Revised HIRE PURCHASE LAW & CARRIAGE OF GOODS

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Course:

Economics of Money and Banking (ECO 216)

HIRE-PURCHASE LAW

& CARRIAGE OF GOODS

A party who wants to buy goods but does not have the ‘money

consideration’ which is legally payable under the Sale of Goods Act as their

price may enter into an agreement with their owner where s/he will hire the

goods with a view to ultimately purchasing them. Such agreement is legally

referred to as a ‘hire-purchase’ contract. As a contract, the agreement is

governed by the rules of common law, which however, are found to be unfair

in certain respects. To provide a fair mechanism for forming the contract and

to give greater protection to the parties to the transaction, the Hire

Purchase Act (Cap 507) was passed in 1968. The preamble to the Act

declares that it is “an Act of parliament to make provision for the regulation

of certain hire-purchase agreements and for the licensing of hire-purchase

concerns, and for the purposes connected herewith”. It is noteworthy that

the Act applies only to “certain hire-purchase agreements”. These are

mentioned in section 3 and are:

(a)Hire-purchase agreements entered into after the commencement of

the Act under which the hire-purchase price does not exceed the sum

of sh. 80,000. This provision was amended by the statute law

(Miscellaneous Amendments) Act 1992 which provided, with e2ect

from 23

October1992,a new maximumlimit of sh.300,000“or such

other higher or lower sum as the Minister may, after taking into

account market forces from time to time prevailing, prescribe”.

(b)Where the hirer is not a body corporate, wherever incorporated.

guaranteed by the government for the purpose of providing loans to

any persons for the purpose of motor vehicles.

De”ned

Section 2 de5nes a hire-purchase agreement as “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.” This

de5nition re6ects the two forms which a hire-purchase agreement may

take:

(a)Hire and the ‘option to purchase’

The owner of the goods may agree to hire them to the prospective

buyer for a certain period of time, say 26 months. The prospective

buyer in turn promises to pay the agreed amount every month, say

sh.1,000. S/he legally becomes the ‘hirer’.

At the end of the 36 months, the hirer will have paid a total of sh.

36,000. As far as the owner of the goods is concerned, this amount

constitutes what s/he would have considered as the fair price of the

goods if the hirer had paid him/her that amount (or less) under a

contract for the sale of goods. S/he is therefore prepared to let the

hirer have ownership of the goods.

In order to e(ect the transfer of ownership to the hirer, the

owner of the goods has to sell the goods to him/her. S/he does this by

making an ‘o2er’ to sell them to the hirer at a nominal consideration,

of say sh. 20. The hirer is not bound to accept the o2er and, in the

event of him/her not doing so, no purchase takes place. If s/he

accepts the o2er, a sale takes place and s/he purchases the goods.

In practice, the o2er to sell is usually made at the time the hire

agreement is concluded. In such case, the o2er would legally

constitute an option to purchase the goods. Such an o2er is

irrevocable provided that the hirer performs his/her obligations under

the hire agreement. This type of agreement is covered by the 5rst part

of the statutory de5nition, namely, an agreement “under which the

bailee may buy the goods.”

(b)Hire

The owner of the goods may agree that the goods will become the

property of the hirer on payment of the “nal or last instalment. In

such case, the option clause would not be incorporated into the

agreement. This sort of transaction is covered by the second part of

the statutory de5nition and is an agreement “under which the property

in the goods will or may pass to the bailee”.

Hire-Purchase and Sale

The hire-purchase transaction is not a sale because, according to the

de5nition:

(i) There is no seller or buyer. The parties are the ‘owner’ of the goods

and the ‘hirer’.

(ii) The hirer may buy the goods but s/he is not bound to buy

them. It is this aspect of the transaction which constitutes the legal

distinction between a hire-purchase agreement and a sale of goods,

as was explained in Helby v Mathews (90). In a sale of goods, the

buyer is bound to buy the goods and, as explained, can be sued for

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Revised HIRE PURCHASE LAW & CARRIAGE OF GOODS

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