COMMERCIAL LAW 1

2012/2013 ACADEMIC YEAR

HIRE PURCHASE
UGBS, 29TH OCT 2012

Rowland Atta-Kesson Esq.

 OUTLINE
• The Nature of hire-purchase agreement
• History of Hire-Purchase Law in Ghana (pre-1958
to date)
• Formation of Hire-Purchase Agreement under the
Hire-Purchase Act, 1974 (NRCD 292)
• Hirer’s right of termination and liability upon
termination.
• Restriction on owner’s right to recover protected
goods.
• Implied terms in hire-purchase agreement.
• Rights of third parties in event of wrongful sale of
goods by hirer
 TUTORIAL
• By an agreement between Kofi, a second-
hand car dealer and Kwesi, a ‘trotro’ driver,
Kofi, let a second-hand Toyota bus to Kwesi
on hire purchase.
• The hire-purchase price was GH¢10,000.00
of which Kwesi paid an initial deposit of GH
¢2,000.00 with the balance of GH¢8,000.00
payable over a period of 8 months at the rate
of GH¢1,000.00 a month.
• According to the agreement which was
signed for Kwesi by his elder brother
Kwame, Kwesi was to have the right of
seizure in the event of default by Kwesi.
• A copy of the said agreement, which omitted
to state the hire-purchase price, was sent to
Kofi about one month after it had been made.
• After using the bus for 4 months, during
which he paid his installment regularly,
Kwesi discovered certain defects in the bus.
• He drew Kofi’s attention to these
defects, but Kofi did nothing about
them.
• On another occasion Kwesi lost his
receipt book and his copy of his
agreement and therefore wrote to Kofi
for a new copy of the agreement and
the statement of the account.
• But Kofi ignored his request.
• Owing to the constant break down of the bus
and the lack of spare parts, Kwesi has become
disillusioned and is therefore contemplating
adopting one of the following causes of action:
– move to the neighboring country where he can get
spare parts easily and also earn some foreign
exchange.
– Repair the bus and sell it to Afua.
– Terminate the agreement and sue Kofi for the
recovery of all the installments so far paid.
– Kofi has also heard of Kwesi’s plans and decided to
recover possession of the bus from Kwesi.
• Advise Kwesi and Kofi.
 INTRODUCTION
• We focus on 2 credit transactions namely:
– HIRE-PURCHASE AGREEMENTS
– CONDITIONAL SALE AGREEMENTS
•  Not concerned about outright sales.
• Outright sales are exclusively governed by the SALE OF
GOODS ACT irrespective of the mode of payment
• [In a contract of sale where the price is not payable
immediately, but over a certain period, it is referred to as
credit sale.
• However this kind of sale is still an outright sale because
generally, the property in the goods passes in accordance
with the rules of the Act, and the mode of payment of the
price does not affect the passing of property.]
• These credit transactions HPA and CSA are described as
conditional contracts because the passing of property
depends on the payment of the price.
 THE NATURE OF HIRE-
PURCHASE AGREEMENT
• COMMON LAW DEFINITION
– At common law, a contract of hire-purchase is
an agreement under which an owner of goods
delivers them on hire to the hirer for certain
periodic payments made by the Hirer, and
further agrees that the Hirer return the goods
and terminate the hiring or elect to purchase
the goods at the end of the hiring period.
 Bailment,
• A hire-purchase agreement may be likened to a
bailment transaction, the owner being bailor
and the hirer the bailee.
•  Upon the completion of the agreement, the
hirer is given actual possession and use of the
goods hired.
• The owner retains the property or title to the
goods.
• The property in the goods remains in the
owner until such time that the hirer exercises
his option to purchase the goods- by paying the
full hire-purchase price.
• STATUTORY DEFINITION
• Section 24 of the Hire-Purchase Decree
defines a HPA 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”
• Element of hire
• Every HPA involves the bailment of goods by
the owner to the hirer in return for certain
periodic payments made by the hirer. In other
words possession of the goods is always given
to the hirer even though the property in the
goods remains in the owner until the hirer
effectively exercises the option to purchase.

• Option to purchase
• The second essential element of every HPA is
that the hirer has an option either to purchase
the goods or to return them and thereby
terminate the hiring.
OPTION TO PUCHASE
• Generally, by granting the hirer the option to
purchase, the owner is said too have made as
irrevocable offer to sell the goods to the hirer if the
conditions set out in the agreement are fulfilled. (i.e.
if the hire-purchase is paid in full).

