HIRE PURCHASE LAW NOTES

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 member’s Bill based on the English Hire Purchase Act, 1965.
The Kenyan Hire Purchase Law is governed the principles of the English common law as modified the Hire Purchase Act.
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 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 the normal rules of contract law and because the hire purchase agreement is a form of bailment; it only applies to goods as defined 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 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 finance 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 the finance company and communication of that acceptance to the hirer which is normally done posting him a copy of the agreement showing execution 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 the dealer to the hirer before acceptance the finance company. As far as the obligations of the hirer are concerned, until acceptance of his proposal 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 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 hirer or is terminable the dealer.
Before the finance 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 finance 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 the finance 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 fitness 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 finance 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, contain a mistake on the part of either party or be illegal.

Under sec. 3 of the Act, the rules laid down 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.

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.

CREDIT SALE
This is a contract of sale of goods wherethe purchase price is payable 5 or more installments. Property in the goods passes to the buyer when the 1st 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 1st instalment is paid.

Conditional Sale
This is a contract of sale of goods, whereby, wherepart of the purchase price is payable installments. Property in the goods pass the buyer when the condition(s) subject to which the sale is made is fulfilled.

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 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 the Hirer and or on behalf of the owner.
7. Rights of the Hirer.

REGISTRATION OF THE HIRE PURCHASE AGREEMENT
Sec.4 (1) of the Hire Purchase Act establishes the Registry of Hire Purchase. This is a public office which may be held 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 emto 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
3. Stamp duty or Registrar fee payable has not been paid
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 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 the Hirer under the Hire Purchase Agreement or the guarantor under the contract of guarantee is unenforceable.

PROTECTION OF THE HIRER
The Hire Purchase Act makes half–hearted attempts to protect or safeguard the hirer’s interests.
It adopts or employs 3 mechanisms:
1. Contents of the Hire Purchase Agreement
2. Implied Terms
3. Repossession of Goods

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 Hirer’s 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 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.
6. A provision whose effect is to relieve the owner from liability for acts of person acting on his behalf in relation to the formation or conclusion of the Hire Purchase Agreement.

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 secondhand 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 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 fit for the purpose.
4. A condition may be implied 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 any other law.

REPOSSESSION OF GOODS
Under sec 15 (1) of the Act, if at any time 2/3 of the hire purchase price has been paid the hirer or any other person on his behalf, the owner cannot repossess the goods otherwise than court action. This provision was intended to protect the hirer from Common Law practice of “snatch back” underwhich 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 the section.
2. Property in the goods does not pass to the hirer even after paying 2/3 of the hire purchase price
3. The court may still order the repossession of the goods

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 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-It’s 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 owner’s written consent.

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 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 reason of the owners change of location, any additional expenses are recoverable from the owner.

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 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 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 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 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

 

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