By Aisha Mohammed Agashi.
A Hire-Purchase agreement is a contract whereby the owner of a chattel lets it out on hire for periodic rent with the provision that on due compliance with the various terms of the agreement, and the completion of the agreed number of payments of rent, the hirer shall have the option of purchasing the chattel.
In Samuel Aro v Joe Allen & Co Ltd (1979) 2 FNR 292. Okagbue JCA explained a hire-purchase as follows: “Essentially, a hire-purchase system is a system whereby the owner of goods lets them online for periodic payments by the hirer upon an agreement that when a certain number of payments have been completed, the absolute property in the goods will pass to the hirer, but so however, that the hirer may return the goods at any time without any obligation to pay the further balance of rent accounting after return; until the condition have been fulfilled the property remains in the owner’s possession.” Emphasis Mine
In this hire Purchase agreement, the hirer takes possession of goods from the owner on the understanding that the hirer enjoys the usufruct and possession of the goods during the subsistence of the agreement, in consideration of which the hirer makes a deposit and continues to make instalment payment to the owner depending on the agreement of the parties it can be daily, weekly or monthly up to the end of the agreement and up to the discharge of the hirer purchase price at which moment the hirer is by law given an option either to purchase the goods and obtained its own or to released the goods back to the owner.
Hire-Purchase was first given judicial approval by the House of Lords in the case of Helby v Matthews (1895) AC 471. However, the Hire-Purchase Act, 1938, was passed to protect the hirer from harsh or unconscionable terms of the common law. This was later repealed and replaced by the Hire-Purchase Act 1965. The 1965 Act was re-enacted as the Hire Purchase Act 1990 and has been further re-enacted as the Hire Purchase Act 2004. All these enactments are verbatim reproductions of the English Hire Purchase Act 1938. However, before the Act is to be applied in a hire purchase contract Section 1(1) of the Act provides (a) all hire‐purchase agreements and credit‐sale agreements (other than agreements in respect of motor vehicles) under which the hire‐purchase price or total purchase price, as the case may be, does not exceed two thousand naira; and
(b) all such agreements in respect of motor vehicles, irrespective of the hire purchase price or the total purchase price.
Hence, the Act will only be applicable to hire purchase agreement made in accordance to the provisions of Section 1 of the Act. Any contract that is not in accordance with the Act will still be valid but will be govern by Common Law.
Features of hire purchase contract
iii. The title in the goods remains with the owner until the last instalment is paid by the hirer.
Creation of hire purchase contract under common law
Under the common law, a hire-purchase agreement may be oral or in writing. However, hire-purchase agreements, because of the detailed arrangements associated with them, are usually in writing and indeed should be in writing. The common law does not prescribe any uniform pattern or form for hire-purchase agreements, nor are the terms of the hire-purchase agreements uniform.
In spite of the diversities in form, it is common knowledge that hire-purchase agreements are characterized by three main essentials:
Apart from these essentials, other terms may be included in the agreement, for example, the period of the hire, hire-purchase price, number of instalments, amount of hire rent, care and maintenance, insurance of goods and the rights of the owner to retake. The agreement may also contain a minimum payment clause.
Execution of hire purchase under common law
The obligations of the parties to a hire purchase agreement may be expressed or implied. They are expressed if they are set out in the agreement. Both under the common law and the Hire Purchase Act, obligations are implied in hire agreements.
These may be either conditions or warranties. For breach of a condition, the contract may be cancelled. For breach of a warranty, only damages may be claimed.
The owner must deliver the goods to the hirer. Legally, the hiring commences only when the goods are delivered to the hirer. For breach of this obligation, the hirer’s remedy is an action for damages, not specific performance unless the goods are of a rare or special kind.
While the Hirer has obligation to take delivery of the goods. Unless otherwise agreed, the place of delivery is the owner’s place of business, or, if a finance company is involved, the dealer’s premises. If the hirer neglects to take delivery the owner may sue him for damages for non-acceptance.
