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Duru Onyekachi Free Law Lecture Series: No. 20

Obligations of the Parties to a Hire Purchase Agreement *

Meaning of Hire Purchase

According to the Halsbury’s Laws of England, Vol. 1 1st Edition at p. 554, a contract of

hire-purchase is defined as a contract of hire with an option to purchase under which the owner of

the chattel undertakes to sell it to or that it shall become the property of the hirer conditionally on

his making a certain number of payments. However, no property in the goods passes until the

making of the last payment. Similarly, according to section 1 of the English Hire-Purchase Act,

1965, a hire purchase agreement is defined as an 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

bailee.

According to C. J. Borrie in his book titled Commercial Law, a hire purchase agreement is

an agreement by an owner of goods to hire them out to a hirer and to give the hirer an option to

purchase, conditional on his completing the necessary payments for the goods and complying

with the terms of the agreement. This definition not only underscores the option of purchase given

to the hirer; but also, shows that a hirer must strictly comply with the terms of the agreement.

From the foregoing, it is clear that a hire purchase agreement is a contract whereby the

owner of a chattel lets it out on hire for a periodic rent with the provision that on due compliance

with the various terms of the agreement and the completion of the agreed number of payments of

rent, the hirer either becomes the owner of the goods automatically or shall have the option of

purchasing the chattel by the payment of a small agreed sum. The advantage of the hire-purchase

agreement is that it allows somebody to take possession of the goods even when payments have

not been completed. Also, it allows somebody to desire to own a property even when his income

is very low.

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Onyekachi Wisdom Duru Esq. (Contact: Email: onyekachiduru@gmail.com; Tel: +234-8037707496)
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Obligations of the Parties to a Hire Purchase Agreement at Common Law

We shall examine these obligations from two angles, namely, that of the owner and that of

the hirer.

Obligations of the Owner

The obligations of the owner of the goods the subject matter of a hire purchase agreement

at common law include the following;

(a) Duty to Make Delivery of the Goods or Chattel. This duty is trite because it is the

responsibility of the owner of the chattel or goods to deliver them to the hirer, failing which

the hirer may repudiate the contract. This is so because a hire purchase agreement takes effect

upon acceptance of delivery by the hirer. Delivery here is constituted by the voluntary transfer

of possession from one person to another: section 62 of the Sale of Goods Act, 1893. This

may be done ordinarily by the physical transfer of the goods to the hirer or the agent or by the

giving of the hirer the possession of the goods (example giving the key of the motor car, the

subject matter of the hire) or in a situation where the goods are in passion of a third party, by

the acknowledgement by the third party that he holds the goods on behalf of the hirer.

(b) Obligations implied in the Contract. In addition to the above duty or obligation, there are

some conditions implied in the contract. The first obvious condition is that the owner should

possess a good title to the goods. If his title is successfully impeached, it will amount to a

total failure of consideration as between the purported owner and the hirer, entitling the latter

to claim back all he had paid as damages. In addition, there is an implied warranty of quiet

enjoyment; therefore, if the owner willfully interfers with hirer’s possession, the hirer can

sue. Another condition implied in a hire purchase contract at common law is the fitness of the

goods for the purpose for which they were hired. It has been held that the implied condition

as to fitness for purpose for which the goods are made does not extend to a hidden defect.

Thus, in Stephen Anoka v. SCOA Warri (1955/56) WNLR 133, the plaintiff bought a lorry

on hire purchase from the defendant. The engine was defective and the plaintiff replaced it
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with another engine. When the plaintiff subsequently defaulted in the periodical instalments,

the defendant seized and sold the lorry. The plaintiff sued for conversion and in addition for

breach of warranty in respect of the defective engine. It was held that:

(i) in the absence of an express terms in the hire purchase agreement excluding any

warranty of fitness or limiting the defendant’s liability, the defendants were under a

duty to ensure that the lorry was reasonably fit for the purpose for which the

defendants must have known the lorry was intended to be used;

(ii) the delivery to the plaintiff amounted to an implied warranty that the lorry was fit and

suitable for the purpose for which a lorry would be normally used in Warri as care and

skill could make it; but that this implied warranty of fitness could not extend to cases

where the immediate cause of damage was a hidden defect in the hired chattel or

defect which could not have been discovered by due care and skill on the part of the

owner; and

(iii) the implied warranty did not extend to a hidden defect in the chattel as that could not

be discovered by due care and skill on the part of the owner.