• On the hirer’s part however, he is under no

obligation to purchase the goods.
• He may exercise the option to buy, i.e. he may
accept the offer to sell by completing the payments
scheduled under the agreement; or
• He may also elect to terminate the hiring and return
the goods t the owner without buying them
• The essential features of a hire-purchase
agreement at common law were identified in
the case of HELBY v. MATTHEWS [1895]
A.C 471
• “At common law, a HPA is a contract of hiring ,
which is terminable at the will of ht hirer,
coupled with a condition in the hirer’s favour,
that he may elect to retain the goods and make
full payment for it, or he may return it.”
• OPTION TO PURCHASE MAY BE
DRAFTED IN ONE OF TWO WAYS:
• First, after the payment of all the
installments, the hirer may be entitled to
buy the goods upon payment of an
additional and usually nominal sum called
the Option fee.
• Here the hirer makes the payments
punctually until the end of the hiring
period. He then exercises his option to
purchase by paying the Option fee, after
which the hirer becomes the owner of the
goods. 
• Secondly, the stated installments payable by
the hirer under the agreement may include the
Option fee, so that at the end of he hiring
period, no new or additional payment is
required. In this case, upon due payment of all
the scheduled installments, the property in the
goods will automatically vest in the hirer.
• Here the hirer exercises his option to purchase
by paying all th installments up to the of the
hiring period.
• Note however that in practice, hirers enter into
the hire-purchase agreement with the intention
of exercising the option to purchase; and in
most cases in fact do so.
• CONDITIONAL SALE AGREEMENTS
• The is the second kind of credit transaction
governed by the provisions of the Hire-
Purchase Decree.
• A conditional sale agreement is defined as an
agreement for the sale of goods under which
the purchase price or part of it is payable by
installments, and the property in the goods is
to remain in the seller even though the buyer is
in possession of the goods, until certain
conditions specified in the agreement are
fulfilled by the buyer.
• Section 24 of the Decree
• A conditional sale agreement therefore is
essentially a sale transaction under which
the price is payable in installments, and the
seller retains the property in the goods,
until certain specified conditions,(usually
the full payment of the price) are fulfilled
by the buyer.
 Purchase agreement and
Conditional Sale Agreement.
•   is an agreement for the sale
a conditional sale agreement
of goods whereas a hire-purchase agreement is an
agreement for the bailment of goods under which
property may pass to the bailee.
• the hire-purchase agreement differs from the conditional
sale agreement in that in the case of a hire-purchase
agreement, the hirer has the right to elect whether or not
to buy the goods, i.e. the buyer simply has an option to
purchase but is not legally bound to do so; whereas in
the case conditional sale agreement the buyer by virtue
of the terms of the contract is bound to purchase the
goods.
• The buyer in a conditional sale agreement
therefore has an obligation and not a mere
option to purchase the goods.
• Since a person who takes goods under a
conditional sale agreement has a binding
obligation to purchase the goods, the parties
to a conditional sale agreement are rightly
described as the seller and the buyer; whilst
the parties to a hire-purchase agreement
are described as hirer and owner.
• It is interesting to note however that most of
the legislation that have been passed in
England dealing with Hire-Purchase
Agreement also apply to Conditional Sale
Agreements.
• The two have traditionally been treated as
identical probably because the features of both
kinds of transactions tend to be very similar.
Under the Hire-Purchase Decree, 1974
(N.R.C.D. 292) hire-purchase agreements and
conditional sale agreements are to all intent
and purposes treated as equivalents and most
of the provisions apply equally to both hire-
purchase agreements and conditional sale
agreements.
 ORIGIN AND
DEVELOPMENTS IN HIRE-
PURCHASE TRADING
• Hire-purchase trading is believed to have first
started in England in the second half of the
nineteenth century.
• This mode of obtaining credit became very popular
with the introduction of the Singer sewing machine.
• The Singer Manufacturing Co. is said to have let out
its machines to its customers under hiring
agreements which included an option to purchase
and the sums paid by way of hire-rent were treated
as part of the purchase price where the purchaser
