Pet Section 2 of the Hire Pj ene aN agre, , Ment under which goods are let out on welds ap ot to Purchase them in accordance with the " “ereement under wh urchase Act, 1972, “hire purchase agreement” is hire and undér which the hirer terms of the agreement and 265Possession of goods is deliver by the owner therea aps that such person s the agres I T50n amount in periodical insta On ¢ 1 ments, ang’ "i, 10} (ii) The property in the goods is to pass to such person on the Paymen It of such instalments, and f the lay (iif) Such person has a right to terminate the agreement at any time i property so passes. or, 17.3. FORMS OF HIRE-PURCHASE AGREEMENTS Hire-purchase agreements are of two forms. 1. In the first form the goods are purchased by the financier from the ie the financier obtains a hire-purchase agreement from the customer, ny (# under which the customer becomes the owner of the goods (ii) On payment of all the instalments of the stipulated hire and €Xercising 4: option to purchase the goods on payment of a nominal price, ne his (iii) The owner gets his money from the financier, who recovers the cost fom the customer. 2. In other form (ij the customer purchases the goods and he executes a hire-purchase agreement with a financier, (ii) Under which he remains in possession of goods, subject to Payment of amount paid by the financier on his behalf to the owner. (iii) The financier gets a right to seize the goods in the event of non-fulfilment of conditions of hire-purchase agreement by the customer. 17.4 TERMS AND CONDITIONS OF HIRE PURCHASE AGREEMENTS Hire purchase is a transaction of finance whereby goods are bought and sold as per certain terms and conditions. The various terms and conditions of hire purchase finan: are: 1.Payment of periodic instalments _2-—Tmmediate possession of goods by the buyer J Ownership of good remaining with the vendor until the payment of the lis 2 instalment A Vendor's right to repossess the goods in the event of default committed by ® Treatment of each instalment as hire charges till the payment of last instlmet - MAIN FEATURES OF HIRE PURCHASE AGREEMENTS267 om the seller to the buyer on the payment e last ofthe ; e the buyer makes any default in the payment of any instalment the repossess the goods from the buyer and forfeit the amount ating it as hire charges. ( ei has right 0 se het has the right to terminate the agreement any time before the property Cl asset. That is, he has the option to return the goods in which case he need not 8 instalments falling due thereafter. However, he cannot recover the sums as such sums legally represent hire charges on the goods in Prady paid question. ) A hire-pur urchase th obligation to purchase. rms used in hire purchase agreement oa 1. Hire purchase price: Hire-Purchase Price means the total sum payable by the ire-purchase agreement in order to complete the purchase of, or the sais y in, the good to which the agreement relates and includes and sum payable by the hirer under hire-purchase agreement by way of a deposit or other initial jeyment, OF credited or to be credited to him under such agreement on account of any sh deposit or payment, whether that sum is to be or has been paid to the owner or to syother person or is to be or has been discharged by payment of money or by transfer or ieiveyy of goods or by any other means; but does not include any sum payable as 2 yealty or gs compensation or damages for breach of the agreement. 2 Hirer : Hirer means the person who obtains or has obtained possession of goods fun an owner under a hire-purchase agree! t, and includes a person to whom.the~ it’s rights or liabilities under the agreement have passed by agreement or by operation flaw. chase agreement is a form of bailment; the hirer is given the right to he goods on certain conditions. That, however, is an option not an T ® Owner : Owner means the person who lets or has let, delivers or has delivered "sion of goods; to a hirer under a hire-purchase agreement have passed and includes yom to whom the owner’s property-in-the=goods or-any~of- the owner's right or ities under the agreement has passed by the assignment or by operation of law. 176 - CONTENTS OF HIRE-PURCHASE AGREEMENT Actording to the Act, every hire-purchase agreement shall state: @ The Hire-Purchase price of the goods to which the agreement relates. 6 — ‘ : pe cash price the goods, that is to say, the price at which the goods may be ( hased by the hirer for cash. ‘ c) - ai The date on which the agreement shall be deemed to have commences i) =a The number of instalments by which the hire-purchase price is to be paid, ie Unt of each of those instalment, and the date, or the mode of determining ©, upon whieh fe Ig payable, end the person to whom ard anaitlets Are Piven its d. WhSPECTRUM Busivess nt relates, in a manner suffi ent t Wy to which the agreeme r int goods fe) The gor them ‘ale 77, TERMINATION OF HIRE-PU IRCHASE A’ NT ae nent can be terminated in any of the following trove. The hire-purchase agreeme ' ire-| hase agreement sti reement ; The hire-purc’ nil scam soa te agree can be terminated. The agreement jg the js by the ji Bene hirer, notice of termination by the Wine? Cr tice of termination by the hirer, circumstances in whic! terminated by return of the good i of conditions or not re-purchase agreement is terminated by Performance gy he goods by the hirer. account of Riret's Bréac 2. By performance : The hi ise of the option to purchase t the exerci The parties to an agreement may enter into a fresh agree t, which has not already been terminated. 