COMMERCIAL TRANSACTIONS 1.5 HIRE-PURCHASE GENERAL INTRODUCTION
Origin and development.
Its growth was rapid and depended on the ingenuity of lawyers through common-law.
The Singer Manufacturing Company wanted to expand their customer base. They invited their customer to buy and pay by installments and gain full property of the goods once final installment has been paid. Subsequently, in order not to tie down their capital, they introduced an independent financing company to deal with their large customer base. This gave the transaction two faces sale of goods (dealer selling the goods to finance company) on one hand and on the other that of hire-purchase (finance co giving them to the hirer (buyer) on hire-purchase terms). The nature of hire purchase agreements was appreciated in; Helby V. Matthews where an owner let his piano on hire to the defendant. After taking possession and paying a few installments, the hirer pledged the piano. It was held that the agreement entailed that the hirer had the option of returning the goods or becoming its owner by paying in full. He had not bought or agreed to buy the piano nor had he paid in full. As such the agreement is not within the scope of the Sale of Goods Act. See also, Lee V. Butler.
In Nigeria, it was initially unattractive because of the unscrupulous business practices of the hire-purchase traders and the belief of the hirer that once he has paid part and gotten possession, he becomes the owner. Also because it was new to the customs of the people unlike credit sales. Nigeria experienced issues with hire-purchase until the introduction of the Hire-Purchase Act In 1965.
According to Professor Akanki in his book; commercial law in Nigeria, he stated that; A hire-purchase agreement is a contract of hire coupled with an option to purchase.
The Hire-Purchase Act, in Section 20 defines it as; The bailment of goods where the bailee may decide to buy the goods.
Choses in action are outside the scope of the Hire-Purchase Act.
THE HARDSHIPS POSED BY COMMON-LAW WHICH THE ACT CAME TO SOLVE INCLUDE;
:: At common-law, a simple default in payment can authorize the owner to recover the goods. In Atere V. Dada, the plaintiff took delivery of a lorry on hire purchase price of 1000 pounds. He had paid 995 pounds and defaulted in one payment. The owner recovered the goods and sold it. When the hirer brought a claim for the excess. It was held that the owner was under no obligation to account to the hirer for the profits made. Similar problems were encountered in in Animashaun V. CFAO. Bentworth finance V. De bank transport limited. Section 9 of the act came to intervene and provided that when the relevant proportion (one half in the case of goods other than motor vehicles and three fifth for motor vehicles) has been paid, the owner cannot recover except by court action. The hire-purchase amendment act then added a sub 5 to the section 9 stating where in the case of a motor vehicle, the owner can recover the goods for safe keeping and preventing depreciation pending the determination by the court.
:: Where the owner has repossessed the goods, the hirer cannot claim for the sale surplus or profit made by the owner in selling out the goods.
The courts usually read into the substance of the agreement to interpret whether it is one of hire or another agreement. The fact that the parties call it a hire does not make it one. Gb Olivant V. Akinsanya.
FEATURES OF HIRE PURCHASE
- Required to be in writing else it would be unenforceable.
- Hire-purchase is a bailment coupled with the option to purchase.
- The right of the hirer to determine the agreement.
HIRE AND HIRE-PURCHASE:
A hire usually involves the transfer of possession to the hirer in return for a payment the hirer is not to buy but to use. There is no contemplation nor intention to sell at a later date.
While; In a hire-purchase agreement, there is a hire coupled with the option to purchase.
HIRE-PURCHASE AND SALE:
In a sale agreement, the buyer is under a legal obligation to buy but in a hire-purchase agreement, the hirer may choose whether or not to buy usually after paying all the installments.
Generally, no special formalities are required to effect the sale of goods. This is also done to facilitate speedy commercial life. While, hire-purchase agreements should be in writing spelling out the various rights and obligations of the parties. The courts usually read the substance of the agreement to determine whether it is truly a hire-purchase agreement. In G.B. Olivant V. Akinsanya, the court held that the parties to an agreement cannot make it a hire-purchase by merely calling it so.
In a hire-purchase suit for breach, the owner usually seeks to recover the goods while in a sale of goods breach, the owner usually seeks to recover the purchase price. as regards recovery of goods in hire-purchase,
Section 9 of the hire-purchase Act provides that;
Goods cannot be recovered except through court action if, ½ of the purchase price has been paid or in the case of a motor vehicle, if 3/5 of the purchase price has been paid.
The hire-purchase(amendment) act added a sub 5 to the provision thus requiring that in instances where the hirer is in default of at least 3 installments, the owner can recover the goods for safe keeping pending the determination of the suit.
HIRE-PURCHASE AND CREDIT SALES:
Section 20 of the hire-purchase act provides that it shall apply to credit sales if the installments to be paid is not less than 5.
Hire-purchase is a bailment while credit sale is in fact a sale because there has been in fact an agreement on the part of the customer, to buy but pay at a future date. Credit sale occurs where the payment of the price of goods has been postponed till a later date. Section 20.
HIRE-PURCHASE AND CONDITIONAL SALES:
A conditional sale is more like hire-purchase except that in the eye of the law it is a sale because there has been an agreement to sell. Transfer would occur at a later date for various reasons like, nature of the goods, uncertainty of the goods, and so on.
Both share the feature of property moving at a future date although it is more certain in conditional sales. The Sale of Goods Act applies to conditional sales.
In simple parlance, it should be between the vendor and the hirer. However, to prevent the tie down of capital, the owner usually introduces a finance company. The finance company thus pays the dealer and sells on hire to the hirer. The finance company may demand for one or more guarantors. This usually creates a contract of sale on one hand (to be governed by the Sale of Goods Act) and a contract of hire-purchase (to be governed by the Hire-Purchase Act) and a contract of indemnity where one or more guarantors are required (the indemnity which must be in writing).
Contractual consequence are thus created between:
- The finance company and the hirer (Hire to be governed by the Hire-Purchase Act subject to the provision of Section 1 of the act note Section 4 Hire-Purchase Act for the implied conditions and warranties note the provision of caveat emptor when you can inspect goods).
- The finance company and the dealer (buyer and seller relationship governed by the Sale of Goods Act note Section 12, 13 and 14 of the Sale of Goods Act as regards implied conditions and warranties) the dealer might be seen as the agent of the finance company for the purpose of delivering the good, and so on-Financing ltd Stinson.
- The dealer and the hirer: Generally no relationship except where there has been a representation by the dealer which induces the hirer to enter the contract Andrews Hopkinson in this case, the dealer represented to the hirer that the car was in a roadworthy condition.
- The finance company and the guarantor. It is that of guarantee. It must be evidenced in writing else would be unenforceable. If the hirer defaults and the guarantor pays, he then acquires by subrogation, the rights and obligation of the hire under the agreement.