THE HIRE PURCHASE CONTRACT

CONTENTS

1.0. Introduction.

2.0. Objective.

• Main Body.
• Evolution of Hire Purchase
• Definitions of Hire Purchase
• Hire Purchase distinguished from other Legal transaction
• Reason for Hire Purchase Contract
• Applicable Laws

4.0. Conclusion

5.0. Summary

6.0. Tutor Marked Assignments (TMA)

7.0. References/Further Readings.

INTRODUCTION

A Hire Purchase transaction is a bailment of goods but with a provision for the option of sale or transfer of the property in the goods bailed from the bailor to the bailee. Whether a particular transaction is a hire purchase or not will, as shall be seen later in this unit, depend on the wording and meaning of the transaction and not merely on the appearance of the term Hire-Purchase on the document evidencing the agreement.

The contract of hire purchase is mostly governed by the Hire Purchase Act, Law of the Federation, 1990 and common law.

 OBJECTIVE

The aim of this unit is to trace the development of hire purchase contract and explain the nature of the contract of Hire Purchase, under the Hire Purchase Act and at common law. From this unit, Learners should be able to define the term and distinguish it from other legal transactions in commercial law. The learner should be able to identify and discuss the applicable laws.

MAIN BODY

Evolution of Hire Purchase

The development of hire purchase system is one of the greatest inventions of the lawyers, a very important contribution to the commercial development of the world. The concept of Hire Purchase is an important aspect of commercial transactions developed in the United Kingdom and can now be found in existence all over the world now. It is also called closed-end leasing. The first English Hire Purchase Act was in 1938, so it is a agency law of recent development. The origin of modern Hire Purchase agreement is the mid-Victorian custom in furniture trade under which persons who were unable to pay for the furniture at the time they desired to purchase it or who were not sufficiently worthy of open credit were allowed to take them. In the case of household furniture, it was successful for it prevented the property passing until full payment was received.

The true Hire Purchase Act did not come to being until the Factors Act, 1889 and Sale of Good Act 1893 which contain overlapping provisions to the effect that enable a person who has bought or agreed to buy or who is in possession of goods or document of title of goods with the consent of the owner to pass a valid title to a third party who bought without notice of the right of the original owner. This situation caused great anxiety and hardship to sellers and owners of goods who under the circumstance lose their ownership of their goods as well as their possession and therefore all the rights accruing to such ownership and possession, e.g. to sue for conversion or detinue.

This situation came to climax in the case of Lee v. Buttler, A, being in possession of some piece of furniture under a purported hire purchase agreement with the plaintiff sold and delivered the same to the defendant before the last installment had accrued or been paid. The defendant received the goods in good faith and without knowledge of the plaintiff’s right in respect of them. The court held that the sale and delivery of the goods to the defendant were within the provision of Section 9 of the Factor Act 1889. It was also held further that he was person who bought or agreed to buy and therefore the sale to defendant was valid and the furniture could not be recover by the owner. After this case there was intense desire to avert this kind of pitfall arising from such situation. It was this desire that led to development and recognition of hire purchase.

Hire purchase system received judicial approval and blessings in the case of Helby v. Matthews., In this case, the owners of piano agreed to let it on hire to H at a monthly rent of ten shillings and six pence. The agreement gave possession of the piano to H and permitted him to return it to the owner at any time subject to payment by him all the installment due at the date of return. It further provided that if and when the installment paid by it total (18) Eighteen guineas, the piano becomes his property but until such payment, it remained the property of the owner who will be entitled to resume possession of it, if H defaulted in his installmental payment or failed to keep the piano at his own address. Having taken possession and having paid some installments, H pledged the  piano with a pawnbroker, as a security for a loan. The owner took this action to recover possession, the house of lord, unanimously held that the action succeeded. It was held further that it was not a person who has bought or agreed to buy the piano within the meaning of S. 9 of the Factor Act, 1889. Lord Herschell has this to say:

All that he undertook was to make the monthly payments of ten shillings and six pence so long as he kept the piano. He has an option no doubt to buy it by continuing the stipulated payments for a sufficient length of time. If he has exercised that option he would have become the purchaser. I cannot see under these circumstances how he can be said either to have bought or agreed to buy the piano. The terms of the contract did not upon its execution bind him to buy, but left him to do so or not as he pleased.

In Nigeria as well, the contract of hire purchase is also of recent origin. Indeed, the first Act passed on this matter was in 1965, Its practice however dates back to scores of years ago when local traders sold on credit while dealers sold to people on local and informal.

It is important to note that there have been several judicial approvals to the practice of hire-purchase which increased the popularity of the practice.

Definitions of Hire Purchase

There have been several scholarly definitions of the phrase, hire purchase offered by authors and the statute books. There are judicial definitions which have suggested definitions of the term.

In Halsbury’s Laws of England Vol. 1^st Edition, a contract of hire purchase has been defined as “a contract of hire with option to purchase under which the owner of the chattel undertakes to sell it to, or that it shall become the property of the hirer conditionally on his making a certain number of payments. Until the making of the last payment, however, no property in the chattel passes.”

In Scammell v. Austin (1941) 1All E.R 14, it was defined as a complex transaction, not a contract of sale but a bailment. This is a judicial definition.