The common law implies in every hire purchase contract a condition that the owner has title to the goods at the time when the hiring commences. If the owner has no title the hirer may repudiate the contract and recover any deposits or instalments that he has paid on the ground of a total failure of consideration.
While The hirer has an obligation to take care of the goods. The hirer has a duty to take reasonable care of the goods. If the contract is determined, and he returns damaged goods to the owner, he will be liable in damages unless he proves that he has taken reasonable care of them. He is not liable for loss or damage occurring accidentally or without default on his part.
A condition that the goods are reasonably fit for the purpose for which they are hired is implied in every contract of hire purchase. It was held in Stephen Anoka v S.C.O.A Warri(1955/1956) WNLR 113 that this implied condition does not extend to a hidden defect. In this case, a lorry was let on hire purchase. The engine had a hidden defect and it ceased to function. The owner was held not liable for breach of this implied condition because the defect could not have been discovered by due care and skill on his part. If this were a contract of sale of goods the seller would have been liable for breach of the implied condition of fitness because liability is strict in contracts of sale of goods.
While the hirer has an obligation to pay installments. The hirer must pay the agreed instalments as they fall due. If he defaults the owner invariably has a right to terminate the agreement and repossess the goods. In that event, the hirer is liable to pay all arrears of instalments due, compensation for any damage to the goods arising from his default and any reasonable costs incurred by the owner in repossessing the goods. The owner’s right to repossess the goods is not affected by the fact that only a very small sum is left unpaid by the hirer. And equity does not intervene to grant any relief to him. In the case of Atere v Dada Amao (1957) WRNLR 176 A motor lorry was taken on hire purchase. The total price payable was £1,000. The hirer had paid £995 and defaulted in the final payment of £5. The repossession of the lorry by the owner was held lawful. Additionally, whenever there is a default by the hirer unless otherwise agreed by the parties in their hire purchase agreement, no note of the termination may be required where there is a default.
There is an implied warranty on the part of the owner that the hirer shall have and enjoy quiet possession of the goods.
While The hirer has an obligation to re-deliver the goods The hirer is bound to re-deliver the goods to the owner at the termination of the hire. If he fails to do so he is strictly liable for any subsequent damage to the goods. Furthermore, the owner may repossess the goods or maintain an action for their recovery. If the hirer takes any action which is inconsistent with the owner’s title, e.g., selling the goods, he is liable in conversion to the owner.
Creation of hire purchase contract under the Act
Unlike the position under the common law, all hire-purchase agreements which are intended to operate or fall within the provisions of the Act must comply with certain provisions or procedural requirements as to form and content stipulated under the Act.
All these rules will only be applicable to hire purchase agreements made in accordance with the provisions of Section 1 of the Act.
By section 2(1) of the Act the price at which the goods can be purchased must be stated in writing unless the hirer selected the goods by reference to a catalogue, price list or label or advertisement. According to the usual practice the owners are in the habit of suppressing the truth about the market price of the good or at best they inflate the price. In the case of Alhaji Kelani v. John Olubalogun & Anor (1983) OGSLR 183 on page 287 Somolu J opined that “the reason for fixing the hirer with knowledge of the cash price of the goods he intends to take on hire purchase is to make him aware that he has an option to buy the goods on a cash basis, an alternative to hiring it” Emphasis Mine
Section 2 (2) (a) requires a note or memorandum to be signed by the parties otherwise the agreement cannot be enforced. The requirement that the two parties must sign the agreement before it can be enforced is a statutory reversal of the common law position. In Obisesan v. Adetoro (1995) 6 NW.L.R (Pt. 404), it was the husband and not the hirer that signed the agreement. It was held that the provision was mandatory and an exception to the law of the agency and therefore, the owner cannot enforce the agreement. Each party to the agreement must sign personally. The note or memorandum of the agreement must be signed not only by the hirer but also by the other parties to the agreement.
By section 2(1 )(b) the memorandum must state the list of goods, hire-purchase price and a statement of the cash price, the deposit paid, the number of instalments and dates at which they are payable. To avoid excessive rates of interest, the memorandum must also include the rate of interest calculated according to the regulations made by the Ministry of Trade.
