HIRE PURCHASE NOTES
The law relating to hire parches agreement has been contained in the
Hire purchase Act (Cap. 507). This Act has been based mainly on English
Hire Purchase Acts.
8.1 Introduction
The Hire Purchase Act (cap. 507) defines some terms relating to hire
purchase transactions as under:
“Hire purchase Agreement ” means an agreement for the bailment of goods
under which the bailee may buy the goods or under which the property in
goods will or may pass to the bailee. “Hire Purchase business” means a
business, whether carried on alone or with other business, of entering
into hire purchase agreements.
whatever the hire-purchase price under any agreement; “Hire Purchase
Price” means the total sum payable by the hirer under a hire-purchase
agreement in order to compete the purchase of goods to which the
agreement relates, including any sum payable y the hirer by way of a
deposit of other initial payment: “Contract of guarantee” means a
contract made at the express or implied request of the hire, t guarantee
the performance of the hirer’s obligation under the hire purchase agreement.
8.1 Nature of Hire Purchase Agreement:
Under the hire purchase system, the buyer agrees to pay for the
commodity in installments. On signing the agreement, the buyer can take
possession of the commodity and use it. But the ownership in the
articles rests with the seller until the buyer pays the final
installment. if the buyer ails to pay any installment, the seller is
entitled to take back the article and the buyer will have not claim over
the installments he has already paid. The amount paid will be treated as
hire charges for the article. Hence the sale becomes complete only when
the buyer pays the final installment. On payment of the final
installment, the ownership of the article passes from the seller to the
buyer. Till then the agreement is one for hiring.
Section 3(1) provides that this Act applies to those hire purchase
agreements under which the hire purchase price does not exceed the sun
of Eighty thousand shillings other than a hire purchase agreement in
which the hirer is a body corporate. This monetary limitation does not
apply so as to affect the definition of “hire purchase business”.
Credit Sale is different from hire purchase agreement. Credit sale
arises when there is an agreement for the sale of goods on credit basis.
In this case also, the purchase price may be paid in future sometimes in
for or five installments. In the case of credit sale goods become the
property of the buyer with the payment of the first installment. Incase
of failure to keep up with installments, the seller cannot repossess
product but may sue the buyer in Court for unpaid amount. Sellers may at
time request for post-dated cheques. This system is also known as
deferred payment system. A hire-purchase agreement to buy, but only an
option is given to the hirer to buy, while under credit sale there is an
agreement to buy and no option to return the goods.
8.3 Requirements of Hire-Purchase Agreement
Under the provisions of section 6 of the Act, before a business purchase
agreement is entered into, a statement of the cash price must be
furnished by the owner to the hirer, otherwise the contract and the
guarantee or security based on it will not be enforceable. The agreement
which is required to be registered must be signed by the hirer; it must
contain a notice relating to the hirer’s statement of:
The hire-purchase and cash price.
The amount of the installments and the dates
of payment.
A description of the goods sufficient to identify them.
Under this section of the hirer. An owner shall not be entitled enforce
a hire purchase agreement or any contract of guarantee, if the statutory
requirements are not fulfilled. However, the Court may dispense with any
of such requirements on being satisfied that the hirer has not been
prejudiced.
8.4 Registration:
Section 5(1) of the Act requires that every hire-purchase agreement must
be delivered for registration to the Registrar within thirty days after
making the agreement. On registration of a hire purchase agreement, the
registrar shall deliver to the owner a certificate
of registration. If a hire-purchase agreement is not registered then.
- No person shall be entitled to enforce the agreement against the
hirer or against the guarantor and the owner shall not be entitled
to enforce any right to recover the goods form the hirer; and - No security given by the hirer or by a guarantor shall be
enforceable against the hirer or the guarantor by any holder thereof:
8.5 Implied terms of Hire Purchase Agreement:
Section 8 of the Act contains the following implied conditions and
warranties of a hire-purchase agreement:
- a condition that the owner will have a right to sell the goods at
the time when the property is to pass; - a warranty that the hirer shall have and enjoy quiet possession of
goods; - A warranty that the goods will be free from any charge or
encumbrance in favour of a third party at the time when the property
is to pass; and - Except where the goods are second-hand goods and the agreement
contains a statement to that effect, a condition that the goods will
be of merchantable quality; - Where the hirer expressly or by implication makes known the
particular purpose for which the goods are required, there shall be
implied a condition that the goods will be reasonably that purpose.
The terms implied by the Act as (a), (b) and (c) above cannot be
modified or exclude by an express agreement. But the implied condition
of fitness for particular purpose (e) above) can be excluded if the
owner can show that before the agreement was made the relevant provision
was brought to the notice of the hirer and its effect was made clear to
him. The condition as to merchantability does not apply where the goods
let are second-hand goods. But in case it is not stated in the note or
memorandum that the goods are second-hand, then the condition will be
implied.
8.6 Termination of Agreement:
Under section 12 of the Act, the hirer may terminate the agreement at
any time before the final payment becomes due. The hire may terminate
the agreement by returning the goods to the owner and giving him written
notice of termination of the agreement. Where a hire terminate the
agreement, he is liable to pay all the instalments due by that time,
together with the 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. The hirer will be also liable to pay damage
if he has failed to take reasonable care of the goods. He must return
the goods at his own expense to the
premises from which they were originally supplied to him or to such
other place directed by the owner.
8.7 Completion of agreement:
Section 13 provides that a hirer may give notice in writing to the owner
to complete the hire purchase agreement before the due date in this
case; the hirer will be required to pay the net balance due to the owner
under the agreement on a specified day. The right of completing the
agreement by the hirer can be exercised as under:
- At any time hiring the continuance of the agreement;
- Within twenty eight days after the owner has taken possession of
goods. In this case, the hirer should pay to the owner the expenses
incurred by him in taking possession, storage or repair of goods in
addition to the net balance due.
8.8 Recovery of Possession:
Section 15 of the Act provided protection to the hirer
against a claim by the owner for
the recovery of possession of goods. Under this section, if the hirer
has already 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. He can recover these
goods only through the decision of the court or if the contract has been
terminated by the hirer. If the owner retakes the possession of goods
against this rule then the contract shall be considered as terminated
and in this case:
- the hirer shall be released from all liability under the agreement
and shall be entitled to recover form the owner by suit all sums
paid by the hirer under the agreement of under any security given to
him in respect therefore; and - a guarantor shall be entitled to recover from the owner by suit all
sums paid by him under the contract of guarantee or under ay
security given by him in respect thereof. If a suit is filed by the
owner then on the hearing of the suit, the court can make one of the
following orders: - for the delivery of all goods to the owner; or
- for delivery of part of goods to the owner and transfer to the hirer
the owner’s title to the remainder of the goods; or - for the delivery of all the goods to the owner, and postpone the
operation of the order on condition that the hirer or any guarantor
pays the unpaid balance of the hire-purchase price at specific time.
8.9 False Information:
Section 34 provides that any person who knowingly gives false
information in any proposal form or document completed for the purpose
of entering into hire-purchase agreement is guilty of an offence and
liable to a fine not exceeding five thousand shillings.
Summary of the topic
- Requirements of hire purchase agreement
- Implied terms of hire purchase agreement
- Termination of hire purchase agreement
- Recovery of possession