A statutory flavor is given to this definition in Section 1 of the English Hire-Purchase Act, 1965 as: “an agreement for 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.”

From the foregoing, it is clear that it is an agreement concluded between a bailor, that is, the owner, and a bailee that is the hirer, in respect of some particular goods with the option of the hirer purchasing the goods.

Hire Purchase Distinguish from Other Legal Transactions

The term hire purchase is always loosely employed by many people as synonymous with credit purchase or such similar transactions. Here the Hire Purchase transaction will be distinguished from other legal transactions.

Hire Purchase Distinguished From Hire

Hire is a kind of contract that does not pass title of the goods at a future date. The definition of Hire Purchase as seen above is different from the concept of hire. Hire only enables a person to use the goods for his immediate use and does not want to own the property. The hirer will return the chattel to the owner after its use.

It is also a kind of bailment in which the hirer is given possession of an article during the period of the particular hiring agreement.

Hire Purchase Distinguished From Loan and Mortgage

Loans and Mortgages is a kind of arrangement where one person who desire some finance borrows money from a person or a financial institution for his use in order to satisfy some needs.

Hire Purchase Distinguished From Sale on Credit Terms

This is a situation where a person wants to make an outright purchase of goods but may find out that he does not have sufficient money to make full payment for them.

In this instance, the person may pay in installment, while the goods pass to the buyer on credit. In this instance, the seller loses his seller’s right of lien on the property and where the buyer resells the goods, the third party will be an innocent purchaser for value without notice and will have a good title.

In J. Allen and Co. v. Sanni Adewale and Bello Lateju (1929) 9 NLR 111, the Plaintiff sued the defendant and his surety to recover the balance of what was called the hire- purchase price on a car given to the first defendant. After reading the agreement, the  court held that it was a contract of sale rather than a hire purchase contract.

Reason for the Adoption of the Hire Purchase System

There are mainly three reasons for the Hire Purchase system of commercial transactions

• One of the most important reasons and the first is that it enables credit to someone, who is unable to pay cash for the goods he wants and who would be happy to pay some deposit and therefore pay the balance in installments at a stipulated rate of interest
• The other reason for this system is that the dealer or the manufacturer of the goods cannot always provide credit and yet the goods must be bought to enable the dealer in business
• The third option for the adoption of the hire purchase system is the possible evasion of the Money Lenders Act 1939 Cap 124 LFN, 1958, which regulates the conduct of the business of money lending

THE APPLICABLE LAWS IN NIGERIA

1. Hire Purchase Act:

Originally, the Nigeria Hire Purchase Act 1965 is modeled after the United Kingdom Hire Purchase Act 1938 and the advertisement (Hire Purchase) Act 1957 with some modification to meet local needs. The Nigeria Hire Purchase Act was originally passed  in 1965 applicable to only Lagos State but by virtue of Hire purchase (Application) Degree No. 42 of 1966 it was made applicable to the rest of the country. It came into force in October 1, 1968 by virtue of Hire Purchase Act, 1965 (Application Day) order 1968. The Hire Purchase (Amendment Decree No. 23 of 1970) made minor changes to section 8 and 9 of the Act. The Hire Purchase Regulation of 1968 was made and published by Commissioner for Trade and Industries in exercise of his power under Section 5 and 8 of Hire Purchase Act of 1965. These amendments and further adjustment were made when the Act was re-enacted in 1990.

The Act is designed to regulate not only Hire Purchase but also credit sale transaction. The Hire Purchase Act is not a codifying statute like Sale of Goods Act although some rules of common law are extensively modified by the Act. There are still considerable areas in which those rules remain applicable.

Rules of Common Law.

The rules of common law are applicable to the following:

• Applicable to cases falling outside the operation of the Act
• Apply to all agreements which became effective before October 1,1968
• Goods other than motor vehicles whose hire purchase or total purchase price exceeds N2,000.

CONCLUSION

A Hire Purchase agreement is a contract whereby the owner of a chattel lets it out on hire for a periodic rent with the provision that on due compliance with the various terms of the agreement, and the compliance with the various terms of the agreement, and the completion of the agreed number of payment of rent, the hirer either becomes the owner of the goods automatically or shall have the option of purchasing the chattel by the payment of a small agreed sum.

SUMMARY

In summary the concept of Hire Purchase as we have seen in this unit is a new concept of commercial transaction. It enables the buyer of the goods to have possession of the goods with the option of acquiring the goods after fulfillment of the condition of the transaction.

It is clearly distinguishable from other forms of commercial transactions like Hire, Loan and Mortgages, just to mention a few of it. It also regulated by statute and common law.

TUTOR MARKED ASSIGNMENT (TMA)

• Briefly explain the historical development of the concept of Hire Purchase and suggest your own definition of the term
• Distinguish between the contract of Hire Purchase and other Legal Transactions.
• Hire purchase is regulated rules of common law.

REFERENCES/FURTHER READING

• Sale of Goods Act, 1993
• Okany, Nigerian Commercial Law, Africana .FEP Publishers Limited, 1992.
• Hire Purchase Act, CAP 169, Laws of the Federation
• O. Sofowora General Principles of Business and Coop Law, Soft Associates, 1999.