TERMINATION OF HIRE PURCHASE

SUBMITTED BY: GROUP 9

COURSE CODE: LCI 302

COURSE TITLE: LAW OF COMMERCIAL

TRANSACTIONS II: HIRE PURCHASE

LECTURER-IN-CHARGE: DR. TUMININU OMOTOYE

S/N NAME MATRIC.NUMBER
1. Oludimu Deborah Oyinkansola 221899
2. Olaiya Bisola Glory 221886
3. Ogunleye Racheal Oluwademilade 221875
4. Fasemi Kehinde Oluwatosin 221855
5. Alo Olaoluwa Gabriel 221824
6. Olowu Daniel 224005
7. Suberu Salamah Orahachi 221920
8. Adebowale Kolawole Abdulazeez 221797
9. Adaranijo Hamdalat Ayomikun 212494
10. Onadele Joshua Oluwasegun 221907
11. Precious Praises Abiodun 221913
12. Chima Jachike Emmanuel 221840
13. Ayorinde Comfort 221834
14. Akande Muhammed 221815
15. ⁠Adeoye Samuel Adeboye 221806
GROUP 9 MEMBERS
Table of Contents
1.0 Introduction
2.0 Brief Overview of Hire Purchase
3.0 Hirer’s Right of Termination At Common Law, Under the Hire Purchase Act and The Basic
Ingredients for The Effective Exercise of This Indefeasible Right
4.0 Modes of Termination of Hire Purchase Agreement
4.1 By Performance
4.2 By Subsequent Agreement
4.3 By Notice to Terminate
4.4 By Breach and Repudiation by The Hirer
4.5 Repudiation by Breach of The Owner
4.6 By Frustration
4.7 Termination Under The Terms of Agreement
4.8 Termination by Court’s Judgment (Order)
5.0 Conclusion
1.0 INTRODUCTION

It has been established by a way of definition, that a hire purchase contract is one 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 and
until the making of the last payment, no title to the property passes to the hirer. Simply put, it is a
form of hire, the difference being that the hirer in this case aspires to become the owner of such
article or chattel at a future date and this he makes known by making payments known as
Installmental payments.

The option to purchase, in the definition of hire purchase, gives credence to the fact that either
the hirer or the owner can decide to terminate their agreement at a future date, and this is what
this paper seeks to discuss. The main purpose of this termination is to make the end of the hire
purchase relationship legally recognizable.

This paper seeks to discuss the different ways the Hire Purchase Agreement can be terminated,
both under the common law and the Hire purchase Act.

2.0 BRIEF OVERVIEW OF HIRE PURCHASE

In ordinary parlance, the term “Hire Purchase” simply refers to agreements entered into for
buying goods and paying by installments later. However, section 20 (1) of the Hire Purchase
Act, 1965 provides a statutory definition of what a contract of hire purchase is. Therefore,
according to the Act, a contract for hire purchase can be defined as:

“The bailment of goods in pursuance of an agreement under which the Bailee may buy the goods
or under which the property in goods may pass to the Bailee.”1

From the provisions of section 20 of the Hire Purchase Act, 1965, it can be deduced that a
contract of hire purchase is different from a contract of sale or an agreement to sell.2Also, it

1
Hire Purchase Act, 1965
2
Goswani, B. and Mundhra, P., 2020. Sale and Hire-Purchase Agreements: Differences and Inconsistencies. Supremo
Amicus, 22, p.404.
https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/supami22&section=43
should be noted that in a hire purchase transaction, there is no obligation on the part of the hirer
to complete the installmental payment or to buy the goods after payment of installment.3This is
because unlike as provided for in Section 75(2) of the Sale of Goods Act, 1893, he has not
agreed to buy the goods. Thus, he cannot be regarded as a buyer in possession.

Simply put, a contract of hire purchase is an agreement whereby the owner of certain goods
transfers the possession of the goods to someone else who is known as the and they both agree to
a periodical payment structure after which the hirer has the option of either buying the goods or
returning the goods.

A look at the historical development of the hire purchase system indicates that it was designed to
evade the provision of section 9 of the Factors Act, 1889 which allows a person who has bought
or agreed to possession to pass a good title to an innocent purchaser for value.4 This is because
when the property in the goods has passed, whether the sum agreed upon had been paid or not is
immaterial, the new buyer would acquire a good title.

