Hire Purchase: Summary notes

Goods are frequently sold on agreements known as hire purchase agreements. The essence of a hire purchase agreement is that the goods are on hire only, and that the property in them is not to pass to the customer or hirer until the final installment of the purchase price has been paid. Until the final installment is paid the goods are the property of the dealer (or stores) who have hired them to the customer.

Hire purchase agreements are governed by the Hire Purchase Act (Cap 507) and applies to all hire purchase agreements entered into under which the hire purchase price does not exceed the sum of eighty thousand shillings.

Hire purchase distinguished from credit sale and conditional sale

A credit sale arises when there is an agreement for the sale of goods under which the purchase price is payable by five or more instalments. ownership passes at once.A purchaser of goods under credit sale can pass an effective title to the subsequent buyer (Lee v Butler, 1893).

A conditional sale is an agreement for the sale of goods under which the purchase price is payable by installments, and the property in the goods is to remain in the seller(notwithstanding that the buyer is to be in possession of goods) until such conditions as to the payment of installments or otherwise as may be specified in the agreement are fulfilled.

Effect of a sale or pledge by hirer. The general rule is nemo dat quod non habet (no one can give which he has not). Therefore, as a general rule the hirer cannot pass a good title, since he does not have property in the goods.

Formation of the agreement.

The Act seeks to protect the hirer by ensuring that the terms of the transaction are made clear to him before or at the time when he enters into the transaction. This information embraces:

  1. The cash price. Before the dealer (owner) accepts the hirer’s offer, the hirer must be shown the cash price of the goods. It is sufficient if the hirer has seen the cash price on a price ticket or in a catalogue.
  2. Written agreement. A hire purchase agreement is unenforceable by the owner unless the agreement is signed by the hirer. The agreement must contain : (a) a statement of the hire purchase price and the cash price and amount of each installment and when payable.(b) a list of the goods, and (c) a copy of the statutory notice setting out the hirer’s rights under the contract.

Implied terms.

The Act provides for the following implied terms in hire purchase agreements:

  1.  Quiet possession.
  2. Right to sell.
  3. Free from charge or encumbrance at the time when property is to pass.
  4. Merchantable. An implied condition that new goods shall be of merchant-able quality.
  5.  Fitness for a particular purpose.

NOTE: It is not possible for the parties to a hire purchase agreement to exclude the implied terms arising under the Hire Purchase Act.

Right to end the agreement.

A hirer is at any time entitled to terminate the agreement on payment of the instalments due, together with such sum, if any, as will make his total payment not less than one-half of the total hire purchase price unless a lesser sum is specified in the agreement, and if the owner includes any provision in the agreement for a larger payment, such a provision is void.

The hirer is, however, liable to pay damages if he fails to take reasonable care of the goods, and the Court may order him to deliver up the goods if he retains them wrongfully.

Default by hirer

At common law the owner was allowed to repossess, even though 95% of the hire purchase price had been paid. Section 15 of the Act provides that if the hirer has paid a sum equal to or in excess of  two-thirds of the hire purchase price, the owner must not take any step to recover possession of the goods in the event of default, except through the Courts.

If the owner acts illegally in this respect the agreement is trated as being at an end. The hirer can then recover all payments made by him under the agreement.

Registration.

Section 5(1) of the Act requires that every hire purchase agreement must be delivered tfor registration to the Registrar of Hire purchase Agreements within thirty days after making the agreement. On registration the Registar will give a certificate to the owner. Failure to do so will render the contract unen-forceable against the hirer or against the guarantor, and the owner will not be allowed to recover the goods from the hirer.

 

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