COMMERCIAL LAW 1
2012/2013 ACADEMIC YEAR
HIRE PURCHASE
UGBS, 29TH OCT 2012
Rowland Atta-Kesson Esq.
OUTLINE
• The Nature of hire-purchase agreement
• History of Hire-Purchase Law in Ghana (pre-1958
to date)
• Formation of Hire-Purchase Agreement under the
Hire-Purchase Act, 1974 (NRCD 292)
• Hirer’s right of termination and liability upon
termination.
• Restriction on owner’s right to recover protected
goods.
• Implied terms in hire-purchase agreement.
• Rights of third parties in event of wrongful sale of
goods by hirer
TUTORIAL
• By an agreement between Kofi, a secondhand car dealer and Kwesi, a ‘trotro’ driver,
Kofi, let a second-hand Toyota bus to
Kwesi on hire purchase.
• The hire-purchase price was
GH¢10,000.00 of which Kwesi paid an
initial deposit of GH¢2,000.00 with the
balance of GH¢8,000.00 payable over a
period of 8 months at the rate of
GH¢1,000.00 a month.
• According to the agreement which was
signed for Kwesi by his elder brother
Kwame, Kwesi was to have the right of
seizure in the event of default by Kwesi.
• A copy of the said agreement, which
omitted to state the hire-purchase price,
was sent to Kofi about one month after it
had been made.
• After using the bus for 4 months, during
which he paid his installment regularly,
Kwesi discovered certain defects in the bus.
• He drew Kofi’s attention to these
defects, but Kofi did nothing about
them.
• On another occasion Kwesi lost his
receipt book and his copy of his
agreement and therefore wrote to Kofi
for a new copy of the agreement and
the statement of the account.
• But Kofi ignored his request.
• Owing to the constant break down of the bus
and the lack of spare parts, Kwesi has
become disillusioned and is therefore
contemplating adopting one of the following
causes of action:
– move to the neighboring country where he can
get spare parts easily and also earn some foreign
exchange.
– Repair the bus and sell it to Afua.
– Terminate the agreement and sue Kofi for the
recovery of all the installments so far paid.
– Kofi has also heard of Kwesi’s plans and decided
to recover possession of the bus from Kwesi.
• Advise Kwesi and Kofi.
INTRODUCTION
• We focus on 2 credit transactions namely:
– HIRE-PURCHASE AGREEMENTS
– CONDITIONAL SALE AGREEMENTS
• Not concerned about outright sales.
• Outright sales are exclusively governed by the SALE OF
GOODS ACT irrespective of the mode of payment
• [In a contract of sale where the price is not payable
immediately, but over a certain period, it is referred to as
credit sale.
• However this kind of sale is still an outright sale because
generally, the property in the goods passes in accordance
with the rules of the Act, and the mode of payment of the
price does not affect the passing of property.]
• These credit transactions HPA and CSA are described
as conditional contracts because the passing of property
depends on the payment of the price.
THE NATURE OF HIREPURCHASE AGREEMENT
• COMMON LAW DEFINITION
– At common law, a contract of hire-purchase is
an agreement under which an owner of goods
delivers them on hire to the hirer for certain
periodic payments made by the Hirer, and
further agrees that the Hirer return the goods
and terminate the hiring or elect to purchase
the goods at the end of the hiring period.
Bailment,
• A hire-purchase agreement may be likened
to a bailment transaction, the owner being
bailor and the hirer the bailee.
• Upon the completion of the agreement, the
hirer is given actual possession and use of
the goods hired.
• The owner retains the property or title to the
goods.
• The property in the goods remains in the
owner until such time that the hirer exercises
his option to purchase the goods- by paying
the full hire-purchase price.
• STATUTORY DEFINITION
• Section 24 of the Hire-Purchase
Decree defines a HPA 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”
• Element of hire
• Every HPA involves the bailment of goods by
the owner to the hirer in return for certain
periodic payments made by the hirer. In other
words possession of the goods is always
given to the hirer even though the property in
the goods remains in the owner until the hirer
effectively exercises the option to purchase.
• Option to purchase
• The second essential element of every HPA
is that the hirer has an option either to
purchase the goods or to return them and
thereby terminate the hiring.
OPTION TO PUCHASE
• Generally, by granting the hirer the option to
purchase, the owner is said too have made as
irrevocable offer to sell the goods to the hirer if the
conditions set out in the agreement are fulfilled.