However, the newly accepted position of the law as stated in the Hire Purchase Act, 1965 can be
seen in the House of Lords decision in the case of Helby V. Mathews5where the plaintiff gave
possession of a piano to a third party. The title of the piano was meant to pass to the third party
upon the payment of certain installments. However, before the installments were totally paid, the
third party pledged the piano to the defendant and the plaintiff/owner brought an action for the
re-possession of the piano. The court held that until the installments were totally paid, the title in
the goods still resided in the plaintiff and the third party could not validly transfer title to the
defendant.

3.0 HIRER'S RIGHT OF TERMINATION

3
Enyia, J.O., THE IMPACT OF HIRE PURCHASE ACT 1965 ON CONSUMER CREDIT
https://www.researchgate.net/profile/Jacob-Enyia/publication/325336141_The_Impact_of_Hire_Purchase_Act_19
65_on_Consumer_Credit/links/5d447e93299bf1995b60b99e/The-Impact-of-Hire-Purchase-Act-1965-on-Consumer
-Credit.pdf
4
Diamond, A.L., 1960. Hire-Purchase Agreements as Bills of Sale (II)(Continued). The Modern Law Review, 23(5),
pp.516-536.
https://www.jstor.org/stable/1092086

5
72 L.T. Rep. 841 (1895).
The hirer’s right to termination in a hire purchase agreement holds significant weight, both
historically under common law and within the framework of the Hire Purchase Act. Under the
common law, the hirer’s right to determine a hire purchase agreement was unqualified. No
formality was required in order to enable the hirer to terminate the agreement. In the case of
Helby vs. Mathews(1895) A. C. 471
Lord Macnaughten stated:
If the object of desire loses its attraction to closer acquaintances – if faults are developed
or defects discovered – if a coveted treasure is becoming a burden and an encumbrance,
It is something, surely to know that the transaction may be closed at once…

Under the Hire Purchase Act this right of the hirer is elaborated upon. According to the provision
of S. 2 (2) of the Act, the memorandum of agreement must contain a notice advising the hirer
inter alia of his unfettered right to terminate the agreement. Also, according to the provision of S.
3(b) of the Hire Purchase Act, any term which excludes the hirer’s right to terminate the
agreement would be inapplicable.

The procedure for terminating a hire purchase agreement by the hirer is specified under S. 8 of
the Hire Purchase Act. Specifically, according to S. 8 (1), in order for a hirer to terminate the
agreement, he has to send a notice in writing to the person entitled or authorized to receive any
sums payable under the agreement as stated in Amusan and Thomas v Bentworth Finance
(nig) Ltd 1966 N.M. L. R 276.

However, the effective exercise of the hirer’s right to terminate a hire purchase agreement hinges
on several key factors. Firstly, the notice of termination must be provided “in writing,” following
the same standard as outlined in the Bill of Exchange Law. Secondly, this right is only available
until the final payment is due; after which, unless the agreement specifically allows otherwise,
the right is forfeited. Thirdly, while the notice is generally to be given to the owner, it can also be
given to the dealer or the agent responsible for receiving payments.

To conclude, aside from statutory powers like Section 8(1) of the Hire Purchase Act, the
agreement might have its own termination provisions. Common law could come into play if the
transaction isn’t covered by the Act, particularly in cases of owner breaches. Ending the
agreement might not release all responsibilities, especially if goods’ possession rights continue
per the agreement. This brings up queries about the hirer’s ongoing duties, including the impact
of minimum payment clauses.

4.0. MODES OF TERMINATION OF HIRE PURCHASE AGREEMENT

4.1BY PERFORMANCE
The ordinary rules of termination of simple contracts apply to hire purchase agreements. Again,
because it falls squarely under some specialized contract, it can also be terminated under certain
peculiar circumstances and one of which is termination by performance.
An agreement is terminated by performance when the parties (the owner and the hirer) have both
performed all their obligations under it. When this happens, the hirer is then entitled to exercise
his right of option to purchase the goods included in the agreement. So long as the parties to the
transaction perform their own side of the bargain, and bearing in mind that the essence of this
transaction is for the hirer to ultimately purchase the goods involved, it stands to reason that the
most obvious way of terminating this type of agreement is through performance of the contract.
Hence, once the hirer exercises his option to purchase, the contract is brought to an end by
performance. What this is saying in essence is that the hire-purchase agreement is terminated by
performance on the exercise of the option to purchase the goods by the hirer.
The consequence of this is that the hirer then becomes also the owner of the goods. The contract
is as a result discharged and no further obligation attaches to the parties beyond any accruing at
the time.