exercised the option to purchase.
• Hire-purchase transactions were later
extended to cover the sale of such items as
wagons, furniture, motor cars and even false
teeth.
• In later years hire-purchase trading became a
very popular means of obtaining goods on
credit and was available for the acquisition of a
wide range of consumer goods.
• It must be observed that in all these years
when hire-purchase trading was in force, the
rights, duties and obligations of the parties
were governed solely by the common law, i.e.
the general contract law.
 ABUSES
• Unfortunately, the expansion of hire-purchase
trading brought with it certain abuses and
unscrupulous practices which the common law
was incapable of remedying.
• The lack of statutory control of hire-purchase
transactions created a situation where owners
of goods, by reason of their stronger
bargaining power were free exploit hirer.
• SIGNING OF BLANK FORMS
• Hirers induced to enter into HP they did
understand
• Signed blank forms and owner later filled in
• No relief at common law but non est factum
• Non est factum is very difficult to prove
• SNATCH-BACK DEVICE
•  Some unscrupulous owners encouraged
hirer s to take on hire-purchase
commitments, which were well beyond their
means.
• The decision in CRAMER V. GILES (1883)
1 Cab & El 151 did not help the position of
the hirer. In that case the court held that it
could not intervene to protect a hirer in
default.
• WIDELY DRAWN EXCLUSION CLAUSES
• Another abuse of the hire-purchase system was
the practice of many hire-purchase dealers
(owners) of incorporating into the hire-
purchase agreement widely drawn exclusion
clauses excluding all conditions, warranties or
duties in respect of the quality of the goods, or
their fitness for any purpose. The result was
that hirers had goods foisted on them which
were unfit for their intended purpose, but
which they were nevertheless obliged to pay
WIDELY DRAWN EXCLUSION CLAUSES
•  Another abuse of the hire-purchase system
was the practice of many hire-purchase dealers
(owners) of incorporating into the hire-
purchase agreement widely drawn exclusion
clauses excluding all conditions, warranties or
duties in respect of the quality of the goods, or
their fitness for any purpose.
• The result was that hirers had goods foisted on
them which were unfit for their intended
purpose, but which they were nevertheless
obliged to pay
• HIRER LIABILITY UPON TERMINATION
• As already noted a hirer in a hire-purchase
agreement is not legally bound to complete the
payments to the end of the hiring period, but may
elect to return the goods to the owner and thereby
terminate the hire-purchase agreement.
• However, owners of goods inserted in the hire-
purchase agreement certain clauses known as
“minimum payment clauses”, which required the
hirer to pay upon termination, exorbitant charges
for depreciation of the goods etc.
• These charges which were payable on termination
were so prohibitive that most hirers were
discouraged from attempting to terminate the
agreement.
• NO REQUIREMENT FOR STATEMENT OF CASH PRICE
• Another drawback associated with the application of the
common law was that there was no obligation imposed on the
owner to indicate to the hirer how much interest he was paying
for the credit extended to him.
• There was no obligation on the owner to state the cash price to
the hirer-(the price he would have paid if he purchased the
goods outright).
• [cash price is the price at which the goods would be sold for
cash; the hire-purchase price is invariably higher than the cash
price; the difference representing the interest that is paid for
obtaining the goods on credit.] in the absence of any obligation
to state the cash price, owners could charge an excessive rate of
interest without the hirer being aware of it.
• These drawbacks associated with the application of the common
law to hire-purchase transactions motivated the introduction of
hire-purchase legislation to deal with these abuses of the hire-
purchase trading system.
 FORMAL REQUIRMENTS
FOR THE FORMATION OF A
HIRE-PURCHASE
AGREEMENT UNDER THE
HIRE-PURCHASE DECREE
• First of all, before a HIRE-PURCHASE
AGREEMENT or CONDITIONAL SALE
AGREEMENT is made, the owner or seller
shall state orally and in writing, to the
prospective hirer or buyer, the cash price
and the either the hire purchase price or the
total purchase price. See section 2
• Secondly, for the HIRE-PURCHASE
AGREEMENT or CONDITIONAL SALE
AGREEMENT to be enforceable, it must be in
writing, and signed by the hirer or beer, and
by or on behalf of all the other parties to the
agreement.

