An Analysis Of The Hire Purchase Contract Under Common Law And The Hire Purchase Act Of 2004.

A Hire-Purchase agreement is a contract whereby the owner of a chattel lets it out on hire for a periodic rent with the provision that on due compliance with the various terms of the agreement, and the completion of the agreed number of payment of rent, the hirer shall have the option of purchasing the chattel.

In this hire Purchase agreement, the hirer takes possession of a goods from the owner on the understanding that the hirer enjoys the usufruct and possession of the goods during the subsistence of the agreement, in consideration of which the hirer makes deposit and continue to make installment payment to the owner depending on the agreement of the parties it can be daily, weekly or monthly up to the end of the agreement and up to the discharge of the hirer purchase price at which moment the hirer is by law given an option either to purchase the goods and obtained its ownership or to released the goods back to the owner.

Hire-Purchase was first given judicial approval by the House of Lords in the case of Helby v Matthews (1895) AC 471. However, the Hire-Purchase Act, 1938, was passed to protect the hirer from harsh or unconscionable terms of the common law. This was later repealed and replaced by the Hire-Purchase Act 1965. The 1965 Act was re-enacted as the Hire Purchase Act 1990 and has further re-enacted as the Hire Purchase Act 2004. All these enactments are verbatim reproduction of the English Hire Purchase Act 1938. However, before the Act is to be applied in a hire purchase contract Section 1(1) of the Act provides (a) all hire‐purchase agreements and credit‐sale agreements (other than agreements in respect of motor vehicles) under which the hire‐purchase price or total purchase price, as the case may be, does not exceed two thousand naira; and

(b) all such agreements in respect of motor vehicles, irrespective of the hire purchase price or the total purchase price.

Hence, the Act will only be applicable to hire purchase agreement made in accordance to the provisions of Section 1 of the Act. Any contract that is not in accordance with the Act will still be valid but will be govern by Common Law.

Features of hire purchase contract

It is a form of bailment, which means where one person the bailee (hirer) is committed to take possession of goods belonging to another who is called the bailor (owner).
It confers on the hirer an option and yet no obligation to pay and purchase the goods.

iii. The title in the goods remains with the owner until the last installment is paid by the hirer.

Creation of hire purchase contract under common law

Under the common law, a hire- purchase agreement may be oral or in writing. However, hire-purchase agreements, because of the detailed arrangements associated with them, are usually in writing and indeed should be in writing. The common law does not prescribe any uniform pattern or form for hire-purchase agreements; nor are the terms of the hire-purchase agreements uniform.

Inspite of the diversities in form, it is common knowledge that hire-purchase agreements arc characterized by three main essentials:

A clause by which the owner agrees to let, and the hirer agrees to hire the goods. This provision evinces the consideration upon which the mutual promises of both parties rest and a breach of this clause gives a right of action for damages.
A clause which empowers the hirer to determine the hiring and return the goods. To this clause may be annexed condition or conditions; and
A clause giving the hirer the right or option to purchase the goods for a nominal sum at the end of the hiring. And in most agreements, the option is stated to be the consideration for the initial payment.

Apart from these essentials, other terms may be included in the agreement, for example, the period of the hire, hire-purchase price, number of installments, amount of hire rent, care and maintenance, insurance of goods and the rights of the owner to retake. The agreement may also contain a minimum payment clause.

Execution of hire purchase under common law

The obligations of the parties to a hire purchase agreement may be express or implied. They are express if they are set out in the agreement. Both under the common law and the Hire Purchase Act, obligations are implied in hire agreements.

These may be either conditions or warranties. For breach of a condition the contract maybe cancelled. For breach of a warranty only damages may be claimed.

Delivery of the goods

The owner must deliver the goods to the hirer. Legally, the hiring commences only when the goods are delivered to the hirer. For breach of this obligation the hirer’s remedy is an action for damages, not specific performance, unless the goods are of a rare or special kind.

While, the Hirer has obligation to take delivery of the goods. Unless otherwise agreed, the place of delivery is the owner’s place of business, or, if a finance company is involved, the dealer’s premises. If the hirer neglects to take delivery the owner may sue him for damages for non-acceptance.

Good title to the goods

The common law implies into every hire purchase contract a condition that the owner has title to the goods at the time when the hiring commences. If the owner has no title the hirer may repudiate the contract and recover any deposits or installments that he has paid on the ground of a total failure of consideration.

While, The hirer has an obligation to take care of the goods. The hirer has a duty to take reasonable care of the goods. If the contract is determined, and he returns damaged goods to the owner, he will be liable in damages unless he proves that he has taken reasonable care of them. He is not liable for loss or damage occurring accidentally or without default on his part.