4.2 BY SUBSEQUENT AGREEMENT

Just as the name implies, Subsequent agreement is when the parties to a hire purchase agreement
enter into another agreement which extinguishes or terminates the terms of the original contract
of hire purchase and substitutes it with a new one which releases them (in this case, the parties)
of all obligations under the original contract.
Simply put, it means that both the hirer and owner mutually agree to end the agreement before its
originally agreed date. It usually involves agreeing on terms such as early payment of the
outstanding amount, rate of interest, price and varying other terms of the memorandum. This
usually happens after the initial agreement has been signed and it is a very valid way of ending a
hire purchase agreement. Most laws and legislations vary in their laid down rules on the
termination of hire purchase by Subsequent agreement but it is usually contained in sections
relating to hire purchase and contractual agreements.

An hypothetical situation would be an example of Mr A. Entering into a hire purchase with Mr.
B in order to purchase a truck, and after 3 installmental payments, decide to not aspire to own the
truck anymore. He therefore meets Mr. B informing him of this decision, and they agree between
themselves to not go ahead with the remaining terms of the contract. This subsequently
terminates the hire purchase contract, by Subsequent Agreement.

4.3 BY NOTICE TO TERMINATE

In a hire purchase agreement, termination by notice is a legal mechanism that allows either party,
usually the hire purchaser, to end the contract by providing formal notice to the owner or seller.
This termination typically occurs when the hire purchaser is unable to continue meeting the
financial obligations outlined in the agreement, such as making regular payments.

The notice of termination must be made in accordance with the terms specified in the hire
purchase agreement or relevant legislation. It usually includes details such as the reasons for
termination, the effective date of termination, and any additional requirements or conditions
outlined in the contract.

Upon receiving the notice of termination, the owner or seller has certain rights and options
depending on the specific terms of the agreement and applicable laws. These may include
reclaiming the goods from the hire purchaser, renegotiating the terms of the agreement, or
seeking compensation for any losses incurred as a result of the termination.

It's important for both parties to understand their rights and obligations regarding termination by
notice before entering into a hire purchase agreement. Seeking legal advice or consulting the
terms of the contract can help clarify any uncertainties and ensure a smooth process in the event
of termination.
4.4 BY BREACH AND REPUDIATION BY THE HIRER
Hire purchase agreements can be terminated by breach and repudiation by the hirer under certain
circumstances. A breach of contract occurs when the hirer does not carry out their obligations
outlined in the agreement, such as making timely payments or maintaining the goods. The
owner is entitled to terminate the contract and take back the goods as a result of this breach.

Repudiation occurs when the hirer indicates that they intend to no longer be bound by the terms
of the agreement. This may be demonstrated by words or actions indicating a lack of desire or
capacity to fulfill their obligations. Repudiation by the hirer gives the owner the right to
terminate the agreement and pursue damages for any losses incurred.

It is important to note that in both cases of breach and repudiation, the owner must comply with
all the requirements and procedures outlined in the hire purchase agreement and adhere to any
legal requirement. This may entail informing the hirer of the breach or repudiation and allowing
them a chance to make things right. In the event that the breach or repudiation continues, the
owner may proceed with termination of the agreement and take appropriate legal actions to
recover the goods or seek compensation for any losses suffered.

4.5 REPUDIATION BY BREACH OF THE OWNER

A fundamental breach or a breach of a fundamental term by either party to a contract of hire
purchase entitles the other to repudiate the contract and treat it as at an end if he so chooses6.
However the breach of the owner will be looked into. A hire-purchase agreement can be
terminated by the hirer on the breach of the owner. Such breach by the owner may take the form
of failure to comply with any of the implied conditions under section 4 of the Hire-purchase Act.
In addition, a breach by the owner to carry out any of the statutory formalities under section 2 of
the Hire-purchase Act may in consequence determine the agreement. In National Cash Register

6
Mnyim M.M. Hire Purchase. Accessed on 26th of February 2024 from
http://dx.doi.org/10.13140/RG.2.2.18992.07686
Co. Ltd. v. Stanley,7 The hirer successfully repudiated the agreement due to the owner's failure
to deliver the promised goods within a reasonable time.

4.6 BY FRUSTRATION

According to the Hire Purchase Act 1990, which regulates hire purchase transactions in Nigeria,
a hire purchase agreement can be terminated by the hirer at any time before the final payment is
due, by giving notice in writing and returning the goods to the owner. However, the hirer may
still be liable to pay a certain amount to the owner, depending on the terms of the agreement and
the condition of the goods.