Similarly, if at the time of the transaction, it is very glaring that the goods the subject

matter of hire purchase is defective and it was accepted in that condition, one cannot turn

around to rely on this warranty. This was the case in E. A. Amusan and Thomas v.

Bentworth Finance (Nig.) Ltd. (1966) NMLR 276; 1 ALLNLR 382 where the hirer took on

hire purchase pursuant to a hire purchase agreement, five vehicles, two of which were stated

to be in good working condition and three others described as being in need of repairs; the

Supreme Court per Coker JSC, (in an action by the plaintiff for breach of a fundamental

condition: that the goods were not fit for the purpose for which they were employed) holding

that the defendant was not liable since the hirer contracted to hire the vehicles and took

delivery of same in the condition in which she saw and inspected them.

Obligations of the Hirer

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The obligations of the hirer of goods the subject matter of a hire purchase agreement at

common law include the following;

(a) Duty to take delivery of the goods. The first obligation to be borne by the hirer is the

duty to take delivery of the chattel and this duty is to be exercised within a reasonable

time. Accordingly, if the hirer refuses or neglects to take delivery, any loss arising from

such refusal or neglect and such expenses that may be reasonably made for the care and

safe custody of the goods will be payable by the hirer- Greaves v Ashlin (1913) 3 CAMP

426. As a general rule, delivery takes place at the owner’s premises or place of business or

such other agreed place. This is because without delivery the hire-purchase agreement

does not commence.

(b) Duty to pay punctually. It is also the duty of the hirer to pay punctually the various sums

provided for in the agreement in accordance with the provisions of the agreement. The

payment of the initial deposit and the rentals, that is to say the instalmental or periodic

payments are compulsory or mandatory and must be complied with strictly. However the

owner can waive or relax the strict competence with such stipulations. Thus in Offodile

and Sons Enterprises v. SCOA (Nig.) Ltd. (1969) 9 CCHCJ 1333, there was a hire-

purchase agreement between parties in respect of a motor vehicle during the civil war, and

understandably the rentals were not paid, but the hirer continued to have the undisturbed

use of the motor vehicle. After the civil war/hostilities the owners sued for arrears of the

rentals. It was held that the owners were entitled to the rentals and that the hirer’s strict

liability to pay rentals during the war period was only waived or suspended during the

civil war but that should not be regarded as destroying the right to recover rentals.

Again, it is incontestable that the owner has an unfettered right to waive or relax the

question of strict adherence to the terms of the agreement for punctual payments or rentals

by the hirer. In fact, it has been held in Animashawun v. CFAO (1960) LLR 151 that the

waiver or relaxation of strict provision to pay rentals is a right exclusively enjoyed by the
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hirer. And any hirer who maintains that there is a waiver or relaxation of payments of

rentals in his favor by the owner bears the burden of providing same. Lastly, it should be

noted that an action for recovering arrears of rentals is not a claim for damages but a

simple action of claim for debt.

(c) Duty that relates to custody and care of goods. The hirer also has a duty to use the

goods for the purpose for which they were hired. For example, a transport lorry cannot be

used as if it is a tipper lorry. Thus, if the goods are used for a different purpose other than

that which they were hired and sustains damage whether there is negligence or not, the

hirer will be liable. The hirer most provide for the safe custody of the goods - it is a strict

liability obligation and accordingly negligence cannot be pleaded. To safeguard this

problem, most hire-purchase agreements do provide for place or places where the

chattel/goods are to be kept and also the use to which the goods may be put, so that a

breach of that stipulation will entitle the owner to an action for damages against the hirer

on the know once there is a breach of terms.

Also at common law there is an implied obligation on the part of the hirer that he

must take reasonable care of goods or else he will be liable in conversion for the loss or

damage of the goods. This liability however excludes fair wear and tear; that is to say,

except for incidental repairs which may be necessary for proper functioning of the subject-

matter of the hire, the hirer has no duty to repair the article hired. The law does not allow

the hirer to debit the account of the owner on the ground that he was to embark on some

major repairs. Major repairs are to be borne by the owner; while minor repairs are to be

borne by the hirer.