Fitness for purpose

A condition that the goods are reasonably fit for the purpose for which they are hired is implied into every contract of hire purchase. It was held in Stephen Anoka v S.C.O.A Warri(1955/1956) WNLR 113 that this implied condition does not extend to a hidden defect. In this case a lorry was let on hire purchase. The engine had a hidden defect and it ceased to function. The owner was held not liable for breach of this implied condition because the defect could not have been discovered by due care and skill on his part. If this were a contract of sale of goods the seller would have been liable for breach of the implied condition of fitness because liability is strict in contracts of sale of goods.

While, the hirer has an obligations to pay installment. The hirer must pay the agreed installments as they fall due. If he defaults the owner invariably has a right to terminate the agreement and repossess the goods. In that event the hirer is liable to pay all arrears of installments due, compensation for any damage to the goods arising from his default and any reasonable costs incurred by the owner in repossessing the goods. The owner’s right to repossess the goods is not affected by the fact that only a very small sum is left unpaid by the hirer. And equity does not intervene to grant any relief to him. In the case of Atere v Dada Amao (1957) WRNLR 176 A motor lorry was taken on hire purchase. The total price payable was £1,000. The hirer had paid £995 and defaulted in the final payment of £5. The repossession of the lorry by the owner was held lawful. Additionally, whenever there is default by the hirer unless otherwise agreed by the parties in their hire purchase agreement, no note of the termination may be required where there is default.

Warranty of quiet possession

There is an implied warranty on the part of the owner that the hirer shall have and enjoy quiet possession of the goods.

While, The hirer has an obligation to re-deliver the goods The hirer is bound to re-deliver the goods to the owner at the termination of the hire. If he fails to do so he is strictly liable for any subsequent damage to the goods. Furthermore, the owner may repossess the goods or maintain an action for their recovery. If the hirer takes any action which is inconsistent with the owner’s title, e.g., selling the goods, he is liable in conversion to the owner.

Creation of hire purchase contract under the Act

Unlike the position under the common law, all hire-purchase agreements which are intended to operate or fall within the provisions of the Act must comply with certain provisions or procedural requirements as to form and content stipulated under the Act.

All these rules will only be applicable to hire purchase agreement made in accordance to the provisions of Section 1 of the Act.

Notice of cash Price

By section 2(1) of the Act the price at which the goods can be purchased must be stated in writing unless the hirer selected the goods by reference to a catalogue, price list or label or advertisement. According to the usual practice the owners are in the habit of suppressing the truth about the market price of the good or at best they inflate the price. In the case of Alhaji Kelani v. John Olubalogun & Anor (1983) OGSLR 183 in page 287 Somolu J opined that “the reason for fixing the hirer with knowledge of the cash price of the goods he intend to take on hire purchase is to make him aware that he has an option to buy the goods on cash basis, an alternative to hiring it” Emphasis Mine

Note or Memorandum

Section 2 (2) (a) requires a note or memorandum to be signed by the parties otherwise the agreement cannot be enforced. The requirement that the two parties must sign the agreement before it can be enforced is a statutory reversal of the common law position. In Obisesan v. Adetoro (1995) 6 NW.L.R (Pt. 404) , it was the husband and not the hirer that signed the agreement. It was held that the provision was mandatory and an exception to the law of agency and therefore, the owner cannot enforce the agreement. Each party to the agreement must sign personally. The note or memorandum of the agreement must be signed not only by the hirer but also by the other parties to the agreement.

By section 2(1 )(b) the memorandum must state the list of goods, hire-purchase price and a statement of the cash price, the deposit paid, amount of installments and dates at which they are payable. To avoid excessive rate of interests, the memorandum must also include the rate of interest calculated according to the regulations made by the Ministry of Trade.

Execution of hire purchase under the Act

If the agreement comes within the Hire Purchase Act, in addition to other provisions, all the implied terms at common law will apply. Section 4(1) of the Act provides:

In every hire-purchase agreement there shall be

(a) an implied warranty that the hirer shall have and enjoy quiet possession of the goods;

(b) an implied condition on the part of the owner that he shall have a right to sell the goods at the time when the property is to pass;

(c) an implied warranty that the goods shall be free from any charge or encumbrance in favor of any third party at the time when the property is to pass;

(d) except where the goods are let as second-hand goods and the note or memorandum of the agreement made in pursuance of section 2 of this Act contains a statement to that effect, an implied condition that the goods shall be of merchantable quality. So how ever that no such condition shall be implied by virtue of this paragraph 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 ought to have revealed.

