Kenya HIRE Purchase

BBM Class notes compiled by Njihia Kaburu 2) i) ii) iii) iv) v)

Hire Hire Purc urchas hase Natu Nature re of the the con contr trac actt Requir Requireme ement nt of Hire Hire Purchas Purchasee contract contractss Implied Implied conditi conditions ons and and warra warranties nties Rights Rights and and duties duties of of the part parties ies Termin Terminati ation on of the the hire hire purcha purchase se contr contract act

INTRODUCTION. A person who wants to buy goods but does not have sufficient monetary consideration as the price may enter into an agreement with the owner of goods so that the owner may hire the goods to him with a view of finally purchasing them! In this case the owner allows the hirer to ta"e immediate  possession and custody of the goods goods after which the hirer pays periodic instalments!

At common law a hire purchase agreement is defined as a contract for the delivery of goods under which the Hirer is granted an option to purchase the goods! The agreement is a hybrid form of contract in that it is neither a simple bailment nor a contract of sale but combines elements of both! The #enyan Hire Purchase $aw is governed by the principles of the %nglish common law as modified  by the Hire Purchase Act &ap! '( of the $aws of #enya! The late *! +! #ariu"i sponsored this bill as a private member bill in ,-./! It however came into operation from the 0 nd November November ,-(! ,-(! It was was  based on the %nglish Hire Purchase Act ,-.'! The preamble of &ap! '( states that it is 1 an Act of Parliament to ma"e provisions for the regulation of certain hire2purchase agreements and for the licensing licensing of hire2purchase hire2purchase concerns concerns and for the purposes connected connected herewith1 These ‘certain hirepurchase agreements’ are stated in 3ection 4 to include52 2 Hire2purchase agreements entered into after the commencement of the Act! Hire Purchase Agreements uner !hich Hire-purchase price "es n"t e#cee the sum "$ $"ur mi%%i"n shi%%ings &'((*+) "r such "ther higher "r %"!er sum as the ,inister ma( a$ter taing int" acc"unt maret $"rces $r"m time t" time pre/ai%ing( prescri0e1. 2 6here the hirer is not a body corporate! 2 An agreement which is not a scheme controlled managed or guaranteed by the 7overnment for the purpose of providing loans to any persons for the purchase of motor vehicles! D3INITION4 AND ,ANIN54 O!ner6 - This is a person who lets or has let goods to a hirer under a hire2purchase agreement! Hirer6 - This is a person who has ta"en goods from an owner under a hire purchase agreement! C"ntract C"ntract "$ 5uarantee6 5uarantee6 - This is a contact made at the e8press or implied request of the hirer to guarantee the hirer1s performance of his obligations under a hire2purchase agreement! Hire-Purchase Hire-Purchase Price6 - This is the total amount payable by the hirer for property in the goods to pass to him! It includes any deposit paid! Hire-purchase agreement6 - this is 9an 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 bailee1! A hire2  purchase agreement therefore means an agreement under which goods are let on hire and hirer has option to purchase them according to the conditions of the contract! It includes an agreement under which possession of goods is delivered to hirer and the hirer can use the goods and terminate the agreement at any time! NATUR O3 HIR-PURCHA4 HIR-PURCHA4 A5R,NT $i"e every other contract the hire2purchase agreement is regulated by general principles of law of contract e!g! there must be an offer and acceptance the parties must have capacity to contract there must be valuable consideration etc! :nder a hire2purchase agreement the hirer agrees to pay for the goods in instalments! ;n signing the agreement the hirer can ta"e possession of the goods and use them! However However ownership of the goods remains with the owner until the hirer pays final instalment! instalment! Hire purchase is therefore a bailment compounded with an option to purchase! If the hirer fails to pay 1

BBM Class notes compiled by Njihia Kaburu

any instalment the owner has a right to repossess the goods and the hirer will have no right to claim the instalment already paid! 3uch instalments paid will be treated as the cost of hiring the goods! In a hire2purchase agreement the sale becomes complete and effective only when the hirer pays final instalment i!e! on the payment of the last instalment the ownership transfers automatically from the owner to the hirer! Hire Purchase is different from other contracts which seem similar thus< Hire-Purchase an 4a%e The hire2purchase transaction as e8plained above is not a sale because according to the definition5 i! There is neither seller nor buyer! The parties are the 9owner1 of goods and the 9hirer1! ii! In a sale if the payment made by the buyer in installments the amount payable by the buyer to the seller is reduced from the payment made by the buyer towards the price of the goods whereas the installments paid by the hirer are regarded as hire charges and not as payment towards the price of the goods until option to purchase the goods is e8ercised! iii! The hirer may buy the goods but he is not bound to buy them! It is this aspect of the transaction which constitutes the legal distinction between a hire2purchase agreement and a sale of goods! It was e8plained in Helby Vs. Mathews that in a sale of goods the buyer is bound to buy the goods and as already e8plained can be sued for their price or damages if he refuses to pay for or accept the goods! Hire-Purchase an Creit 4a%e Agreement &redit sale is different from Hire2purchase agreement! &redit sale is sale on credit! The buyer of goods who is unable to pay the price in full at once may as" the seller to let him ta"e possession of the goods and to pay the price by instalments! ;wnership if the property in goods passes to the buyer immediately the first instalment is paid! It arises where there is an agreement for sale of goods on credit basis! In the case of<  Lee Vs Butler (1893) = bought furniture under a credit sale agreement and resold them to > before he had paid all the instalments! The original seller sued > for recovery! The court held that > had obtained good title as under a credit sale agreement property in the goods passes with the payment of the first instalment whereas on the other hand the hire2 purchase agreement deals with business of hiring goods and not sale of goods!

