BBM Class notes compiled by Njihia Kaburu

2) i) ii) iii) iv) v) Hire Purchase Nature of the contract Requirement of Hire Purchase contracts Implied conditions and warranties Rights and duties of the parties Termination of the hire purchase contract

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 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 $aws of #enya! The late *! +! #ariu"i sponsored this bill as a private member bill in ,-./! It however came into operation from the 0 nd November ,-)(! It was based on the %nglish Hire Purchase Act ,-.'! The preamble of &ap! '() states that it is 1 an Act of Parliament to ma"e provisions for the regulation of certain hire2purchase agreements and for the licensing of hire2purchase concerns and for the purposes connected herewith1 These certain hirepurchase agreements are stated in 3ection 4 to include52 2 Hire2purchase agreements entered into after the commencement of the Act! Hire Purchase Agreements un er !hich Hire-purchase price "es n"t e#cee the sum "$ $"ur mi%%i"n shi%%ings &'()))()))*+) "r such "ther higher "r %"!er sum as the ,inister ma-( a$ter ta.ing int" acc"unt mar.et $"rces $r"m time t" time pre/ai%ing( prescri0e1. 2 6here the hirer is not a body corporate! 2 An agreement which is not a scheme controlled managed or guaranteed by the 7overnment for the purpose of providing loans to any persons for the purchase of motor vehicles! D23INITION4 AND ,2ANIN54 O!ner6 - This is a person who lets or has let goods to a hirer under a hire2purchase agreement! Hirer6 - This is a person who has ta"en goods from an owner under a hire purchase agreement! C"ntract "$ 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 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! NATUR2 O3 HIR2-PURCHA42 A5R22,2NT $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 ownership of the goods remains with the owner until the hirer pays final instalment! Hire purchase is therefore a bailment compounded with an option to purchase! If the hirer fails to pay
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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 I44U2 HIR2 PURCHA42 Parties ;wner and Hirer ;wnership Remains with owner till last payment Regulating Act Repossession goods Return of goods Ris" of loss CR2DIT 4A72 3eller and @uyer Passes to buyer on payment for first payment Hire Purchase Act 3ale of 7oods Act of Remains with owner till last payment ;nce possession passes cannot reposess Hirer may return goods before due @uyer cannot return goods unless date on complying with certain for breach of condition conditions Remains with owner @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
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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! R28UIR2,2NT4 3OR 3OR,ATION O3 HIR2-PURCHA42 A5R22,2NT 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! A! 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 A 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! 2$$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 9ARRANTI24 UND2R HIR2- PURCHA42 A5R22,2NT &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!
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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 /BA) 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 $r"m an- charge "r encum0rances in favour of a 4rd party at the time when the property is to pass! iii! A warranty may be implied by any other law! The imp%ie c"n iti"ns and !arranties above cann"t 0e e#c%u e by any agreement between the parties unless ;wner proves that before the agreement was made the provision was brought to the notice of the Hirer and its effect made clear to him! DUTI24 OR O<7I5ATION4 O3 TH2 PARTI24 Duties "$ the O!ner ,! N"ti$icati"n "$ Cash Price6 The owner has to notify the hirer of the cash price of the goods in a prescribed form! 0! Disc%"sure "$ e$ects5 The owner is bound to disclose to the hirer any defects in the goods or in his title! 4! De%i/er the g"" s6 It is the duty of the owner to deliver to the hirer goods which constitute the subCect matter of the hire2purchase agreement! A! In emnit-6 The owner is bound to indemnify or compensate the hirer for any loss or liability arising by reason of any defect in the goods or in the owner1s title! '! Register the agreement Duties "$ a Hirer ,! :pon entering into a hire purchase agreement the hirer has a duty to ta.e e%i/er- of the goods! >elivery ta"es place at the owner1s place of business unless otherwise agreed! 0! The hire has a duty to ta.e reas"na0%e care "$ the g"" s while they are in his possession and custody! 4! After ta"ing delivery of the goods the hirer has a duty to pa- the insta%ments as and when they become due! A! The hirer also has a duty to c"ntinue hiring the goods for the agreed period! :nless he decides to terminate the agreement before the due date! '! If the agreement requires hirer to record his address then he has a duty to n"ti$- the "!ner "$ anchange "$ a ress!