Execution of hire purchase under the Act
If the agreement comes within the Hire Purchase Act, in addition to other provisions, all the implied terms at common law will apply. Section 4(1) of the Act provides:
(a) an implied warranty that the hirer shall have and enjoy quiet possession of the goods;
(b) an implied condition on the part of the owner that he shall have a right to sell the goods at the time when the property is to pass;
(c) an implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party at the time when the property is to pass;
(d) except where the goods are let as second-hand goods and the note or memorandum of the agreement made in pursuance of section 2 of this Act contains a statement to that effect, an implied condition that the goods shall be of merchantable quality. So however that no such condition shall be implied by virtue of this paragraph as regards defects of which the owner could not reasonably have been aware at the time when the agreement was made or if the hirer has examined the goods or a sample of them as regards defects which the examination ought to have revealed.
Analysis of hire purchase contract in the Act and Common Law
Section 1 (a&b) provides for the requirements to follow before any hire purchase agreement will be governed by the Act. Hire purchase agreements under common law has no uniform pattern nor are the terms of the agreement uniform.
Both under common law and the Act, the obligations of the parties are expressed and implied. All the implied terms of common law also apply to the act. Unlike the position under common law, all hire purchase agreements which intend to operate or fall within the provisions of the act must comply with certain provisions or procedural requirements as to the form and content stipulated under the Act
Notice of cash price, under the Act the price of the goods at which it can be purchased must be stated in writing unlike in common law where the owner need not inform the hirer of the cash price. This is a way of empowering the hirer and limiting the hardship the hirer usually faces under the hire purchase agreement in the common law. The wisdom behind this fixing the hirer with the knowledge of the cash price is to intend him to be aware that he has an option to buy the goods on a cash basis, an alternative to hiring it. Unlike in common law, the Act requires that a note or memorandum be signed by the parties to the agreement.
In a Hire purchase agreement under the Act, the hirer may rely on the owner’s skills and judgment, unlike in common law where reliance is not required. The Act also made provisions that section 4(1) (which are those implied conditions and warranty of quiet possession, right to sell, goods being free from any charges or encumbrances in favour of a third party, and merchantable quality) cannot be excluded and the conditions in section 4(2) (which is the implied conditions that the goods are reasonably fit for the purpose it is required) cannot be excluded or modified by the owner unless he proves that before the agreement was made the provisions were brought to the notice of the hirer and it’s an effect made clear to him
Unlike in common law where if the hirer makes a default in payment, the owner has a right to terminate the agreement and repossess the goods regardless of whether it is only a very small sum that is left unpaid by the hirer as seen in the case of Atere v. Dada Amao(1957) WRNLR 1 76 (Supra). The Act in trying to remedy this grace injustice faced by the hirer under common law provides, that where the relevant proportion of the hire purchase price has been paid, the owner shall not enforce any right or recover possession of the goods otherwise than by an action in court The relevant proportion of the Hire Purchase price has been defining in two perspectives;
The Act unlike common law provides that once the hirer has paid the relevant proportion of the hire purchase Act, the owner can only file an action against the hirer and resume possession when the hirer has defaulted in payment on the third time or has breached a condition of the contract up to 3 times.
Under the Act in section 3, the Hirer has a statutory right which prevents the exclusion of the right of the hirer to terminate or prevents the incorporation of any agreement that has the effect of imposing additional liability other than the liabilities that are obvious in the agreement.
Where the Hirer now seek to terminate the Hire Purchase contract before the payment of the final instalments, that termination must be subject to the following conditions;
Conclusion
In conclusion from the above, it should be noted that hire purchase contracts are both valid in common law and the act. In Act only came to remedy some of the harshnesses the hirer are faced with under common law. However, not all the harshness was remedied under Act.
References
ABOUT THE AUTHOR
Aisha Mohammed Agashi is a student of Faculty of Law, Bayero University Kano and was part of the defunct BUKLAW Student’s Legislative arm, where she contributed immensely to several bills aimed at student development that were passed into law recently.
Source: The Nigerialawyer
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