In our everyday transactions, we enter into relationships that qualify as hire purchase. Unfortunately, many agreements on this type of transaction do not fit into the requirement of the law thereby putting a party at a disadvantage when disputes arise.
Hire Purchase is regulated by the hire purchase act which could be technical taking into consideration that calculations of time, amount and duration are of the essence.
A hire purchase agreement is not an ordinary agreement. It is an agreement regulated by statutes and the law contemplates that parties to a hire purchase agreement or a credit sales agreement comply strictly with provisions of the Hire Purchase Act.
The Hire Purchase Act provides for the nature and contents of the agreement. It also provides for enforcement procedure and creates different status of default and the nature of remedies applicable.
The Act is also in need of review especially as to the monetary figures mentioned therein.
It is applicable to all hire purchase agreement and credit sales agreement (other than agreements in respect of motor vehicles) under which the hire purchase price or total purchase price does not exceed two thousand naira.
It also applies to all agreements in respect of motor vehicles, irrespective of the hire purchase price or the total purchase price.
Pre Agreement Requirement
Section 2 of the Hire Purchase Act provides that before any hire purchase agreement is entered into, the owner shall state in writing to the prospective hirer, otherwise than in the note or memorandum of the agreement, a price at which the goods may be purchased by him for cash. This price is called the cash price.
This section simply interpreted requires the owner to inform the hirer in writing the price of the goods payable in cash regardless of the fact that it will still be stated in a subsequent memorandum or agreement.
However, this requirement can be dispensed off if:-
(1) The hirer has inspected the goods or like goods and at the time of his inspection, tickets or lables were attached to or displayed with the goods clearly stating the price.
(2) If the hirer has selected the goods by reference to a catalogue, price list or advertisement which clearly stated the price of the goods as a whole or of all the different articles or sets of articles comprised in the goods.
When the requirement above is fulfilled, the act expects an owner to comply with further provisions before he can enforce a hire purchase agreement. This requirement as provided by section (2) 2 include.
That a note or memorandum of agreement should be made and executed by the parties involved and delivered within fourteen days.
That the agreement should contain the following:-
- A statement of the hire purchase price and of the cash price of the goods to which the agreement relates and of the amount of each of the installments by which the hire purchase price is to be paid and of the date or the mode of determining the date, upon which each installment is payable.
(b) A statement of the deposit paid.
(c) A statement of the true rate of interest calculated in such manner as the minister may by regulations publish in the Federal Gazette.
(3) The note or memorandum contains a notice, which is at least as prominent as the rest of the contents of the note or memorandum in the terms provided by the schedule to this Act.
What are those terms in the schedule of the ACT that must be included in the agreement?
Pursuant to section 2 (2) (c) of the Act, the schedule provides for a notice for inclusion in hire purchase agreement. These are the rights of a hirer to terminate agreement and the restriction of owner’s right to recover goods .The terms are provided as follows:-
- The hirer may put an end to this agreement by giving notice of termination in writing to any person who is entitled to collect or receive the hire rent.
- He must then pay any instalments which are in arrears at the time when he gives notice. If, when he has paid those instalments, the total amount which he has paid under the agreement is less than the amount as provided in section 8,he should comply accordingly.
- If the goods have been damaged owing to the hirer having failed to take reasonable care of them, the owner may sue him for the amount of the damage unless that amount can be agreed between the hirer and the owner.
- The hirer should see whether this agreement contain provisions allowing him to put an end to the agreement on terms more favourable to him than those just mentioned. If it does not, he may put an end to the agreement on those terms:
Restriction of owner’s right to recover goods
After “The relevant portion” (which must be stated in the agreement) has been paid and unless the hirer has himself put an end to the agreement, the owner of the goods cannot take them back from the hirer without the hirer’s consent unless the owner obtains an order of the court.(The definition of relevant proportion is treated below)
If the owner applies to the court for such an order, the court may, if the court thinks it just to do so, allow the hirer to keep either.
(a) The whole of the goods, on condition that he hirer pays the balance of the price in the manner ordered by the court.
(b) A fair proportion of the goods having regard to what the hirer has already paid
Section 6(1) of the Act places on the parties the duty to furnish information concerning the state of the agreement. It further makes it unenforceable by the owner if he/she fails to accede to the request of the hirer for information. Section 6(1) requires the owner to respond to any such request within fourteen days with a statement signed by him or his agent containing the following:-
(a) The amount paid or on behalf of the hirer or buyer.
(b) The amount due but unpaid under to agreement, and the date on which each unpaid instalment becomes due, and the amount of each such instalment.
(c) The amount which is to become payable under the agreement, and the date or the mode of determining the date upon which each future instalment is to become payable, and the amount of each such instalment.
Subsection (2) of section 6 provides that in the event of a failure
Without reasonable cause to comply with subsection (1) while default continues no person shall be entitled to enforce the agreement against the hirer or buyer or to enforce any contract of guarantee relating to the agreement to enforce any right to recover the goods from the hirer.
No security given by the hirer or buyer in respect of money payable under the agreement or given by a guarantor in respect of money payable under a contract of guarantee relating to the agreement shall be enforceable against the hirer or buyer or the guarantor.
Restrictions on recovery of goods by the owner
It is important to understand the phrase “relevant proportion”
Relevant proportion can be understood to mean substantial proportion of the hire purchase price. In the Act, the right of the owner to recover goods upon default of a hire is subject to whether or not the hirer has paid a relevant proportion of the hire purchase price or not.
Now, what constitutes relevant proportion?
The Act in section 9(4) describes relevant proportion to mean.
(a) In the case of goods other than motor vehicle, one half shall be interpreted to mean relevant proportion.
(b) In case of motor vehicle, when a hirer has paid three-fifth of the price, he or she has paid a relevant proportion of price.
The one half rule
Section 8(1) of the Act provides as follows:-
- A hirer shall, at any time before the final payment under a hire purchase agreement falls due, be entitled to determine the agreement by giving notice to terminate in writing to any person entitled or authorized to receive any sum payable under the agreement and shall, on determining the agreement under this section, be liable, without prejudice to any liability which has accrued before the termination to pay the amount, if any, by which one-half of the hire purchase price exceeds the total of the sums paid and the sums due in respect of the hire purchase price immediately before the termination or such less amount as may be specified in the agreement.
Eg: If the total sum of the Hire purchase price is N2000 and the buyer/hirer has paid only N700, he must pay up to half of the hire purchase price which is N1000.This means he must pay extra N300
Subsection (2) provides that where a hire purchase agreement has been determined under this section, the hirer shall, if he has failed to take reasonable care of the goods, be liable to pay
damages for the failure.
Subsection 3, requires the hirer to return the goods to the owner as soon as he determines the agreement and settle all outstanding liabilities.
In a hire purchase agreement, certain terms are implied by the Act in section 4. These include among others:-
(1) An implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party at the time when the property is to pass
- 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.
In conclusion, anytime you are getting involved in a hirer purchase agreement or transaction, consider the intricacies of the law to avoid the other party taking advantage of your non-compliance .Make sure the memorandum complies with the provisions of the Law.
Anthony Atata- Partner,Hallblack Law Firm