Alternatively, a hire purchase agreement can be terminated by frustration, if an event occurs after
the formation of the contract that makes the performance of the agreement impossible or
fundamentally different. For example, if the goods are destroyed or damaged beyond repair by a
natural disaster, a fire, or a theft, without any fault of the hirer, the agreement may be frustrated
and the parties may be discharged from their obligations. In such a case, the hirer may be entitled
to recover any payments already made, and the owner may be entitled to claim compensation for
the loss of the goods.

The application of frustration to hire purchase agreements depends on the facts and
circumstances of each case, and the courts may consider various factors, such as the nature and
purpose of the goods, the duration and terms of the agreement, the extent and cause of the
impossibility or change of performance, and the availability of alternative remedies⁵. Some
examples of cases where frustration was invoked in relation to hire purchase agreements in
Nigeria are:

In Samuel Aro v Joe Allen & Co Ltd [1979] 2 FNR 292, where the Court of Appeal held that a
hire purchase agreement for a motor vehicle was frustrated by the requisition of the vehicle by
the government for security purposes, as the requisition was unforeseeable, beyond the control of
the parties, and substantially affected the performance of the contract.

7
[1921] 3 KB 292. 189.
In Bentworth Finance Nig Ltd v De Bank Transport Ltd [1981] 2 FNR 1, the Supreme Court
held that a hire purchase agreement for a motor vehicle was not frustrated by the theft of the
vehicle, as the theft was not an inevitable event, and the hirer could have insured the vehicle
against the risk of theft. In Nwabueze v Nwosu [1991] 4 NWLR (Pt 185) 267, the Court of
Appeal held that a hire purchase agreement for a motor vehicle was frustrated by the death of the
hirer, as the death was unforeseeable, beyond the control of the parties, and rendered the
performance of the contract impossible.

4.7 TERMINATION UNDER THE TERMS OF AGREEMENT

The hire purchase agreement stipulates the circumstances in which the agreement can be
terminated. The agreement is generally terminated by return of the goods by the hirer, notice of
termination by the owner on account of breach of conditions or notice of termination by the
hirer8. This subheading is concerned with termination by return of the goods by the owner. Hire
purchase agreements under the common law often contain provisions for the termination by the
hirer, the consequences of which the hirer shall pay the minimum payment clause.9
THE MINIMUM PAYMENT CLAUSE
In all hire purchase agreements, there is a clause which states the minimum amount that the hirer
is liable to pay upon his exercise of his right to terminate the agreement. This clause is called the
minimum payment clause. The purpose of the minimum payment clause is to ensure that the
owner does not suffer loss as a result of the hirer exercising his right to terminate the
agreement10.
COMMON LAW POSITION ON THE MINIMUM PAYMENT CLAUSE
Under the common law, the owner could make use of the minimum payment clause when the
hirer terminated the transaction or he breaches the agreement. In the case of Associated

8
Advocatekhoj.com. (n.d.). Termination of hire-purchase agreement: Hire purchase: Areas of law: Law
library. AdvocateKhoj.
https://www.advocatekhoj.com/library/lawareas/hire/termination.php?Title=Hire+Purchase&STitle=Termina
tion+of+Hire-Purchase+Agreement#:~:text=In%20terms%20of%20the%20agreement,of%20termination%
20by%20the%20hirer.
9
Questions and Answers by Osuntogun
10
(2016, September 30). The hirer’s right to terminate a contract of Hire Purchase. The Jet Lawyer.
https://djetlawyer.com/hirers-right-terminate-contract-hire-purchase/
Distributors Ltd v Hall11, the hirer returned the bicycle he hired after paying just one
installment. There was a minimum payment clause stating that upon termination of the
agreement, the hirer would pay half of the total hire purchase sum. The court held that since this
was the agreement of the parties and it didn’t amount to a penalty, the hirer has to pay this sum of
money12.

THE HIRE PURCHASE ACT POSITION ON THE MINIMUM PAYMENT CLAUSE

According to the provision of S. 8 (1) of the Hire purchase Act, the maximum liability that can
be incurred by the hirer under the minimum payment clause is one half of the total hire purchase
price. If on the termination of the agreement, the hirer has paid less than half, he has to complete
the payment until it gets to half. If he owes arrears of installments, he has to pay such arrears and
subsequently pay the amount that would make the total payments equal to half13.

