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
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