(i.e. if the hire-purchase is paid in full).
• On the hirer’s part however, he is under no
obligation to purchase the goods.
• He may exercise the option to buy, i.e. he may
accept the offer to sell by completing the
payments scheduled under the agreement; or
• He may also elect to terminate the hiring and
return the goods t the owner without buying them
• The essential features of a hire-purchase
agreement at common law were identified in
the case of HELBY v. MATTHEWS [1895]
A.C 471
• “At common law, a HPA is a contract of hiring
, which is terminable at the will of ht hirer,
coupled with a condition in the hirer’s favour,
that he may elect to retain the goods and
make full payment for it, or he may return it.”
• OPTION TO PURCHASE MAY BE
DRAFTED IN ONE OF TWO WAYS:
• First, after the payment of all the
installments, the hirer may be entitled to
buy the goods upon payment of an
additional and usually nominal sum called
the Option fee.
• Here the hirer makes the payments
punctually until the end of the hiring
period. He then exercises his option to
purchase by paying the Option fee, after
which the hirer becomes the owner of the
goods.
• Secondly, the stated installments payable by
the hirer under the agreement may include
the Option fee, so that at the end of he hiring
period, no new or additional payment is
required. In this case, upon due payment of
all the scheduled installments, the property in
the goods will automatically vest in the hirer.
• Here the hirer exercises his option to
purchase by paying all th installments up to
the of the hiring period.
• Note however that in practice, hirers enter
into the hire-purchase agreement with the
intention of exercising the option to purchase;
and in most cases in fact do so.
• CONDITIONAL SALE AGREEMENTS
• The is the second kind of credit transaction
governed by the provisions of the HirePurchase Decree.
• A conditional sale agreement is defined as
an agreement for the sale of goods under
which the purchase price or part of it is
payable by installments, and the property in
the goods is to remain in the seller even
though the buyer is in possession of the
goods, until certain conditions specified in the
agreement are fulfilled by the buyer.
• Section 24 of the Decree
• A conditional sale agreement therefore is
essentially a sale transaction under which
the price is payable in installments, and
the seller retains the property in the
goods, until certain specified
conditions,(usually the full payment of the
price) are fulfilled by the buyer.
Purchase agreement and
Conditional Sale Agreement.
• a conditional sale agreement is an agreement for the
sale of goods whereas a hire-purchase agreement is
an agreement for the bailment of goods under which
property may pass to the bailee.
• the hire-purchase agreement differs from the
conditional sale agreement in that in the case of a
hire-purchase agreement, the hirer has the right to
elect whether or not to buy the goods, i.e. the buyer
simply has an option to purchase but is not legally
bound to do so; whereas in the case conditional sale
agreement the buyer by virtue of the terms of the
contract is bound to purchase the goods.
• The buyer in a conditional sale agreement
therefore has an obligation and not a mere
option to purchase the goods.
• Since a person who takes goods under a
conditional sale agreement has a binding
obligation to purchase the goods, the
parties to a conditional sale agreement are
rightly described as the seller and the
buyer; whilst the parties to a hire-purchase
agreement are described as hirer and
owner.
• It is interesting to note however that most of
the legislation that have been passed in
England dealing with Hire-Purchase
Agreement also apply to Conditional Sale
Agreements.
• The two have traditionally been treated as
identical probably because the features of
both kinds of transactions tend to be very
similar. Under the Hire-Purchase Decree,
1974 (N.R.C.D. 292) hire-purchase
agreements and conditional sale agreements
are to all intent and purposes treated as
equivalents and most of the provisions apply
equally to both hire-purchase agreements
and conditional sale agreements.
ORIGIN AND
DEVELOPMENTS IN HIREPURCHASE TRADING
• Hire-purchase trading is believed to have first
started in England in the second half of the
nineteenth century.
• This mode of obtaining credit became very popular
with the introduction of the Singer sewing
machine.
• The Singer Manufacturing Co. is said to have let
out its machines to its customers under hiring
agreements which included an option to purchase
and the sums paid by way of hire-rent were
treated as part of the purchase price where the
purchaser exercised the option to purchase.
• Hire-purchase transactions were later
extended to cover the sale of such items as
wagons, furniture, motor cars and even false
teeth.
