Hire Purchase

The ultimate aim is to acquire goods

A contract of hire purchase is a contract of bailment with the option to purchase the goods.

The hirer in consideration of paying a deposit acquires the option to purchase the goods upon the payment of the installments.

The hirer doesn’t acquire title to the property but instead the option to purchase. Title remains with the owner.

Once the hirer finishes paying instalments, the hirer has the option to pay and the option is exercised at the last instalment which when paid ownership transfers to the hirer.

The nature of the parties’ relationship in a HP agreement.

Stimpson v Financing Ltd- Explains the relationship between the various parties in a hire purchase contract.

The defendant signed an "offer to buy" a car on hire-purchase from a finance company. The document had been given to him by the car dealer. The document had a clause which said that the agreement would not be binding until it had been accepted by the finance company.

D paid the first instalment, insured the car and took it away. Being unhappy with its performance, he returned the car to the dealer and cancelled his insurance. The car was stolen from the dealers and damaged.

Not knowing of this the finance company then accepted the written offer which had been sent to them. D refused to pay the charges and the Co sued him for breach of the hire purchase agreement.

HELD

D's offer was subject to an implied condition that the car should continue in its undamaged state and that on the failure of that condition, the offer lapsed.

Derived from the above case it can be established that:

1. A Hire purchase agreement is a tripartite agreement involving 3 parties i.e. the dealer, financing company and the hirer. However, the hire purchase agreement will always be between the owner and the hirer
2. The dealer is the person who arranges the hire purchase transaction by bringing together the hirer and the owner to execute the HP agreement. A dealer at common law was ordinarily deemed to be an agent of the financing company. Under the above case, the court deduced that the dealer is the agent because
3. He promotes and interests the potential hirer to the transaction on behalf of the company
4. He explains or provides description or the features of the goods.
5. The dealer provides the hire purchase forms. The dealer forwards the purchase forms to the financing company for execution. It is from the dealer that the hirer will get the goods. Whenever a problem arises with the goods or the goods need to be returned, they should be taken to the dealer. The hirer has no interactions with the financing company. The court in the Stimpson case states that a dealer in a hp contract is deemed to be an agent of the finance company. All representations made and all actions taken by the dealer bind the finance company.

• A dealer has fiduciary obligations to the hirer and is therefore liable for any willful misrepresentation. In law the dealer is the person who arranges the HP transaction and an agent of the principal and an agent of the hirer depending on the transactions.

1. The Financing company at law is the owner of the goods. Enters into a hire purchase agreement for which it hires the good to the hirer. Any loss or any failure to fulfill the Hire Purchase agreement, the risk falls on the hire company. The finance company is a principal party to the HP agreement. The HP agreement is between the finance company and the hirer. The obligations of the owner of the goods fall under the financing company. The recourse for the finance company are therefore two fold. As between him and the dealer they arise under agency. As between him and the hirer, they arise under hire purchase contracts. The hirer will acquire possession and right of goods provided that he has paid the deposit and continues to pay the installments when they become due. Remedies on the hirer are in the HP agreement or in the Act.

The law governing HP is the HP Act.

Requirements for a valid HP agreement under the Act.

1. Every hire purchase agreement has to be written. No oral agreem ent
2. Every hire purchase agreement must be executed and witnessed
3. Every goods hired in a hire purchase agreement must have two prices the cash price and the hire purchase price. Deposit and monthly installments(hire purchase price) Hire purchase price does not include…………Exceptions to….
4. Goods hired with price tags
5. Where the sale is from a bargain.

• HP price

4. Must provide particular details about the goods being hired. In every HP agreement, sufficient details must be provided for identification purposes.
5. HP agreements must be registered within 30 days. The registrar of hp agreements cannot register all agreements unless stamped and executed. They should therefore be assessed for stamp duty, paid duty and be registered within 30 days of execution.
6. A copy of the registered HP agreement must be provided with the hirer. The responsibility of registering the HP agreement is on the owner and thereafter provide a copy to the hirer. If the hirer is not provided with the copy, he is not bound to the obligations under the agreement.
7. All documents and instruments under the act must be lodged with the registrar who once satisfied the requirements under the act have been met, shall register the instruments and serially enter it to the register and provide a registration certificate. The certificate of registration is rebuttable evidence that the requirements under the act have been fulfilled.

Effects of non-registration.

1. A non-registered agreement is not valid and binding for the purposes of enforcing obligations under the hire purchase act therefore no guarantee or any obligation under a non-registered instrument shall be called in or enforced.
2. An instrument that hasn’t been registered is not admissible as evidence unless there is sufficient evidence that moves the court otherwise. The exceptions:
3. Bankruptcy, an administrator under the insolvency act may rely on an unregistered document.
4. Where there is any other law that provides an exception
5. Where the court is of the opinion that it will be equitable and just to enforce the unregistered document

The finance company suffers the greatest risk when it comes to an unregistered HP Agreement.

