HIRE PURCHASE

HIRE PURCHASE LAW

OBJECTIVE
To provide the candidate with a broad understanding of the
following principles relating to Hire Purchase Law;
Nature of the contract.
Formation of the contract.
Terms in the Hire Purchase Agreement.
Rights and duties of the parties.
Termination of the Hire Purchase Agreement.
INTRODUCTION
This chapter deals with the law on hire purchase. It looks at the
provisions of the Hire Purchase Act, the requirements for a valid
hire purchase agreement and the rights and duties available to
the parties to the agreement.
KEY DEFINATIONS
1. Hire Purchase Price: This is the total sum payable by the Hirer under
the Hire Purchase
agreement so as to purchase the goods. It includes any deposit payable.
2. Contract of Guarantee: This is a contract made at the expression or
implied request of the Hirer under which a 3rd party guarantees the
performance of the Hires obligations.
3. Owner: This is a person who lets or has let goods to a hirer under a
Hire Purchase agreement.
4. Hirer: This is a person who has taken goods from owner under a Hire
Purchase
agreement.
10.1 HIRE PURCHASE
LAW
The law relating to the Purchase in Kenya is contained in the Hire
Purchase Act1, .The Act was enacted in 1968 and came into force on
2nd November, 1970. It was a Private members Bill based on the
English Hire Purchase Act, 1965.
The Kenyan Hire Purchase Law is governed by the principles of the
English common law as modified by the Hire Purchase Act.
At common law a hire purchase agreement is defied 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 bailment and
contract in that it is neither a simple bailment nor a contract of sale
but combines elements of both.
The original position at common law is that there are no formal
requirements for a hire purchase agreement. An oral agreement is
valid and binding. The question of capacity to enter into a hire
purchase agreement is governed by the normal rules of contract law
and because the hire purchase agreement is a form of bailment; it
only applies to goods as defied in the Sale of Goods Act.
The terms of a hire purchase agreement must be stated with certainty
and precision so as to enable the court to ascertain the intention of
the parties. The parties to the agreement must reach consensus ad
idem.
If the dealer fraudulently completes a document signed in blank by
the hirer, then no valid hire purchase contract results.
Should the nature of the document which the hirer signs be
misrepresented to him so that he signs in the belief that it is
something essentially different from what it is the hirer can plead non
est factum (it is not my deed or it is not my act) and therefore
escape liability. If there is a change in the condition of the
goods between the time of the offer and acceptance, again no
valid agreement comes into force.
In the case of an agreement between the dealer and the hirer
without the intervention of a fianc company, a legally binding
hire purchase agreement comes into existence when the
dealer posts a letter of acceptance to the hirer or delivers the
goods.
Where the finance company finances the transaction,
although the dealer is supplying the goods, the owner of
the goods at the relevant time is the finance company.
The hirer therefore contracts
with a finance company when he enters into a hire
purchase agreement. Thus there must be
acceptance by the finance company and communication
of that acceptance to the hirer which is
normally done by posting him a copy of the agreement
showing execution by the company.
A hire purchase transaction has been described as a
triangular transaction with the Dealer and
the Hirer at the bottom and the Finance company at the
top.
The question arises as to the effect of the delivery of
goods by the dealer to the hirer before
acceptance by the finance company. As far as the
obligations of the hirer are concerned, until acceptance of
his proposal by the finance company the hirer holds the
goods as a bailee of the dealer. Such bailment can be
terminated at the will of the dealer or the hirer. It
however continues until the finance company purchases
the goods from the dealer and executes the hire
purchase agreement. When this is done, the bailment as
between the dealer and the hirer terminates and is
replaced by the hire purchase agreement between the
finance company and the hirer.
The hirer thereafter holds the goods as a bailee of the
finance company under the terms of the Hire Purchase
Agreement. Should the finance company refuse to accept
the transaction, the bailment between the dealer and the
Before the fiance company executes the hire purchase proposal the hirer in
possession of the goods owes the dealer a duty to take reasonable care of
the goods, the breach of which gives the dealer a right of action under the
tort of negligence or if wilful damage is caused to the goods then trespass
to goods. If the fiance company refuses to accept the transaction the hirer
could be held liable in quasi contract to pay the dealer a reasonable charge
for the use of the goods.
Pending acceptance of the transaction by the fiance company the hirer can
use the goods at will as bailee if there are no restrictions agreed between
him and the dealer. The dealer at that stage does not owe the hirer any
contractual duty as to finess of the goods or their suitability because there
is no contract between them but simply a loan of the goods. Should
however the hirer be injured, due to defects in the goods, which the dealer
knows or ought to know, the hirer can maintain an action in tort for
negligence.
The liability of the fiance company for the condition of the goods does not
start until it has entered into a higher purchase agreement.
Note that hire purchase agreements must not be impossible to perform,
10.2 SCOPE OF THE ACT
Under sec. 3 of the Act, the rules laid down by the
statute regulate Hire Purchase transaction
whose Hire Purchase price does not exceed Kshs.
300,000. However, this limitation does not
apply where the Hirer is a body Corporate.