Lastly, the hirer must pay the instalment as and when due, and he cannot debit his

expenditure on repairs on the instalmental payment. Any contrary approach must be

properly proved to exist under the agreement.

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(d) Duty to re-deliver the goods to the owner: At common law, the hirer is under an

obligation to re-deliver the goods, the subject matter of the hire, to the owner at the end of

the hiring, where there is no option to purchase the subject matter of the agreement. His

duty in this regard is to ensure that the owner is not prevented from getting back the goods

and not to take positive steps for actual re-delivery of the goods to the owner.

Obligations Implied under the Hire Purchase Act

We shall examine these obligations from two angles, namely, that of the owner and that of

the hirer.

Obligations of the Owner under the Hire Purchase Act

Section 4 of the Hire Purchase Act prescribes certain implied terms while also seeking to

regulate their exclusion. Subsection (1) of that section provides that in every hire purchase

agreement there shall be;

(a) An implied warranty that the hirer shall have and enjoy quiet possession of the goods. Here

the general principle is that the owner, in addition to putting the hirer in possession of goods

hired must also ensure that he remains in peaceful or undisturbed possession of the same

during the currency of the agreement. Interference from an interested third party would

constitute a disturbance. However, where as in Udekwu v. Abosi (1974) ESCLR 298, custom

officials improperly impounded a car which was the subject of a hire purchase agreement, for

failure to pay import duty, the defendant cannot be held responsible for the unwarranted

interference.

(b) 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. This means that the owner must be able to show a valid title

at anytime that the hirer elects to exercise his right of option to purchase. This provision aims

at assuring the buyer that the seller is an absolute owner of the goods. An honest belief that he

has the right to sell is not enough. Thus, in Microbeads A.G, v. Vinhurst Road Markings

Ltd. (1975) 1 WLR 218 at 221, Lord Denning stated that even if the seller honestly believed
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that he had title or right to sell, the provision as regards the right to sell was nevertheless, said

to be breached. According to the learned Lord, it may be the seller is innocent but when one or

other must suffer, the loss must fall on the seller, because after all, he sold the goods and if it

turns out that they infringe a patent he should bear the loss.

(c) An implied warranty that the goods shall be free from any charge or encumbrance in favor of

any third party at the time when the property is to pass. Like the condition of title, this

warranty does not arise until the time when the property is to pass. Thus, it is imperative that

when the option to purchase is exercised, the owner must be able to pass a title free of any

previous charge or encumbrance to the hirer who has now become a purchaser.

(d) An implied condition that the goods shall be of merchantable quality. This implies that in hire

purchase agreements, the article must be such quality and in such condition that a responsible

and reasonable man would after full examination accept it in performance of the agreement.

However, the conditions as to merchantability would not apply in the foregoing cases:

(1) Second hand goods, except the agreement contains a statement to that effect;

(2) Defects which the owner would not reasonably have been aware at the time the

agreement was made or entered into; and

(3) Defects which the examination ought to have revealed if the goods are examined or

sampled by the hirer.

Furthermore, Subsection (2) of section 4 provides that where the hirer expressly or by

implication makes known the particular purpose for which the goods are required, there shall be

an implied condition that the goods shall be reasonably fit for that purpose. Unlike other statutory

condition and warranties, the implied condition of fitness under section 4(2) may be excluded in a

hire purchase agreement if the owner can show or establish that he explained the effect of the

exclusion to the hirer before the contract was concluded.

Finally, under section 6(1) & (2) of the Hire Purchase Act, the owner has a duty to furnish

the hirer, who makes a request in writing accomplished with twenty kobo for expenses, with a
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statement of amount already paid, full details of any amount due and unpaid, the date these

installments are due and amount and time of payment of the balance.

Obligations of the Hirer under the Hire Purchase Act

The hirer’s obligations under the Hire Purchase Act are the same as under the common

law. Additionally, just as the owner is required to provide some information to the hirer at his

request, so also section 6(3) of the Hire Purchase Act imposes a duty on the hirer to inform the

owner where the goods are, if the owner requests for such information in writing.