National University of Lesotho

L3309 – Law of Special Contracts

Module: Hire Purchase
Lesson 6.

Common law remedies of parties in the event of breach.

Seller’s Remedies:

Where the buyer fails to fulfil his obligations under the hire-purchase
agreement, the creditor has in general to two remedies available to him, these
are:

a) Claim for specific Performance of the contract

b) Claim for cancellation of the contract, return of goods and the forfeiture
of instalment or claim for damages.

1. SPECIFIC PERFORMANCE

At common law, upon breach and failure on the part of the buyer to fulfil its
obligations, the seller has the option to institute a legal suit against the buyer
compelling him to:

a) Pay the purchase or those instalments that are due and if there is an
acceleration clause in the contract, the whole purchase price together
with the interest due:

Where the buyer is in arrear with his instalments, the seller can sue him
forthwith for all the overdue instalments together with interest stipulated in
the contract or judicial rate of interest. But if the seller cancels the contract
under the cancellation clause or takes repossession of the goods in
circumstances that indicate an intention to terminate the contract, he can
generally recover the damages alone. To recover overdue instalments, in
addition to damages, the seller has to rely on a specific stipulation in the
agreement to that effect and also has to establish that it was not penal in
nature, but represented a genuine pre-estimate of the seller’s losses.

Acceleration clauses:

Agreements of hire purchase often contain an acceleration clause that in the

event of the debtor’s failure to pay an instalment when it becomes due, or
failure to meet any other obligation under the agreement the creditor shall
be entitled to claim immediate payment of all outstanding instalments. Such
clauses are valid and effective. In the absence of such an acceleration clause,
the creditor is not entitled to do so under common law.

In this regard, Section 13(a) of the Hire Purchase Act however provides
that:

No seller shall by reason of any failure on the part of the buyer to carry out
any obligation under any agreement be entitled to enforce –

a. Any provision in the agreement for the acceleration of the payment

of any instalment, unless an instalment or any part thereof is not less
than 10% of the purchase price, or two or more outstanding
instalments together are not less than 5% of the purchase price.
b. Any acceleration clause unless he handed over a letter to the buyer or
sent by registered post at the buyer’s residential address or business
address making a demand to the buyer to pay the overdue obligation
 within at least 14 days and the buyer has failed to comply with that
demand.

b) To accept delivery of the goods:

Since the buyer has an obligation to accept the delivery of the goods, the
seller may compel him to fulfil this obligation in terms of the agreement. If
he does not do so, the seller can also claim necessary expenses for the
custody of the goods and taking care of them.

c) Performance of other obligations:

The seller can compel the buyer to fulfil any other obligations the buyer
may have under the agreement. The court however has a discretion not to
order specific performance and instead award damages if they in the
court’s opinion just and appropriate.

The creditor can ask the court for damages in addition to the demand for
specific performance. It should be borne in mind that when an agreement
falls under the hire purchase Act, section 13(b) should be exercised by the
seller before demanding any damages from the buyer.

In Ager v Hitchcock (1950) 3SA 372 , the seller alleged that the buyer was
in breach of the hire-purchase agreement and claimed the balance of the
purchase price of a the motor car or failing that the return of the car. Since
he had failed to comply with section 13(b), it was held that he was not
entitled to judgement for the payment of the purchase; consequently, he
could not claim the return of the motor car either.
There are some clauses in the hire-purchase agreement that provide that in
the event of a default by the buyer, the buyer shall in addition to remedying
the default forthwith, also be liable to pay a penalty. So far as agreement
falling under the Hire Purchase Act are concerned, section 16(2) where a
buyer has failed to carry out any obligation or if any other contingency
occurs that entitles the seller to take action against the buyer, and the
agreement is not terminated or rescinded, the buyer is not bound to make
any payment or perform any other act by which the seller will be placed in a
better financial position that he would have been in if the buyer had
performed his obligations, or the contingency had not occurred. Accordingly,
while a seller can compel the buyer to remedy the default, he cannot compel
him to perform any other act or pay any money that will give the seller a
financial advantage he would not have enjoyed had there been a proper
performance.