3. By renewal : terminating the hire-purchase agreement o— 4. Notice by either party : The hire-purchase agreement can be terminated by notice given by either party 5. By acceptance of repudiation by other party : An agreement is terminated, when @ party to an agreement renounces his future obligations under the agreement or commits a breach of the agreement, which indicates that he does not want to remain bound by its provisions, and the other party accepts the renunciation or breach as discharging the contract. 6. By release : Where one party to an agreement releases the other party from the performance of the obligations by him under the agreement, the agreement comes to an end. 7. By frustration : When performance of the agreement becomes impossible by reason of some act or event occurring subsequent to the formation of the agreement, —s to an end sad the parties will be discharged from further obligations under the reement €.g. the goods are destroyed during the curren i . ; t icy of hire-purchase agreement without negligence on the part of the hirer, the agreement comes to an end. & . ae. ” By efflux ” time Poh pe hye. is given time to exercise option to Lr goods within a stated period an doe i ion withi . . eee S Not exercise the option within the Remedies in Case of Breach In case of breach A the goods by physical Side bie Purchase arcement, the owner is entitled to (i) ree damages, ————_ POSSESSION; oF (i) 10 abandon any claim to the goods and sue wiecaiien [MA Q e C The registration of a hire purchase Property is conveyed ei Agreement is not necessary, as NO immovableat acs AGREEMENT Ye. pismncrion BETWEEN SALE AND 17 ME a 6 17.9, DIFFERENCE BETWEE! ownership : In Leasing it lies with the finance company, the les uuflly never transferred to the lessee, the user goods is transferred to the hirer on the payment o! = Depreciation : Lessor and not the Les: stield-in’ the Leasing. But in HP qe main points © roperty in the goods is transferred t ee 0 the buyer immediately at th tract, whereas in hire-purchase, the property in thé goods passes e dy ra ina sale, P time of com the hirer upon payment of the last instalment. Ina sal purchi instalment. In the case of pay the price 0’ hirer may, i owner without any liability to pay the remaining instalments. In the case of a sale, insolvency of the buy risl back the goods. In the case of a sale, from him but in a hire-purchase, thi bonafide purchaser. In a sale, sales tax is levied purchase, sales tax is not leviab! But financing the depreciation tax shield. ef 3. Capitalization ? Capitalization 0} ig company. But in HP it is done in ¢ boa oF ‘ayments : The entire lease payments ar Hf the lessee. But in case of HP only the hire- e m ‘he books of the hirer, 5, Salvage Value : The lessor and the Le age A ‘ mee But in HP only the hirer can ¢ (\ © owner of the asset. (6, Rept Down payment ; No Down payment is req SAD, 0 wn payment is required to be made for acq! k, for if the hirer fails to pay an instalment, the owner f the asset is do he books of the Hirer. ssee have Jaim the benefit of salvage 269 IRE PURCHASE f distinction between the ‘sale! and ‘hire-purchase’ are as follows: le, the position el buyer is that of the owner of the goods but in hire the position 0 the hirer is that of a bai i ailee till he pays the last a sale, the buyer cannot terminate the contract and is bound to f the goods. On the other hand, in the case of hire-purchase, the f he so likes, terminate the contract by returning the goods to its the seller takes the risk of any loss resulting from the er. In the case of hire purchase, the owner takes no such has the right to take the buyer can pass a good title to a bonafide purchaser e hirer cannot pass any title even to a at the time of the contract whereas in a hire- le until it eventually ripens into a sale. IN LEASING AND HIRE PURCHASE sor and it is in HP financing the property of the f last instalment _ is entitled to claim depreciation tax Hirer (owner) is entitle to claim ne in the books of the Lessor, the eligible for tax computation in the the right to claim uired for acquiring the uiring the asset in case interest is eligible for tax computation the benefit of value as the use of leased of HP.270 SPECT! RUM Bustnegg L em AWs 7, Maintenance of asset : Where the lessee has to maintain the leaseq Asser ; shots i th of financial lease, upkeep is the responsibility of the lessor in case of Operating | i in HP it is the hirer’s responsibility to ensure the maintenance of the asset bought, Bi. 8. Nature of the asset ; An asset given on lease by a leasing company ig oo, as the fixed asset of the lessor. But in HP the hire-vendor normally shows the under HP as-stock in trade or as receivables. 2 ‘ "sidereg 9, Receipts : All receipts from the lessee are taken into the lessor’s : ‘ Profit ang long account. Only the interest portion is taken into hire-vendor’s profit and loss Accoun jy case of HP. 10. Reporting : In case of leasing leased assets are disclosed forming parts of accounts. But in HP the asset bought under HP will bi and the amount of instalments payable to the lessor as liability. QUESTIONS SHORT ANSWER QUESTIONS 1. Write a note on the following terms bY way of nop © Shown as asst (a) Hire Purchase Agreement (5) Hirer (c) Hire Purchase Price (d) Owner i ESSAY TYPE QUESTIONS . 2. — Discuss in detail the difference forms of Hire Purchase Agreement " 3. What are the terms and conditions of Hire Purchase Agreement ? Explain.” 4. Discuss the main features of Hire Purchase Agreement. ; 5. What are the different ways in which the hire purchase agreement can be terminated z 6. Distinguish between sale and Hire Purchase. Distinguish between leasing and Hire Purchase.