HIRE PURCHASE

 At common law, a contract of hire purchase is defined as an agreement

under which an owner delivers goods on hire to the hirer in return for
certain periodic payments made by the hirer and further agrees that
the hirer may return the goods and terminate the hiring or elect to
purchase the goods at the end of the hiring period.
 In sum, a hire purchase contract is an agreement under which goods are
delivered on hire to the hirer, and the hirer makes periodic payments
to the owner; with the hirer having an option to purchase the goods,
but being under no obligation to do so.
 Section 2 of the Hire Purchase Act defines some terms relating to hire
purchase as follows:-
a) “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 the goods will or may pass to the bailee; and, where by
virtue of two or more agreements none of which by itself constitutes a
hire-purchase agreement there is a bailment of goods and either the
bailee may buy the goods or the property therein will or may pass to
the bailee, the agreement shall be treated for the purposes of this Act
as a single agreement made at the time when the last of those
agreements was made.
NB a person who receives property from the owner, known as a bailor,
and holds the property for the owner for a particular purpose.
b) “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.
c) “hire-purchase price” means the total sum payable by the hirer
under a hire-purchase agreement in order to complete the purchase of
goods to which the agreement relates, including any sum payable by
the hirer by way of a deposit or other initial payment or credited or to
be credited to him under the agreement on account of any such
deposit or payment, whether that sum is to be or has been paid to the
owner or to any other person or is to be or has been discharged by a
payment of money or by the transfer or delivery of goods or by any
other means, but excludes any sum payable as penalty,
compensation or damages for a breach of the agreement;
Nature of a 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 fails 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
filial 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 the Act applies to those hire purchase agreements
under which the hire purchase price does not exceed the sum of four million
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”.

Difference between credit sale and hire purchase

Credit sale is different from a 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 four or five
installments. In the case of credit sale goods become the property of the
buyer with the payment of the first installment. In case 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. (It is a standard or regular cheque with a future date written on it
instead of the date on which the cheque is written.) This system is also
known as deferred payment system. In a hire-purchase agreement the
only option given to the hirer is to buy or return goods, while under a credit
sale, there is an agreement to buy and no option to return the goods.

Requirements of Hire-Purchase Agreement (Section 6 of the Act)

Before a hire-purchase agreement is entered into in respect of any goods,

the owner shall state in writing in the prescribed form to the prospective
hirer, otherwise than in the agreement, a price at which the goods may be
purchased by him for cash (in this section referred to as the cash price):
Provided that this subsection shall be taken to have been sufficiently
complied with:-

a) If the hirer has inspected the goods or like goods, and at the time of his
inspection tickets or labels were attached to or displayed with the
goods clearly stating the cash price, either of the goods as a whole or
of all the different articles or sets of articles comprised therein; or
b) If the hirer has selected the goods by reference to a catalogue, price
list or advertisement which clearly stated the cash price, either of
the goods as a whole or of all the different articles or sets of articles
comprised therein.

An owner shall not be entitled to enforce a hire-purchase agreement or

any contract of guarantee relating to it or any right to recover the goods
from the hirer; and no security given by the hirer in respect of money
payable under the hire-purchase agreement or given by a guarantor in
respect of money payable under a contract of guarantee relating to the
hire-purchase agreement shall be enforceable against the hirer or
guarantor by any holder thereof, unless the requirement has been
complied with, and:-

a) the agreement is made and signed by the hirer and by or on behalf of

all other parties to the agreement; and
b) the agreement contains a statement of:-
i. the hire-purchase price and the cash price of the goods to which
the agreement relates; and
ii. the amount of each of the instalments by which the hire- purchase
price is to be paid and the date (or the mode of determining the
date) upon which each instalment is payable; and
iii. a description of the goods sufficient to identify them; and
c) the agreement contains a notice in the prescribed form relating to the
rights of the hirer which is at least as prominent as the rest of the
contents of the agreement; and
d) a copy of the agreement has been delivered or sent by registered
post by the owner to the hirer within twenty-one days of the date of
the agreement.