2. CANCELLATION

The seller can cancel the contract only in two circumstances:

a) Where there has been a breach of an essential term which goes to the
root of the contract
b) Where the contract expressly provides that in the event of a breach of a
particular term, the seller shall be entitled to cancel.

Failure to pay instalment on time is not generally regarded as a breach of an

essential term. However, a clear indication that the buyer shall not pay
instalments at all will be regarded as breach of an essential term.
It is very common for the seller to include a cancellation or forfeiture clause
in a hire purchase agreement. Usually the clause provides that if any
instalment is not paid, or if there is any breach of any other term in the
contract it will be deemed to be the ‘essence’ of the contract and the seller
shall have the right to cancel the contract without notice and without
recourse to court. Frequently, it is provided that the seller may cancel if the
buyer has made untrue statement or representation, or if the buyer “does or
suffers any act that prejudice the seller”. The onus of proof is on the seller to
prove the prejudice. Sometimes, the clause provides for cancellation even
for reasons beyond the control of the buyer like his death. Such provisions
are valid under common law.

A seller must notify the buyer of his decision to cancel. It should preferably
be in writing and must unequivocal. The issue of summons for the return of
the goods is regarded as sufficient notice.

In law, a seller is deemed to have waived his right of cancellation, if after the
breach, he;

a) Commits an act that is inconsistent with an intention to cancel. For

instance, an unconditional acceptance of an instalment falling due after
the breach.
b) Delays cancelling for an unreasonable time. In an unreported Tanzanian
case, a lorry was purchased on hire purchase terms. The agreement has
cancellation clause which obliged the buyer to pay the instalments every
month on a specified dated. The instalments were never paid on time. But
this time the seller sent one or two reminders, the buyer invariably paid
the instalments amounts. When the time came to pay the last instalment,
the buyer again did not pay on time. But this time the seller sent no
reminders. He instead made use of the cancellation clause and repudiated
the contract. It was held that the by accepting instalments late again and
again, the seller impliedly waived his rights under the cancellation clause.
Often, to overcome this, the hire purchase agreement will have a
provision that “no relaxation or indulgence that the seller may show to
the buyer shall in any prejudice his rights, and in particular no acceptance
of instalments after a due date shall be construed as a waiver”. The
common law permits this.

What is a reasonable time the passage of which would imply that the
seller waived his right to cancel? There is no hard and fast rules to
determine the length of reasonable time. All that the courts have stated
is that lapse of time without rescinding furnishes evidence that the seller
has decided to affirm the contract and the greater lapse of time, the
stronger such evidence becomes. If after a lapse of time, the seller
demands payment and the buyer tenders the due amount, the right to
cancel cannot be exercised.

As far as the agreement under the Hire Purchase Act are concerned, the
position is somewhat section 13(b) prohibits the seller from enforcing any
provision in the agreement for the payment of damages or forfeiture,
unless:
a) He firsts calls on the buyer to fulfil the obligation and the buyer fails to
perform accordingly;
b) All the buyer at least 14 Days of grace to fulfil the obligations.

A claim for cancellation of an agreement and return of the goods involves

a claim for forfeiture within the terms of section 13(b)
3. RETURN OF GOODS

On cancellation, the seller becomes entitled at common law to the return

of the goods. This is a sequel to the seller retaining the ownership in the
goods. The buyer is obliged to surrender possession of the goods. If he
refuses to hand back the goods, the court will come to the assistance of
the seller. But the seller is not allowed to retake possession by force or
tricks. If the he does, he would be obliged to return all the instalment paid
to the buyer without any deduction whatsoever.

Hire purchase agreements usually provide that the goods shall be

returned to the seller at his place of business at the buyer’s expense. In
the absence of such a term, the buyer must deliver the goods at the place
he is being sued. If the goods have been destroyed or lost, and hence,
delivery is not possible, the liability is assessed on the principles relating
to the passing of the risk.
Under the Hire Purchase Act, if the seller retakes possession on the
buyer’s default to pay instalments, the buyer is allowed to recover
possession of the goods if he pays all the arrears due within 30 days from
the date of repossession. It does not matter that the seller obtained
possession on cancellation of the contract. But the buyer does not enjoy
this right in terms of section 14 if:
a) He himself terminated the agreement, or ;
b) Where the seller obtained possession under a court order. -