Section 4(2) provides that where the hirer makes known expressly or by implication the particular purpose for which the goods are required, a condition that the goods are reasonably fit for that purpose will be implied. Thus, unlike the common law or the Sale of Goods enactments, reliance on the owner’s skill or judgment is not required.
Section 4(1) (d) of the Hire Purchase Act allows the owner to disclaim liability for the implied condition of merchantable quality if he sells second-hand goods and the memorandum of the agreement states that the goods are sold as second-hand. There are degrees of second-hand goods. If an owner of vehicle a few moths old is not sure of its condition, he may be pardoned if he excludes his liability for its present quality. But if he can do that when he knows that he is selling a “mere shell” (The phrase used by the court to describe the second-hand car in Karsales (Harriw) Ltd v. Wallis (1956) EWCA Civ 4) an unwary purchaser might be entrapped.
The hirer has to take delivery of the good, and as long as the goods remain in his possession he is under a duty to take proper care of them. He must neither part with possession nor deal with the goods in a manner inconsistent with the owner’s title – such as selling or pledging them. For if he cannot return the goods for any of these reasons when called upon by the owner to do so, the hirer and any transferee or pledge will be liable in conversion. When the agreement is terminated, the hirer must return the goods to the owner; failure to do so may render him liable for detinue at the suit of the owner.
The Act, to some extent attempts to pin down the owner to his obligations. By Section 4(3), the implied conditions in Section 4(1) cannot be excluded. It further provides that the condition set out in Section 4(2) cannot be excluded or modified by the owner “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.” This means that if there is a clause in the agreement excluding the owner’s liability for the implied conditions and warranties it must be pointed out to the customer before the agreement is concluded. In Polymera Industries (Nigeria) Ltd. V. S.R.E.A.P (1967) LCN/1477(SC) when a hire-purchase agreement was signed the subject-matter of the agreement (a shoe making machine) was still unpacked and so it was not inspected at all. À provision in the agreement stated that the hirer had inspected the goods before signing the contract and found them satisfactory.” When the machine was unpacked and installed it was found to be a second-hand machine. In an action for damages against the owners the court, following Lowe v. Lombank (1960) 1 WLR 196, held: “In a hire-purchase agreement, an acknowledgment by the hirer which relates to past events as in this case and not to what was to be done in the future does not constitute an estoppel unless the matters necessary to constitute an estoppels at common law are strictly proved.” Emphasis Mine
The owner under the act can recover his good through an action in court. Under the Act, the right to recover possession of the goods is now determined by the relevant proportion of the total hire purchase price paid or tender by the hirer to the owner. Furthermore, there are restriction on recovery of goods otherwise by an action provided for under section 9 of the act. Subsection (1) of the said section (section 9) provides that “where the goods have been let under a hire purchase agreement and the relevant proportion of the hire purchase price has been paid (whether in pursuance of a judgement or otherwise) or tendered by or on behalf of the hirer or any guarantor, the owner shall not enforce any right of recover possession of the goods from the hirer otherwise than by action and except as provided by subsection (5) of this section”
Section 9(5) provides for the right of removal of the Hire Purchase goods by the owner. At first glance at section 9 of the Act, one may see the section as having relaxed the restricted right of repossession of goods after the payment of the relevant proportion, but a closer examination, especially the judgment handed down in Tabansi (Agencies) Ltd. v. Incar Nigeria Ltd (CCHJ//7/74), shows that it has not done away with the necessity of an owner to institute an action in such circumstances as a condition precedent for embarking upon the exercise of the right to repossess. Quite apart from complying with this mandatory provision, an owner who is desirous of invoking section 9(5) in a situation where the hirer after paying the relevant proportion of the Hire Purchase price, decides to breach the agreement, is saddled yet with the following duties:
He must keep the removed goods in his possession and protect it from damage or depreciation;
Retain it (in any premises he should determine) pending the determination of any action; and
He shall be liable to the hirer for any damage or loss which may be caused by the removal.
Before an owner can exercise the right of repossession under section 9(5) of the Act or even file for an action against the hirer in court, the hirer must have defaulted in payment for the third time or any other conditions of the contract.
The owner has a right under the Act to recover possession without any restriction in the following circumstances;
Where the hirer exercise his right to terminate the agreement;
Where less than the relevant proportion of the Hire Purchase price has been paid; and
Where the goods are in possession of any other person other than the hirer, this is because the common law rule Nemo dat quod non habet also applies in Hire Purchase agreement.
Section 9(2) of the Act provides for wrongful termination by the owner. Termination by the owner without complying with section 9 gives the hirer the right to terminate the contract and claim back his deposit and all his installments payment.

Analysis of hire purchase contract in the Act and Common Law

Section 1 (a&b) provides for the requirements to follow before any hire purchase agreement will be govern by the Act. Hire purchase agreement under common law has no uniform pattern nor are the terms of the agreement uniformed.

Both under common law and the Act, obligation of the parties are express and implied. All the implied terms at common law also applies in the act. Unlike the position under common law, all hire purchase agreement which intend to operate or fall within the provisions of the act must comply with certain provisions or procedural requirements as to the form and content stipulated under the Act

Notice of cash price, under the Act the price of the goods at which it can be purchased must be stated in writing unlike in common law that the owner need not inform the hirer of the cash price. This is a way of empowering the hirer and limiting the hardship the hirer usually face under the hire purchase agreement in common law. The wisdom behind this fixing the hirer with the knowledge of the cash price is to intend him to be aware that he has an option to buy the goods on cash basis, an alternative to hiring it. Unlike in common law, the Act requires that a note or memorandum to be signed by the parties to the agreement.

In a Hire purchase agreement under the Act, the hirer may rely on the owner’s skills and judgment, unlike in common law where reliance is not required. The Act also made provisions that section 4(1) (which are those implied conditions and warranty of quite possession, right to sell, goods being free from any charges or encumbrances in favor of a third party, and merchantable quality) cannot be excluded and the conditions in section 4(2) (which is the implied conditions that the goods is reasonably fit for the purpose it is required) cannot be excluded or modified by the owner unless he proves that before the agreement was made the provisions was brought to the notice of the hirer and it’s effect made clear to him

Unlike in common law where if the hirer makes default in payment, the owner has a right to terminate the agreement and repossess the goods regardless of whether it is only a very small sum that is left unpaid by the hirer as seen in the case of Atere v. Dada Amao(1957) WRNLR 1 76 (Supra). The Act in trying to remedy this grace injustice faced by the hirer under common law provides, that where the relevant proportion of the hire purchase price has been paid, the owner shall not enforce any right of recover possession of the goods otherwise than by an action in court The relevant proportion of the Hire Purchase price has been define in two perspective;

If in respect of motor vehicle, is it 3/5 of the price has been paid, then the relevant proportion is deemed to have been paid.
In respect of other goods, if ½ of the hire purchase price has been paid then the relevant proportion of the hire purchase price is deemed to have been paid.

The Act unlike common law provides that once the hirer has paid the relevant proportion of the hire purchase Act, the owner can only file an action against the hirer and resume possession when the hirer has defaulted in payment on the third time or has breach a condition of the contract up to 3 times.

Under the Act in section 3 the Hirer has a statutory right which prevents the exclusion of the right of the hirer to terminate or which prevent the incorporation of any agreement that has the effect of imposing additional liability other than the liabilities that are obvious in the agreement.

Where the Hirer now seek to terminate the Hire Purchase contract before the payment of the final installments, that termination must be subject to the following conditions;

There must be an amount which will constitute and make up to 50% of the Hire Purchase price and it must be paid before the hirer can terminate. It is know as the minimum payment clause;
The hirer must pay arises of all installment that are due but unpaid and it includes the installment that is due on the date of the termination;
The hirer shall also be liable to pay damages for not taking reasonable care of the goods where such is the case, and
The hirer must return the goods immediately upon termination to the owner.

In conclusion from the above, it should be noted that hire purchase contract are both valid in common law and the act. In Act only came to remedy some of the harshness the hirer are faced with under common law. However not all the harshness were remedy under Act.

K. I. Igweike, Hire Purchase, portable edition, Malthouse law book
M.C Okany, Nigeria Commercial Law, Africana first publisher PLC.
Andrews Hicks, Introduction to the Nigerian Law Of Hire Purchase,(1977) Ahmadu Bello Press.
Cyprian Okonkwo & Peter Shears, Nigeria Business Law Spectrum books.
Geoffrey Uwadiegwu Oputa, Achike on Commercial Law.
Aminu K. Kurfi, Business Law in Nigeria, Benchmarch Publishers Limited.
Gaius Ezejiofor, C.O Okonkwo and C.V. Ilegbeine, Nigerian Business Law, (1982), London Sweet and Maxwell.

ABOUT THE AUTHOR

Aisha Mohammed Agashi is a student of Faculty of Law, Bayero University Kano and was part of the defunct BUKLAW Student’s Legislative arm, where she contributed immensely to several bills aimed at students development that were passed into law recently.

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