• In later years hire-purchase trading became
a very popular means of obtaining goods on
credit and was available for the acquisition of
a wide range of consumer goods.
• It must be observed that in all these years
when hire-purchase trading was in force, the
rights, duties and obligations of the parties
were governed solely by the common law,
i.e. the general contract law.
ABUSES
• Unfortunately, the expansion of hirepurchase trading brought with it certain
abuses and unscrupulous practices which
the common law was incapable of
remedying.
• The lack of statutory control of hire-purchase
transactions created a situation where
owners of goods, by reason of their stronger
bargaining power were free exploit hirer.
• SIGNING OF BLANK FORMS
• Hirers induced to enter into HP they did
understand
• Signed blank forms and owner later filled
in
• No relief at common law but non est
factum
• Non est factum is very difficult to prove
• SNATCH-BACK DEVICE
• Some unscrupulous owners encouraged
hirer s to take on hire-purchase
commitments, which were well beyond
their means.
• The decision in CRAMER V. GILES
(1883) 1 Cab & El 151 did not help the
position of the hirer. In that case the court
held that it could not intervene to protect a
hirer in default.
• WIDELY DRAWN EXCLUSION CLAUSES
• Another abuse of the hire-purchase system
was the practice of many hire-purchase
dealers (owners) of incorporating into the
hire-purchase agreement widely drawn
exclusion clauses excluding all conditions,
warranties or duties in respect of the quality
of the goods, or their fitness for any purpose.
The result was that hirers had goods foisted
on them which were unfit for their intended
purpose, but which they were nevertheless
obliged to pay
WIDELY DRAWN EXCLUSION CLAUSES
• Another abuse of the hire-purchase system
was the practice of many hire-purchase
dealers (owners) of incorporating into the
hire-purchase agreement widely drawn
exclusion clauses excluding all conditions,
warranties or duties in respect of the quality
of the goods, or their fitness for any purpose.
• The result was that hirers had goods foisted
on them which were unfit for their intended
purpose, but which they were nevertheless
obliged to pay
• HIRER LIABILITY UPON TERMINATION
• As already noted a hirer in a hire-purchase
agreement is not legally bound to complete the
payments to the end of the hiring period, but may
elect to return the goods to the owner and thereby
terminate the hire-purchase agreement.
• However, owners of goods inserted in the hirepurchase agreement certain clauses known as
“minimum payment clauses”, which required the
hirer to pay upon termination, exorbitant charges
for depreciation of the goods etc.
• These charges which were payable on termination
were so prohibitive that most hirers were
discouraged from attempting to terminate the
agreement.
• NO REQUIREMENT FOR STATEMENT OF CASH PRICE
• Another drawback associated with the application of the
common law was that there was no obligation imposed on the
owner to indicate to the hirer how much interest he was
paying for the credit extended to him.
• There was no obligation on the owner to state the cash price
to the hirer-(the price he would have paid if he purchased the
goods outright).
• [cash price is the price at which the goods would be sold for
cash; the hire-purchase price is invariably higher than the
cash price; the difference representing the interest that is paid
for obtaining the goods on credit.] in the absence of any
obligation to state the cash price, owners could charge an
excessive rate of interest without the hirer being aware of it.
• These drawbacks associated with the application of the
common law to hire-purchase transactions motivated the
introduction of hire-purchase legislation to deal with these
abuses of the hire-purchase trading system.
FORMAL REQUIRMENTS FOR
THE FORMATION OF A HIREPURCHASE AGREEMENT
UNDER THE HIRE-PURCHASE
DECREE
• First of all, before a HIRE-PURCHASE
AGREEMENT or CONDITIONAL SALE
AGREEMENT is made, the owner or seller
shall state orally and in writing, to the
prospective hirer or buyer, the cash price
and the either the hire purchase price or
the total purchase price. See section 2
• Secondly, for the HIRE-PURCHASE
AGREEMENT or CONDITIONAL SALE
AGREEMENT to be enforceable, it must be
in writing, and signed by the hirer or beer,
and by or on behalf of all the other parties to
the agreement.
• Section 1(1) (a)
• Note that the hirer is required to sign
personally. This is to ensure that he takes a
direct interest in the formation of the contract
and its terms.
• Thirdly, according to section 3 of the Act ,
for a hire-purchase to be valid and
enforceable, it must contain the following;
• A statement of the cash price and the hirepurchase price of the goods to which the
agreement relates.