• Section 1(1) (a)

• Note that the hirer is required to sign
personally. This is to ensure that he takes a
direct interest in the formation of the contract
and its terms.
• Thirdly, according to section 3 of the Act ,
for a hire-purchase to be valid and
enforceable, it must contain the following;
• A statement of the cash price and the hire-
purchase price of the goods to which the
agreement relates.
• A statement of the amount of each
instalment to be paid by the hirer and the
dates or the mode of determining the dates
on which each instalment becomes payable.
• Thirdly, the hire-purchase or conditional
sale agreement must contain a description
or a list of the goods to which the agreement
relates
• Fourthly, the agreement must contain a
notice, prominently displayed in the
agreement along the lines of what is
contained in the first and second schedules
to the Decree
• The notices in the 1st and 2nd schedules
contain a statement acknowledging;
• the hirer’s right to terminate the HIRE-PURCHASE
AGREEMENT and a statement of his liability upon
termination; and
• a statement acknowledging the statutory restriction
on the owner’s right to recover the goods.
• Fifthly, the owner is required in section 3(2)
to deliver a copy of the HIRE-PURCHASE
AGREEMENT to the hirer within 14 days
after the making of the agreement.
• DISCRETION OF COURT TO DISPENSE
WITH SPECIFIC REQUIREMENTS;
• According to section3 (3), where the parties
fail to comply with the requirements in
section 3(1)(b) and (c) and section 3(2), the
court can exercise its discretion and still
hold the agreement enforceable if it
considers it just and equitable to do so and
if it is clear that the omission of those
requirements has not prejudiced the hirer
in any way.
• The effect of section 3(3) therefore is that
where the parties fail to include in the
agreement amount of each instalment or date
and the description of the goods, or where the
owner fails to deliver a copy of the agreement
to the hirer within the stipulated period of 14
days, the courts may, in exercise of their
discretion, nevertheless hold the agreement
enforceable if it is clear that the non-
compliance with these requirements has not in
any way prejudiced the position of the hirer.
• Mensah v. Osei [1962] 1 GLR 261
• SCOPE OF DISCRETION
• It is important to note that the discretion of the
court can be exercised only when the parties
fail to comply with the specific provisions
mentioned in section 3(3).
• The discretion of the courts does not include
the power to dispense with the requirement of
statutory notice (section 3(1)(d)), the statement
of the cash price and hire-purchase price
(section 3(1)(a)) or the requirement that the
HIRE-PURCHASE AGREEMENT must be in
writing.
–  U.T.C v Johnson Okoro [1962] C.C. 54
• In effect therefore for a HIRE-PURCHASE
AGREEMENT to be enforceable by the owner
the following mandatory requirements must be
fulfilled:
• the hire-purchase must be in writing and
signed by or on behalf of both parties;
• the hire-purchase must contain the following
information;
– statement of cash price and hire-purchase price;
– statutory notices on the hirer’s right to terminate;
and the restriction on the owner’s right to recover
the goods.
• EFFECT OF NON-COMPLIANCE WITH THE MANDATORY
REQUIREMENTS STATED IN SECTIONS 1-3
• Section 1 of the Decree provides that if the HIRE-PURCHASE
AGREEMENT does not comply with the requirements stated in
sections 1-3, the agreement so made shall be unenforceable by the
owner.
• Note that the section makes it clear that it is the owner and not
the hirer who is disabled from enforcing the agreement in the
event of non-compliance with section 1-3.
• Section 1(1) states:
– where goods are let under a HIRE-PURCHASE AGREEMENT or
sold under a CONDITIONAL SALE AGREEMENT, the owner or
seller shall not be entitled to enforce the agreement unless the
mandatory requirements are complied with. Therefore where the
HIRE-PURCHASE AGREEMENT does not comply with the
mandatory requirements stipulated in sections 1-3, the owner is not
entitled to enforce the agreement against the hirer, but the hirer is
allowed to enforce it against the owner.
• Yayo v. Nyinase [1975] 1 GLR 422
• CONSEQUENCES OF
UNENFORCEABILITY; SECTION 1(2)
• Section 1(2) of the Decree goes on to state the
further consequences of the owner’s inability
to enforce the HIRE-PURCHASE
AGREEMENT.
• WHERE the owner or seller is disentitled from
enforcing the agreement;
• he is also not entitled to enforce any contract of
guarantee relating to that agreement.;
• secondly, the owner cannot enforce any
security given by the hirer or a guarantor in
respect of money payable under the
agreement;
• thirdly, the owner or seller shall also not be entitled to enforce
his right to recover that goods from the hirer or buyer.
• These rules are designed to ensure that the owner’s compliance
with the statutory requirements for the formation of a HIRE-
PURCHASE AGREEMENT. These formal requirements are
primarily designed to protect the hirer from possible fraud by
the owner and also to ensure that the hirer receives all the
pertinent information relating to the transaction.
• The consequences of the owner’s failure to comply with the
requirements appear to be very drastic. However, these
consequences could be said o flow naturally from the fact that
non-compliance with the statutory requirements renders the
HIRE-PURCHASE AGREEMENT itself unenforceable.
• Generally, a guarantor undertakes to pay a debt in the event of
the principal debtor’s default. If it turns out that the agreement
under which the debt was incurred is itself unenforceable, the
contract of guarantee is also unenforceable.
– Coutts & Co. v. Browne-Lecky & Others [1947] KB 104
• PROHIBITION OF SPECIFIED
CLAUSES-SECTION 4
• For reasons of public policy, section 4 of the
HIRE-PURCHASE AGREEMENT Decree
stipulates that certain clauses, if contained
in a HIRE-PURCHASE AGREEMENT or
CONDITIONAL SALE AGREEMENT
shall be void and of no effect. According to
section 4 of the Decree, the following
clauses, if included in the hire-purchase
agreement or conditional sale agreement
shall be disregarded
These prohibited clauses include the following;
1. any provision which confers on the owner the
right or the authority to enter into any private
land or premises for the purpose of taking
possession of goods which have been let under a
HIRE-PURCHASE AGREEMENT or sold
under a CONDITIONAL SALE
AGREEMENT; or any provision which relieves
the owner from liability for any such entry.
• [section 4(a)]
• [This provision is important because of the statutory
regulations which limit or control the owner’s right to
recover the goods]
2. secondly, any provision which restricts or
excludes the hirer’s right to terminate the
HIRE-PURCHASE AGREEMENT which
is conferred on the hirer by section 5 is also
void and of no effect.