BBM Class notes compiled by Njihia Kaburu

RI5HT4 O3 TH2 HIR2R The duty of the ;wner in hire2purchase agreements gives rise to corresponding Rights of the Hirer! ?ollowing are rights of a hirer5 ,! Right to sue in damages for breach of Hire2Purchase agreement! 0! Right to be notified the cash price of the goods! 4! Right to copy of the Hire2Purchase agreement within 0, days of conclusion of the purchase agreement! A! Right of quiet possession of the goods let under the Hire2purchase agreement! '! Right of Indemnity for any loss or liability caused by reason of any defects in the goods or of the title! .! Right to terminate the agreement! )! Right to complete the hire purchase agreement! R28U24T 3OR IN3OR,ATION 3hould the hirer requires some information he would send by registered post to the owner a written request with the e8penses for his reply! The owner should then within fourteen days of receiving the request hand or send to the hirer by registered post a statement signed by or on behalf of the owner showing5 a! The total payment made under the agreement and the date of each payment! b! The total amount due and unpaid and the amount of each unpaid instalment and the date of which it became due and< c! The total amount which is to become due under the agreement and the amount of each instalment which is to become due and the date when it will become due! If the owner fails without reasonable cause to give the information requested by the hire then while the default continues2 i! The person entitled to enforce the agreement against the hirer or any contract of guarantee relating to the agreement will lose the right to enforce it ii! The owner loses the right to recover possession of goods from the hirer and< iii! The holder of any security given by the hirer or guarantor loses the right to enforce it! RU724 ON T2R,INATION O3 HIR2-PURCHA42 A5R22,2NT The hirer has a right to terminate the hire2purchase agreement at any time before the final payment becomes due! 2 He may do so by giving the owner a written notice of termination of the agreement and< 2 3ubsequently returning goods to owner! 2 6here the hirer terminates the agreement he is liable to pay all the instalments due by that day together with any amount that will ma"e his total payment not less than half of the total Hire2Purchase price unless a lesser amount is specified in the agreement! 2 The hirer will also be required to pay compensation by way of damages if he did not ta"e reasonable care of the goods! 2 He must return the goods to the owner at his own e8pense! RU724 ON CO,P72TION O3 HIR2 PURCHA42 A5R22,2NT 2 The hirer has a right to complete the hire2purchase agreement at any time before the due day! 2 He may do so by giving notice in writing to the owner showing his intention to complete the hire purchase agreement! 2 In this case the hirer will be required to pay the net balance due to the owner under the agreement on a specified day! The right to complete the Hire2Purchase agreement by the hirer may arise in two situations namely5 a! At any time during the continuation of hire2purchase agreement!
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BBM Class notes compiled by Njihia Kaburu

b! 6ithin 0/ days after the owner has ta"en possession of the goods! In this case the hirer must pay the e8penses incurred by owner in repossession of the goods storage and repair charges in addition to the net balance due! R2CO=2R> O3 PO4424ION :nder the hire2purchase Act the owner has the right at any time to recover possession in case of default in payment of any instalment however 3ection ,' of the hire2purchase Act offers protection to the hirer of goods! It provides that if the hirer has paid an amount which is equivalent to or in e8cess of 0D4 of total any steps to recover possession of the goods unless the hirer has terminated the contract the owner may only recover the goods through a court of law! If owner recovers goods against this rule then 52 a! The contract shall be considered as terminated! b! The hirer shall be released from all liabilities under the contract! c! The hirer is entitled to recover from the owner all amounts paid under the contract including deposit! d! A guarantor shall be released from all liabilities and may recover any amounts or security given by him under the contract! However the protection afforded by 3ection ,'B,) above is more apparent than real in that5 i! The Hirer must pay too much to enCoy the protection! ii! Property in the goods does not pass to the Hirer! iii! The owner may still repossess the goods if the court so orders! It is important to note that any person who "nowingly gives false information in any proposal form or document which is completed for purpose of entering into a hire purchase agreement is guilty of an offence and is liable to a fine of up to #shs! ' (((DE or imprisonment not e8ceeding . months or both! CO,PI72D <>6 3rancis N;ihia ?a0uru. I,I4( 77.< &H"ns.)( 77.,( 7ecturer @?UAT. . AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA!atch spaceAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA this