A Hire Purchase Agreement is a form of contract of hire with an option to purchase. The owner of a property lets it out on hire and undertakes to sell it to the hirer or that it shall become the property of the hirer conditionally on his making a certain number of payments. However, until the last payment has been made, the hirer does not own the property.
There areusually two or three parties to a Hire-Purchase Agreement: the Owner, the Hirer and in some cases, the Guarantor. The Owner is the party who is hiring out his property with an option to purchase to the party called the Hirer. The Guarantor is the party who undertakes to perform the Hirer’s obligations under the Hire-Purchase contract if the Hirer defaults.
Some essential aspects of a hire-purchase agreement will be highlighted in this article.
FORM AND CONTENT OF A HIRE PURCHASE AGREEMENT
- A Hire-Purchase Agreement is expected to be in writing and to be signed by the parties to the agreement. There have been situations where an oral Agreement would still be enforced by the courts if the terms of the contract are ascertained. However, it is always advisable that all forms of contract be in writing in order to avoid the challenges and limitations which come with enforcing an oral contract.
- A Hire Purchase Agreement is required to state the price at which the property, for which the hire-purchase agreement is sought to be entered, can be purchased for by the Hirer. This is to be done in writing otherwise the hire purchase contract will be unenforceable against the hirer, unless the court is of the opinion that failure to state the price has not prejudiced the hirer and that it would be fair and just to enforce the contract against the hirer.
- A Hire Purchase Agreement is also expected to reflect the hire‐purchase price in respect of which the Hire Purchase Agreement is made, the amount to be paid in each instalment, and the dates on which they are to be paid or the mode of determining the date upon which each instalment is payable. It is also essential that the property in respect of which the Agreement is made is described with sufficient particulars so that it can be easily identified.
The Hire Purchase Act provides for certain terms which when included in a Hire-Purchase Agreement would be void. These void terms are:
- Any provision which allows the Owner or his agent to enter into the premises of the Hirer to recover or take possession of any property which has been let under a Hire Purchase Agreement and any clause or provision in the contract which seeks to relieve the owner or his agent of any liability for such unlawful or unauthorised entry.
- Any provision which seeks to restrict or deprive the hirer of his right under the law to terminate the contract or increase the liability already imposed by law on the hirer for terminating the contract.
- Any provision where the Hirer, after the determination of the hire-purchase agreement is subject to a liability which exceeds the liability to which he would have been subject if the agreement had been determined by him.
- Any provision whereby any person acting on behalf of an owner in connection with the formation or conclusion of a Hire Purchase Agreement is treated as or deemed to be the agent of the hirer.
- Any provision whereby an Owner is relieved from liability for the acts or defaults of any person acting on his behalf in connection with the formation or conclusion of a hire-purchase agreement.
- Any provision whereby a hirer is required or compelled to avail himself of the services, as insurer or repairer or in other capacity whatsoever, of a person other than a person selected by the hirer in the exercise of his unfettered discretion.
LIABILITY OF A HIRER UPON TERMINATION OF THE HIRE PURCHASE CONTRACT
When either party to a contract unilaterally terminates the contract, it amounts to a breach of contract. Under the Hire-Purchase Act, a Hirer has the right to terminate the contract, but he incurs some liabilities when he does so:
- Where a Hirer terminates the hire-purchase contract, the law mandates him to pay half of the hire-purchase price and any sum due (any unpaid instalment or money still being owed) under the hire purchase agreement immediately before the termination. If the total amount he has paid under the Hire Purchase Agreement exceeds one half of the Hire Purchase sum, he forfeits that extra sum and where the total amount he has paid under the Hire Purchase Agreement is less than one half of the Hire Purchase Price, he is liable to pay up the difference. Any provision which seeks to increase the amount which a hirer would pay upon terminating the contract is void.
- The Hirer is also liable to pay damages in respect of the Hire Purchase Property, where the Hirer has failed to take reasonable care of the property.
- A Hirer who terminates a Hire Purchase Agreement is also expected to return the Hire Purchase property to the owner and to settle all outstanding liabilities.
Usually, the hire-purchase agreement is required to state the circumstances in which the owner may terminate the contract. Where the Owner terminates the Hire Purchase Agreement otherwise than in accordance with the contract, he could be liable to the Hirer for a breach of the hire-purchase contract.
RECOVERY OF THE HIRE PURCHASE PROPERTY BY THE OWNER
Until the Hirer exercises the right to purchase the property under the Agreement, the ownership or title to the property remains in the Owner. Thus, if the need arises, the Owner can recover his property from the Hirer.
The law provides that where goods have been let under a hire‐purchase agreement and ‘the relevant proportion of the hire‐purchase price’ has been paid, the Owner shall not enforce any right to recover possession of the goods from the Hirer otherwise than by an action Instituted in court for the recovery of the property. The Hire-Purchase Act defines what ‘relevant proportion of the hire purchase price’ means:
- In any case where the property in respect of which the Hire Purchase Agreement is made is not a motor vehicle; the relevant proportion is one half of the hire-purchase price;
- And in the case of motor vehicles, three‐fifths of the purchase price.
The provision and wordings of the law gives the impression that where the relevant proportion of the hire-purchase price has not been paid, the Owner has the right to personally recover the hire-purchase property without recourse to a court of law. This must, however, be done within the confines of the law.
There are consequences for contravening the provisions of the law on recovery of the hire-purchase property. When an Owner contravenes the law, the following happen:
- The hire-purchase contract is automatically terminated by operation of law;
- The Hirer shall be released from all liability under the agreement and shall be entitled to recover from the owner all sums paid by him under the agreement and a guarantor would also be entitled to recover all sums paid in respect of any contract of guarantee made in respect of the hire-purchase agreement.
The foregoing would not apply where the Hirer has already exercised his right to terminate the hire-purchase agreement.
The law, however, gives the Owner an opportunity to protect the hire-purchase property from damage or depreciation when the need arises. The law provides that where three or more instalments of the hire‐purchase price of a motor‐vehicle under the Agreement are due and unpaid, the owner may remove the motor vehicle to any premises under his control for the purpose of protecting it from damage or depreciation and retain it there pending the determination of any action, but the Owner shall be liable to the Hirer for any damage or loss which may be caused by the removal.