10.3 HIRE PURCHASE AGREEMENT
This is agreement for the bailment of goods under which the
bailee may buy the goods or under
which properly in the goods may or will pass to the bailee.
Parties to the agreement are the owner and the hirer. The Hirer
has the option to purchase the
goods. It is a contract of Hiring. Under Sec. 6(2) of the Act, a
Hire Purchase agreement must be
registered with the Registrar of Hire Purchase with 30 days of
its execution.
A Hire Purchase agreement differs from a credit and a
conditional sale.
10.4 CREDIT SALE
This is a contract of sale of goods whereby the purchase price is
payable by 5 or more installments.
Property in the goods passes to the buyer when the 1 st
instalment is paid. It differs from a Hire
Purchase Agreement in that: -
1. It is a contract of Sale
2. Property in the goods passes to the buyer when the 1 st
instalment is paid.
Conditional Sale
This is a contract of sale of goods, whereby, whereby
part of the purchase price is payable by
installments. Property in the goods pass the buyer when
the condition(s) subject to which the
sale is made is fulfiled.
10.5 PROVISIONS RELATING TO THE HIRE
PURCHASE AGREEMENT
Under sec. 6 (1) of the Act, before the Hire Purchase Agreement
is entered into the owner is
bound to notify the prospective Hirer in a prescribed from the
cash price of the goods. However,
the owner is not bound to do so of:
a. The Hirer has selected the goods or similar goods by
reference to a catalogue stating
the Cash Price OR
b. The goods or similar goods from which the selection was
made stated the cash price.
Under sec. 6(2) of the Act, the Hire Purchase agreement must be
written.
CONTENTS OF THE AGREEMENT
1. A description of the parties.
2. A description of the goods.
3. The cash and Hire Purchase price.
4. Number of Installments.
5. Amount and when payable.
6. It must be signed by the Hirer and by or on behalf of the
owner.
7. Rights of the Hirer.
Sec.4
10.6 (1) of the Hire Purchase
REGISTRATION OF Act
THE establishes the Registry of
HIRE PURCHASE Hire
AGREEMENT
Purchase. This is a public office which may be held by the
Registrar, Assistant or Deputy Registrar.
Under sec. 5(1) of the Act every Hire Purchase agreement must
be delivered to the Registrar for registration within 30 days of
its execution. However the Registrar is empowered to extend the
duration if satisfied that the non-presentation of the agreement
was: - Inadvertent or there was a sufficient cause.
The Registrar may refuse to register a Hire Purchase
Agreement if: -
1. It is not in the English Language
2. It is presented after 30 days of its execution
Under sec. 5(3) of the Act, on registration of the agreement, the
registrar issues a certificate of
Registration which is prima facie evidence of its content.
Registration of Hire purchase, serves a double purpose: -
1. It protects 3rd party who may purport to buy the goods from the
Hirer.
2. It is a revenue generation mechanism for the state.
EFFECTS OF NON-REGISTRATION
Under sec. 5(4) of the Act, if a Hire Purchase Agreement is not
registered: -
1. The agreement cannot be enforced by any person against the Hirer.
2. Any contract of guarantee made in relation to the Hire Purchase
Agreement is also
unenforceable.
3. The owner cannot enforce the right to repossess the goods from the
Hirer.
4. Any security given by the Hirer under the Hire Purchase Agreement
or by the guarantor
under the contract of guarantee is unenforceable.
10.7 PROTECTION OF THE HIRER
The Hire Purchase Act makes halfhearted attempts to
protect or safeguard the hirers interests.

It adopts or employs 3 mechanisms:

1. Contents of the Hire Purchase Agreement
2. Implied Terms
3. Repossession of Goods
1. CONTENTS OF THE HIRE-PURCHASE
AGREEMENT
Under sec 7 of the Hire Purchase Act, the following provisions are
deemed void if contained in a hire purchase agreement.
1. A provision which allows the owner or his agent to enter upon any
premises to repossess the goods let under a H.P Agreement.
2. A provision whose effect is to relieve the owner from liability for such
entry
3. A provision which excludes or limits the Hirers right to terminate the
H.P Agreement pursuant to sec 12(1)
4. A provision which imposes upon the Hirer greater liability for
terminating the H.P
Agreement than is imposed by sec 12(1) of the Act.
5. A provision which deems persons acting on behalf of the owner in the
formation or conclusion of the Hire Purchase Agreement as agents of the
hirer.
2. IMPLIED TERMS
The Hire Purchase Act implies both conditions and warranties in all Hire
Purchase Agreements.
Conditions
1. Right to sell - Under Sec8 (1) (a) of the Act, there is an implied
condition that the owner will have the right to sell the goods when the
property is to pass.
2. Merchantable Quality - Under sec 8(1) (d) of the Act, unless the
goods are second hand and the agreement so provides, there is an
implied condition that they would be of merchantable quality.
3. Fitness for Purpose - Under Section 8 (2) of the Act, where the hirer
expressly or by implication makes known to the owner the particular
purpose for which the goods are , there is an implied condition that the
goods would be reasonably fi for the purpose.