For example, X took a car on hire purchase at the total hire purchase price of 2,000 naira. He
deposits an initial sum of 500 naira, pays 200 naira in installments and he owes 100 naira in
arrears. From the above, if he terminates the agreement, the highest liability he can incur under
the minimum payment clause is 1000 naira (half of 2000 naira). Presently, he has paid 700 naira
(500 + 200). He owes 100 naira in arrears. Thus, the amount he is left to pay is the 100 naira
arrears + 200 naira (the amount needed to make the total sum equal to 1000 naira). He thus owes
300 naira14.
It should be noted that if the hirer has already paid a sum which is more than half of the hire
purchase agreement, he would incur no further liability. It should also be noted that according to
the provisions of S. 3 (b) of the hire purchase act, if a term increases a hirer’s liability to more
than the amount stipulated under S. 8 (1), such term would be inapplicable15.

11
Associated Distributors Ltd v Hall 1938 2 K.B 83
12
(2016, September 30). The hirer’s right to terminate a contract of Hire Purchase. The Jet Lawyer.
https://djetlawyer.com/hirers-right-terminate-contract-hire-purchase/

13
Ibid
14
Ibid
15
Ibid
4.8 TERMINATION BY COURT’S JUDGEMENT (ORDER)

As a general rule, a court has no authority to effect a direct termination of a hire purchase
agreement which exists between an owner, hirer and/or the finance company. The court is only
expected to clarify and indicate if a hire purchase agreement has truly come into place by
checking if all necessary conditions have been met. However, in certain circumstances, the court
can legally bring a hire purchase contract to an end in the exercise of its powers under the Act.
Where this happens, parties are effectively discharged of all obligations arising from the hire
purchase agreement and the contract is thereby repudiated.

For instance, As stated under the section 2 of the Hire Purchase Act, if the court is satisfied in
any action that there is failure to comply with the formation requirement of the Act, the court
may dispense with the requirement but where the circumstances permit, the court may pronounce
the contract void thereby bringing it to an end. Similarly, according to S.9(5) of the Hire
Purchase Act, where three or more installments of the hire purchase price of a motor vehicle
under the agreement are due and unpaid, the owner may remove the motor vehicle to any
premises under his control for the purpose of protecting it from damage or depreciation and
retain it there pending the determination of any action. In the action that will arise in these
circumstances, the court may terminate the contract after fixing the liabilities of parties.

5.0 CONCLUSION
Without doubt, Hire Purchase is a desirable means to acquire personal assets and expensive
machinery, especially for industries like engineering, construction, manufacturing and transport
sectors. However, it is not a do or die affair. The concept of hire purchase, the hirer’s right of
termination and the plethora of modes to terminate a Hire Purchase agreement have been
explored in this writing. Depending on the circumstances of the case, any of these modes can be
used for a successful termination process.
REFERENCES

Advocatekhoj.com. (n.d.). Termination of hire-purchase agreement: Hire purchase: Areas of law:

Law library. AdvocateKhoj.
https://www.advocatekhoj.com/library/lawareas/hire/termination.php?Title=Hire+Purchase&STit
le=Termination+of+Hire-Purchase+Agreement#:~:text=In%20 terms%20of%20the%20
agreement,of%20 termination%20by%20the%20 hirer.

Commercial law and practice,(Eni Eja Alobo) 1st ed. (2016, September 30). The hirer’s right to
terminate a contract of Hire Purchase. The Jet Lawyer.
https://djetlawyer.com/hirers-right-terminate-contract-hire-purchase/

Enyia, J.O., THE IMPACT OF HIRE PURCHASE ACT 1965 ON CONSUMER CREDIT

Goswani, B. and Mundhra, P., 2020. Sale and Hire-Purchase Agreements: Differences and
Inconsistencies. Supremo Amicus, 22, p.404.
https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/supami 22 section=43

Mnyim M.M. Hire Purchase. Accessed on 26th of February 2024 from

http://dx.doi.org/10.13140/RG.2.2.18992.07686

Olanrewaju Olamide. 2018. The Hirer's Right to Terminate a Contract of Hire Purchase.
DjetLawyer. Retrieved 29th February 2024 from:
https://djetlawyer.com/hirers-right-terminate-contract-hire-purchase

M.C. Okany. 2009. Nigerian Commercial Law. 2nd ed. African First Publishers Plc

HIRE-PURCHASE By: Mnyim Mwuese Modupe:

https://www.researchgate.net/publication/351022955_Hire_Purchase
https://www.learnnigerianlaw.com/learn/commercial-law/hire-purchase