When the court is faced with a situation where the agreement is not registered, it has the following options:

1. It can admit the document with conditions ie for a limited purpose
2. It can extend the registration period

Implied terms

1. It is an implied condition of every hire purchase contract that the owner will have authority to hire and good title in the goods and the authority to transfer the title…..
2. It is an implied warranty that subject to the hirer paying the initial deposit and paying the installment when they are due, the hirer shall have quiet possession of the goods. Quiet possession is not absolute but a conditional part possession in that you should continue paying the installments, paying the deposit and others
3. Goods hired should be free from any encumbrances other than those disclosed to the hirer or provided for in the hire purchase agreement.
4. Where goods are hired on the basis of description given to the hirer by the dealer on behalf of the owner, it is an implied term that the goods should fit the description given.
5. Where goods have been hired on the basis of a sample, the bulk must correspond with the sample.
6. Goods hired must be fit for purpose.

Obligations of the owner/Rights of the hirer

Under the Act there are a number of implied terms as to a HP contract

1. The owner has good title or will have good title to the goods and has the authority to hire it. It will therefore be a breach of his obligations if the owner at the time of entering into the hire purchase contract has no title or has no authority to hire the goods.
2. The owner must ensure the hirer gets quiet possession of the goods once goods have been hired provided the hirer himself meets the obligations under the hire purchase agreement.
3. To ensure the goods are free from any encumbrances in favor of third parties.
4. The owner has the obligation to pass good title to the hirer when the hirer exercises the option of purchasing the goods through tendering the full hire purchase price.

Obligations of the hirer/Right of the owner

1. Pay installments for the hire purchase price when they become due in such amounts as agreed.
2. The duty to safe custody of the goods. The hirer must ensure the goods are properly and safely kept so that they are not lost, destroyed or damaged. Duty to keep goods in a hirerable stage
3. Duty to insure the goods. A hirer should take insurances as necessary to secure goods so that if they are lost or destroyed, the owner can be compensated for the loss.
4. Duty to use goods only for the agreed purpose.
5. Duty to keep the goods in the agreed location. Hired goods must be kept either in a specific place or area as agreed and cannot remove those goods unless one has obtained prior approval from the owner
6. Duty not to remove the goods from the jurisdiction of Kenya unless approval in writing from the owner has been obtained.
7. Duty to permit the owner to inspect the goods upon reasonable notice. The hirer has the obligation to facilitate the owner to inspect those goods at any time after he has given reasonable notice. Includes allowing the owner access to where the goods are kept or producing the goods at such place and such time the owner may require.
8. Duty not to transfer, assign, charge, pledge as security or otherwise part with the possession of the goods in any manner as inconsistent with the owner
9. Duty to return the goods. At any time before the hirer has exercised the option of purchasing the goods, he is under a duty upon notice of the owner, to return the goods to the owner at such place and such time the owner may require subject to the terms of the HP Act. Obligation to return is required if:
10. the owner is required to repair the goods for a hirable state
11. the owner meets the cost incurred when returning the goods
12. the goods must be returned in the place specified by the owner.

Remedies to the owner

The owner may exercise remedies arising from the purchase agreement or under the Act.

1. Remedy to repossess the goods. Subject to the following conditions the owner may exercise this remedy if:
   • The owner can only exercise this remedy if the hirer has not exercised the option to purchase the goods
   • Where the hirer has paid more than two thirds of the hp price, the owner cannot repossess the goods unless by suit.
   • Where the reason for default, the owner cannot exercise the remedy for repossession unless the owner has defaulted at least two installments
   • The owner himself must not be in default under the Act
2. Preservatory orders.

Where the owner is under justifiable apprehension, that the hirer has r is likely to remove the goods from the agreed location or jurisdiction can appoint the court for preservatory orders such as an injunction in order to preserve the goods.

3. Damages

If the owner has suffered loss, they can apply for damages. The goods once recovered cannot be rehired…….

Any time the hirer can exercise the option to purchase the goods e.g. paying one instalment, what are his remedies?

1. Require a statement of account where the hirer is not sure on the remaining costs, he can ask owner to produce the statement of accounts and he should take care of the remaining costs.
2. Applying for preservatory orders.
3. Option for the return of the goods.

 A hirer is entitled to quiet possession where the owner takes the goods, the hirer can file a suit to recover the goods.

4. Damages
5. Where the goods have been repossessed and sold or rehired by owner, the hirer is entitled to be paid any surplus from the balance of what the goods are sold at or to be hired at and the hire purchase price.

The right to terminate the hire purchase agreement can only be exercised if the hirer has paid at least:

1. The hirer has paid at least One half of the purchase price
2. The hirer shall be required to pay the difference between one half of the purchase price and what has been paid.

For the hirer, under the hire purchase act, the hirer will be liable for criminal sanctions. HP Act Section 9 and 10 states the criminal offences under hire purchase. They include removal of goods from the jurisdiction of Kenya or removal of the goods from the location.

The hirer is under the obligation to keep the owner updated about his address or the condition of the goods.

The remedies available to the owner are either civil (under the Act or HP agreement) or criminal (under the Act)

Where the hirer has exercised the option to purchase the goods, if with unlawful cause they may be found guilty of unlawful conversion.