• A statement of the amount of each
instalment to be paid by the hirer and the
dates or the mode of determining the
dates on which each instalment becomes
payable.
• Thirdly, the hire-purchase or conditional
sale agreement must contain a description
or a list of the goods to which the
agreement relates
• Fourthly, the agreement must contain a
notice, prominently displayed in the
agreement along the lines of what is
contained in the first and second
schedules to the Decree
• The notices in the 1st and 2nd schedules
contain a statement acknowledging;
• the hirer’s right to terminate the HIRE-PURCHASE
AGREEMENT and a statement of his liability upon
termination; and
• a statement acknowledging the statutory restriction
on the owner’s right to recover the goods.
• Fifthly, the owner is required in section
3(2) to deliver a copy of the HIREPURCHASE AGREEMENT to the hirer
within 14 days after the making of the
agreement.
• DISCRETION OF COURT TO DISPENSE
WITH SPECIFIC REQUIREMENTS;
• According to section3 (3), where the
parties fail to comply with the
requirements in section 3(1)(b) and (c)
and section 3(2), the court can exercise its
discretion and still hold the agreement
enforceable if it considers it just and
equitable to do so and if it is clear that the
omission of those requirements has not
prejudiced the hirer in any way.
• The effect of section 3(3) therefore is that
where the parties fail to include in the
agreement amount of each instalment or
date and the description of the goods, or
where the owner fails to deliver a copy of the
agreement to the hirer within the stipulated
period of 14 days, the courts may, in exercise
of their discretion, nevertheless hold the
agreement enforceable if it is clear that the
non-compliance with these requirements has
not in any way prejudiced the position of the
hirer.
• Mensah v. Osei [1962] 1 GLR 261
• SCOPE OF DISCRETION
• It is important to note that the discretion of
the court can be exercised only when the
parties fail to comply with the specific
provisions mentioned in section 3(3).
• The discretion of the courts does not include
the power to dispense with the requirement
of statutory notice (section 3(1)(d)), the
statement of the cash price and hirepurchase price (section 3(1)(a)) or the
requirement that the HIRE-PURCHASE
AGREEMENT must be in writing.
– U.T.C v Johnson Okoro [1962] C.C. 54
• In effect therefore for a HIRE-PURCHASE
AGREEMENT to be enforceable by the
owner the following mandatory requirements
must be fulfilled:
• the hire-purchase must be in writing and
signed by or on behalf of both parties;
• the hire-purchase must contain the following
information;
– statement of cash price and hire-purchase price;
– statutory notices on the hirer’s right to terminate;
and the restriction on the owner’s right to recover
the goods.
• EFFECT OF NON-COMPLIANCE WITH THE MANDATORY
REQUIREMENTS STATED IN SECTIONS 1-3
• Section 1 of the Decree provides that if the HIRE-PURCHASE
AGREEMENT does not comply with the requirements stated in
sections 1-3, the agreement so made shall be unenforceable
by the owner.
• Note that the section makes it clear that it is the owner and not
the hirer who is disabled from enforcing the agreement in the
event of non-compliance with section 1-3.
• Section 1(1) states:
– where goods are let under a HIRE-PURCHASE AGREEMENT or
sold under a CONDITIONAL SALE AGREEMENT, the owner or
seller shall not be entitled to enforce the agreement unless the
mandatory requirements are complied with. Therefore where the
HIRE-PURCHASE AGREEMENT does not comply with the
mandatory requirements stipulated in sections 1-3, the owner is
not entitled to enforce the agreement against the hirer, but the
hirer is allowed to enforce it against the owner.
• Yayo v. Nyinase [1975] 1 GLR 422
• CONSEQUENCES OF
UNENFORCEABILITY; SECTION 1(2)
• Section 1(2) of the Decree goes on to state
the further consequences of the owner’s
inability to enforce the HIRE-PURCHASE
AGREEMENT.
• WHERE the owner or seller is disentitled
from enforcing the agreement;
• he is also not entitled to enforce any contract
of guarantee relating to that agreement.;
• secondly, the owner cannot enforce any
security given by the hirer or a guarantor in
respect of money payable under the
agreement;
• thirdly, the owner or seller shall also not be entitled to enforce
his right to recover that goods from the hirer or buyer.