[see section 4(b)] the owner is not allowed

to impose any conditions on the hirer’s of
termination or to exclude it entirely.
3. any provision which imposes on the hirer a liability upon
termination which is greater than that stated in section 6 of the
Decree is also void and of no effect.

[Section 6 provides that upon termination, every hirer shall be

liable to pay to the owner the difference between the total
amount already paid and 50% of the hire-purchase price]. Any
provision which requires the hirer to pay an amount of money,
which exceeds this shall be void.[section 4(b)]

Also section 6 stipulates certain liabilities with respect to the

goods themselves-eg if the goods are damaged through the
hirer’s failure to exercise reasonable care the hirer shall be
liable to pay for such damage. Any provision which imposes on
the hirer strict liability for the care of the goods upon
termination, regardless of negligence would be void and of no
effect. [e.g. provision which imposes on the hirer the liability
for any damage caused to the goods with or without the
negligence of the hirer]
4. Any provision which imposes on the hirer,
in the event of the agreement being
terminated in a manner different from that
stated in section 5, a liability which is
greater than that stated in section 6, shall
also be void and of no effect. [Section 4(c)].

Section 5 stipulates that the hirer shall

exercise his right of termination at any time
before final payment is due, by tendering to
the owner a written notice of his intention to
terminate the agreement.
• The effect of Section 4(c) therefore is to render
void any provision in the HIRE-PURCHASE
AGREEMENT or CONDITIONAL SALE
AGREEEMENT which subjects the hirer to
additional liability (than that stated in section
6) on the ground that the agreement was
terminated in a manner different from that
stated in section 5-for example, by the hirer’s
breach.

5. Any provision whereby any person acting on

behalf of the owner or seller in connection with
the HIRE-PURCHASE AGREEMENT is
deemed to be the agent of the hirer shall also
be void and of no effect.[section 4(d)]
• Section 4(d) must be read together with
section 12 of the Decree which states clearly
that with regard to any representation
relating to the condition of the goods, made
by a dealer or salesman to the hirer, the
dealer or salesman shall be deemed to have
made them as agent of ht seller or owner
and not as as agent of the hirer or buyer.
6. Finally, section 4(e) renders void any
provision which seeks to relieve the owner
or seller from liability for acts of default of
any person acting on his behalf in
connection with the HPA or CSA.

Section 4(d) and (e) are designed to render

ineffective the device employed by owners
to escape liability for misrepresentations
and breaches of warranties made by
dealers or salesmen acting on their behalf.