?urther distinctions are as below52 I44U HIR PURCHA4 Parties ;wner and Hirer ;wnership Remains with owner till last payment Regulating Act Repossession goods Return of goods

Ris" of loss

Hire Purchase Act of Remains with owner till last payment Hirer may return goods before due date on complying with certain conditions Remains with owner

CRDIT 4A7 3eller and @uyer   Passes to buyer on payment for first payment 3ale of 7oods Act ;nce possession passes cannot reposess @uyer cannot return goods unless for breach of condition

@uyer bears the ris" since goods are his!

Hire-Purchase an C"niti"na% 4a%e Agreement A conditional sale agreement means an agreement for the sale of goods under which purchase price or  part of it is payable by instalment! In this case ownership of goods remains with the seller even if the  buyer possesses them! The distinction between Hire2 purchase and conditional sale is that a conditional sale agreement is a contract for sale of goods where payment of the price is by instalment 2

BBM Class notes compiled by Njihia Kaburu

while the hire2purchase agreement is a contract of hiring with an option to purchase! Therefore the  broad effect is that conditional sale agreement is a contract regulated by sale of goods Act while Hire2  purchase agreements are regulated by Hire2Purchase Act! R8UIR,NT4 3OR 3OR,ATION O3 HIR-PURCHA4 A5R,NT The Hire2Purchase Act offers protection to hirer of goods by ensuring that terms of agreement are made "nown to him either before or at time of ma"ing contract! The following formalities must be met for a hire2purchase agreement to be valid5 2 ,! Cash price6 @efore agreement is made the hirer must be shown cash price of goods i!e! the price at which the goods may be purchased by the hirer in cash! The cash price must be shown in writing! 0! 9ritten Agreement6 All Hire2purchase agreements must be made in writing and signed by the hirer in person and not by an agent! 4! C"ntents6 The Hire2purchase agreement must contain5 2 2 The statement of the cash price 2 Hire2purchase price amounts of each instalment 2 >ates when the instalments are payable 2 A description of the goods sufficient to identify them 2 Notice of hirer1s rights to terminate agreement and< 2 Restriction of owner1s right to repossess goods! ! C"pies "$ Agreement6 Hirer must be given at least one copy of agreement which he has signed! 6here he has right to terminate agreement he must be given two copies! '! Registrati"n6 3ection  of the Act establishes a registry of Hire2Purchase which is an office in the  public service and may be held by a Registrar >eputy or Assistant Registrar!

3ection 'B,) requires that all hire2purchase agreements must be delivered to the registrar for registration within 4( days of ma"ing the agreement! ;n registration the registrar must deliver to owner the certificate of registration! However the registrar may refuse to register a Hire2Purchase agreement if5 2 a! It is not duly stamped as required by law!  b! It is not in the %nglish language! c! It is delivered for registration out of time i!e! after 4( days! The registrar is however given discretion under the section to e8tend time of registration where he is satisfied that failure to register the agreement was accidental or due to inadvertence or due to some other sufficient cause! $$ects "$ n"n-registrati"n 2 The agreement would not be enforceable against the hirer or the guarantor! 2 The owner of the goods cannot enforce any procedure to recover the goods! 2 No security given by the hirer or the guarantor under the agreement would be enforceable! CONDITION4 AND 9ARRANTI4 UNDR HIR- PURCHA4 A5R,NT &ondition is a provision implied by law in every hire2purchase contract! It goes to the root of the contract and if it is not fulfilled the whole contract is terminated! ;n the other hand a warranty is a  provision implied by law which is subordinate to the conditions! If it is not fulfilled the inCured party can1t terminate the contract but is allowed by law to claim compensation by way of damages! The following conditions and warranties are implied by 3ection / in a Hire2purchase contract5 C"niti"ns i! Implied condition that the owner will have a right t" se%% the goods at the time when property will  pass! ii! A condition that the %ega% "!nership of the goods and the title to the goods shall automatically vest in the hirer upon payment by him of the hire2purchase price in full! 3

BBM Class notes compiled by Njihia Kaburu

iii! Implied condition that the goods are of merchanta0%e :ua%it unless they are second hand goods and the agreement says so! @ut the condition as to merchantability will not be implied if5 2 The hirer e8amined the goods or sample of them and the e8amination revealed or ought to have revealed the defect! 2 The defect complained of is one which the owner could not reasonably have been aware of at the time when the agreement was made! iv! A condition that the goods will be reas"na0% $it $"r the particu%ar purp"se for which they are required! This is only so if the hirer e8pressly or impliedly ma"es "nown the purpose for which he required them! This implied condition is negated in those cases where the hirer has e8amined the goods or sample thereof and the e8amination ought to have revealed the defect or where the owner could have reasonably detected the defect! v! Implied condition as to samp%e an escripti"n ! These are not e8pressly stated in the Hire2  purchase Act! This 3ection /B) refers bac" to the %nglish law where there is an implied term as to description but is not clearly stated as far as described term as to sample is concerned! vi! A condition may be implied by any other law! 9arranties i! Implied warranty that a hirer shall en;" :uiet p"ssessi"n of the goods! ii! Implied warranty that the goods shall 0e $ree $r"m an charge "r encum0rances in favour of a 4rd party at the time when the property is to pass! iii! A warranty may be implied by any other law!

The imp%ie c"niti"ns and !arranties above cann"t 0e e#c%ue  by any agreement between the  parties unless ;wner proves that before the agreement was made the provision was brought to the notice of the Hirer and its effect made clear to him! DUTI4 OR O