Registration (Section 5)

a) The registrar shall, on payment of the prescribed fee, register any

hire- purchase agreement delivered to him unless the agreement is
 liable to stamp duty and is not duly stamped, or is not in the English
language.
b) On registration of a hire-purchase agreement, the registrar shall
deliver to the owner a certificate of registration, and a certificate of
registration purporting to be given under the hand of the registrar shall
be prima facie proof of the facts therein certified in any proceedings.
c) If a hire-purchase agreement is not registered:-
i. no person shall be entitled to enforce the agreement against
the hirer or to enforce any contract of guarantee relating to
the agreement, and the owner shall not be entitled to enforce
any right to recover the goods form the hirer; and
ii. no security given by the hirer in respect of money payable
under the agreement, or given by a guarantor in respect of
money payable under a contract of guarantee relating to the
agreement, shall be enforceable against the hirer or the
guarantor by any holder thereof.
d) Any person may inspect the register of hire-purchase agreements
during the prescribed hours, and may obtain from the registrar a
certified copy of any entry in the register.

Implied Terms of Hire Purchase Agreement (Section 8 of the Act)

Section 8 of the Act contains the following implied conditions and warranties
of a hire-purchase agreement:

a) a condition that the owner will have a right to sell the goods at the
time when the property is to pass;
b) a warranty that the hirer shall have and enjoy quiet possession of
goods;
c) 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;
d) 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; (The assumption in the law that goods sold
are fit for their purpose) and;
e) a condition that the legal ownership of, and title to, the goods shall
automatically be vested on the hirer upon payment by him of the hire-
purchase price in full:

Provided that no such condition shall be implied by virtue of this subsection

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
revealed or ought to have revealed.

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 fit for that purpose.

The conditions and warranties set out above (a, b, c, d, e) shall be implied
notwithstanding any agreement to the contrary; and the owner shall not be
entitled to rely on any provision in the agreement excluding or modifying
the condition unless he proves that before the agreement was made the
provision was brought to the notice of the hirer and its effect made clear to
him.

Termination of Agreement
Section 12 of the Act provides that a hirer may terminate agreement:-
a) At any time before the final payment under a hire-purchase
agreement falls due, the hirer may terminate the agreement by
returning the goods to the owner and giving him written notice of
termination of the agreement, and if he does so he shall be liable
(without prejudice to any liability which accrued before the
termination) to pay the amount, if any, by which one-half of the hire-
purchase price exceeds the total of the sums paid and the sums which
were due in respect of the hire-purchase price immediately before the
termination or such lesser amount as may be specified in the
agreement.
b) Where a hire-purchase agreement has been terminated, the hirer shall,
if he has failed to take reasonable care of the goods, be liable to pay
damages for the failure.
c) A hirer returning goods, shall return them at his own expense to the
premises from which they were originally supplied to him or to such
other place as the owner may direct:
Completion of Agreement:
Section 13 of the Act provides that:-
1. The hirer under a hire-purchase agreement may give notice in writing
to the owner of his intention to complete the purchase of the goods
by paying or tendering to the owner on a specified day the net balance
due to the owner under the agreement, and having given such notice
may complete the purchase accordingly on the day specified.
 2. The net balance due is the balance originally payable under the
agreement less any amounts (other than the deposit) paid or provided,
whether by cash or by other consideration, by or on behalf of the hirer
under the agreement.
3. The rights conferred on the hirer by this section may be exercised by
him:-
a) at any time during the continuance of the agreement; or
b) within twenty-eight days after the owner has taken possession
of the goods, upon paying or tendering to the owner in addition
to the net balance due-
i. the reasonable costs incurred by the owner in and
incidental to taking possession of the goods; and
ii. any amount properly expended by the owner on the
storage, repair or maintenance of the goods; and
iii. any additional interest which is due under the agreement.

Recovery of Possession
Section 15 of the Act provides protection to the hirer against a claim by the
owner for the recovery of goods. Under this section, where goods have been
let under a hire-purchase agreement and two- thirds of the hire-purchase
price has been paid, whether in pursuance of the agreement or of a
judgment or otherwise, or has been tendered by or on behalf of the hirer or a
guarantor, the owner shall not enforce any right to recover possession
of the goods from the hirer otherwise than by suit. He can recover these
goods only through:-
a) the hirer shall be released from all liability under the agreement and
shall be entitled to recover from the owner by suit all sums paid by the
hirer under the agreement or under any security given by him in
respect thereof; and
b) guarantor shall be entitled to recover from the owner by suit all sums
paid by him under the contract of guarantee or under any security
given by him in respect thereof.
False information
Section 34 provides that any person who knowingly gives false information in
any proposal form or other document completed for the purpose of entering
into a hire-purchase agreement shall be guilty of an offence and liable to a
fine not exceeding five thousand shillings or to imprisonment for a term
not exceeding six months, or to both such fine and imprisonment.