4. A condition may be implied by any other law.
Warranties
1. Quiet Possession Under sec 8 (1) (b) of the Act,
there is an implied warranty that the hirer will have and
enjoy quite possession of the goods.
2. Free from charge or encumbrance - Under sec8(1)
(c) of the Act, there is an implied warranty that the goods
shall be free from any charge or encumbrance in favour of
a third party when property is to pass.
3. A warranty may be implied by any other law.
3. REPOSSESSION OF GOODS
Under sec 15 (1) of the Act, if at any time 2/3 of the hire purchase price
has been paid by the hirer or any other person on his behalf, the owner
cannot repossess the goods otherwise than by court action. This provision
was intended to protect the hirer from Common Law practice of
snatch back under which the owner will reposes the goods at any time.
If the owner repossess the goods in contravention of this section;
1. The hire purchase agreement terminates
2. The hirer is discharged from all liability under the agreement
3. The hirer is entitled to recover all sums paid under the agreement or
the contract of guarantee.
4. The guarantor is entitled to recover any sum paid under the contract of
guarantee or under the security given.
The section does not adequately protect the hirer in that:
1. The hirer must pay too much to be protected by the section.
2. Property in the goods does not pass to the hirer even after paying 2/3
of the hire
purchase price
10.8 OBLIGATIONS OF THE HIRE PURCHASE
AGREEMENT
The hire purchase agreement imposes legally binding obligations on the
owner and the hirer. Each party is bound to observe its duties.
Duties of the Owner
1. Notice of cash Price: Under se. 6(1) it is the duty of the owner to
notify the prospective Hirer the cash price of the gods in prescribed form.
2. Furnish Copy: Under sec. 6(2) (d) of the Act, within 21 days of
execution of the Hire Purchase Agreement, the owner must send a copy
thereof to the Hirer.
3. Deliver the goods: It is the duty of the owner to put the Hirer in
possession of the
goods let under a Hire Purchase.
4. Indemnity: It is the duty of the owner to compensate the Hire for any
loss or liability arising by reason any defects in the goods or Hire.
5. Disclosure of defects: the owner is bound to disclose to the hirer any
defects in the goods or in his title
Duties of the Hirer
1. Reasonable care- It is the duty of the hirer to exercise reasonable
care in relation to the goods let under a hire purchase agreement.
However the hirer is not liable for ordinary wear and tear.
2. Take Delivery-The hirer is bound to take delivery of the goods
under hire purchase agreement.
3. Pay Installments-The hirer is bound to pay the installments as
and when they fall due. This duty does not deny him the right to
terminate the agreement in accordance with sec 12(1) of the Act.
4. Continue Hiring-It is the duty of the hirer to continue hiring the
goods for the agreed duration. This obligation does not deny the hirer
the right to terminate the agreement.
5. Notice of change of location of goods-Its the duty of the hirer
to inform the owner any change in the location of the goods. Under
Section 10 (1) of the Act, goods let under hire purchase agreement
cannot be removed from Kenya without the owners written consent.
10.9 TERMINATION OF THE HIRE PURCHASE
AGREEMENT
Under sec 12(1) of the Act, the hirer may at the time before the final
instalment falls due, terminate the hire purchase agreement. This right is
exercisable by:
1. Giving a written notice of termination
2. Returning the goods to the owner.
Once the hirer exercises this right, the minimum payment or
depreciation clause comes into operation in which case the hirer must
pay;
1. All installments due up to the date of termination.
2. The amount by which one half of the hire purchase price exceeds the
total amount paid or such lesser amounts as the agreement may provide.
If the hirer has not taken reasonable care of the goods, he is reliable in
damages under sec
12(3) of the Act, the hirer must at his own expense return the goods to
the premises from which delivery was taken.
However if the goods are returned elsewhere by reason of the owners
10.10 COMPLETION OF HIRE PURCHASE
AGREEMENT
Under sec. 13 (1) of the Act, the Hirer may at anytime give
a written notice to the owner of his
intention to compete the purchase of goods by tendering
the amount due on a specified date
whereupon he becomes entitled to do so.
The right of the Hire to complete the Hire
Purchase Agreement is exercisable in two
circumstances:
1. During the continuance of the Agreement
2. Within 28 days of repossession of the goods
by the owner in which case the Hirer must pay: -
a) The amount due inclusive of interest
b) Reasonable repossession, repair,
maintenance and storage charges.
RIGHTS OF THE HIRER
1. He is entitled to be notified in a prescribed form the cash price of the
goods.
2. He is entitled to a copy of the Hire Purchase Agreement within 21 days
of the execution of the agreement.
3. He is entitled to Indemnity for any loss or liability arising by reason of
any defect in the goods or of title.
4. He is entitled to quiet possession of the goods let under the Hire
Purchase Agreement
5. He is entitled to damages for any breach of contract by the owner
6. He has the right to terminate the Hire Purchase Agreement at any
time before the final instalment falls due.
7. He is entitled to complete the Hire Purchase Agreement pursuant to
the provisions of sec. 13