• These rules are designed to ensure that the owner’s
compliance with the statutory requirements for the formation
of a HIRE-PURCHASE AGREEMENT. These formal
requirements are primarily designed to protect the hirer from
possible fraud by the owner and also to ensure that the hirer
receives all the pertinent information relating to the
transaction.
• The consequences of the owner’s failure to comply with the
requirements appear to be very drastic. However, these
consequences could be said o flow naturally from the fact that
non-compliance with the statutory requirements renders the
HIRE-PURCHASE AGREEMENT itself unenforceable.
• Generally, a guarantor undertakes to pay a debt in the event
of the principal debtor’s default. If it turns out that the
agreement under which the debt was incurred is itself
unenforceable, the contract of guarantee is also
unenforceable.
– Coutts & Co. v. Browne-Lecky & Others [1947] KB 104
• PROHIBITION OF SPECIFIED
CLAUSES-SECTION 4
• For reasons of public policy, section 4 of
the HIRE-PURCHASE AGREEMENT
Decree stipulates that certain clauses, if
contained in a HIRE-PURCHASE
AGREEMENT or CONDITIONAL SALE
AGREEMENT shall be void and of no
effect. According to section 4 of the
Decree, the following clauses, if included
in the hire-purchase agreement or
conditional sale agreement shall be
disregarded
These prohibited clauses include the following;
1. any provision which confers on the owner the
right or the authority to enter into any private
land or premises for the purpose of taking
possession of goods which have been let
under a HIRE-PURCHASE AGREEMENT or
sold under a CONDITIONAL SALE
AGREEMENT; or any provision which
relieves the owner from liability for any such
entry.
• [section 4(a)]
• [This provision is important because of the statutory
regulations which limit or control the owner’s right to
recover the goods]
2. secondly, any provision which restricts or
excludes the hirer’s right to terminate the
HIRE-PURCHASE AGREEMENT which
is conferred on the hirer by section 5 is
also void and of no effect.
[see section 4(b)] the owner is not
allowed to impose any conditions on the
hirer’s of termination or to exclude it
entirely.
3.
any provision which imposes on the hirer a liability upon
termination which is greater than that stated in section 6 of
the Decree is also void and of no effect.
[Section 6 provides that upon termination, every hirer shall
be liable to pay to the owner the difference between the total
amount already paid and 50% of the hire-purchase price].
Any provision which requires the hirer to pay an amount of
money, which exceeds this shall be void.[section 4(b)]
Also section 6 stipulates certain liabilities with respect to the
goods themselves-eg if the goods are damaged through the
hirer’s failure to exercise reasonable care the hirer shall be
liable to pay for such damage. Any provision which imposes
on the hirer strict liability for the care of the goods upon
termination, regardless of negligence would be void and of
no effect. [e.g. provision which imposes on the hirer the
liability for any damage caused to the goods with or without
the negligence of the hirer]
4. Any provision which imposes on the hirer,
in the event of the agreement being
terminated in a manner different from that
stated in section 5, a liability which is
greater than that stated in section 6, shall
also be void and of no effect. [Section
4(c)].
Section 5 stipulates that the hirer shall
exercise his right of termination at any time
before final payment is due, by tendering
to the owner a written notice of his
intention to terminate the agreement.
• The effect of Section 4(c) therefore is to
render void any provision in the HIREPURCHASE AGREEMENT or
CONDITIONAL SALE AGREEEMENT which
subjects the hirer to additional liability (than
that stated in section 6) on the ground that
the agreement was terminated in a manner
different from that stated in section 5-for
example, by the hirer’s breach.
5. Any provision whereby any person acting on
behalf of the owner or seller in connection
with the HIRE-PURCHASE AGREEMENT is
deemed to be the agent of the hirer shall
also be void and of no effect.[section 4(d)]
• Section 4(d) must be read together with
section 12 of the Decree which states
clearly that with regard to any
representation relating to the condition of
the goods, made by a dealer or salesman
to the hirer, the dealer or salesman shall
be deemed to have made them as agent
of ht seller or owner and not as as agent
of the hirer or buyer.
6. Finally, section 4(e) renders void any
provision which seeks to relieve the
owner or seller from liability for acts of
default of any person acting on his behalf
in connection with the HPA or CSA.
Section 4(d) and (e) are designed to
render ineffective the device employed by
owners to escape liability for
misrepresentations and breaches of
warranties made by dealers or salesmen
acting on their behalf.