THE HIRE PURCHASE LAW

NATURE OF HIRE PURCHASE LAW

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 bailment and contract in that it is neither a simple bailment nor a contract of sale but
combines elements of both.
A hire purchase transaction has been described as a triangular transaction with the Dealer and
the Hirer at the bottom and the Finance company at the top.
The hirer thereafter holds the goods as a bailee of the finance company under the terms of
the Hire Purchase Agreement. Should the finance company refuse to accept the transaction,
the bailment between the dealer and the hirer or is terminable by the dealer.

Hire Purchase Agreement

This is agreement for the bailment of goods under which the bailee may buy the goods or
underwhich properly in the goods may or will pass to the bailee.
Parties to the agreement are the owner and the hirer. The Hirer has the option to purchase
thegoods. It is a contract of Hiring. Under Sec. 6(2) of the Act, a Hire Purchase agreement
must beregistered with the Registrar of Hire Purchase with 30 days of its execution. A Hire
Purchase agreement differs from a credit and a conditional sale.

Credit Sale
This is a contract of sale of goods whereby the purchase price is payable by 5 or more installments.
Property in the goods passes to the buyer when the 1st instalment is paid. It differs from a Hire
Purchase Agreement in that: -
1. It is a contract of Sale
2. Property in the goods passes to the buyer when the 1st instalment is paid.

Conditional Sale
This is a contract of sale of goods, whereby, whereby part of the purchase price is payable by
installments. Property in the goods pass the buyer when the condition(s) subject to which the
sale is made is fulfilled.
Provisions Related to Hire Purchase Agreement.

Under sec. 6 (1) of the Act, before the Hire Purchase Agreement is entered into the owner is
bound to notify the prospective Hirer in a prescribed from the cash price of the goods. However,
the owner is not bound to do so of:

a. The Hirer has selected the goods or similar goods by reference to a

catalogue statingthe Cash Price OR
b. The goods or similar goods from which the selection was made stated the cash
price.

Under sec. 6(2) of the Act, the Hire Purchase agreement must be written.

Contents of The Hire Purchase Agreement

1. A description of the parties.
2. A description of the goods.
3. The cash and Hire Purchase price.
4. Number of Installments.
5. Amount and when payable.
6. It must be signed by the Hirer and by or on behalf of the owner.
7. Rights of the Hirer.

Registration of Hire Purchase Agreement

Sec.4 (1) of the Hire Purchase Act establishes the Registry of Hire Purchase. This is a public
office which may be held by the Registrar, Assistant or Deputy Registrar.
Under sec. 5(1) of the Act every Hire Purchase agreement must be delivered to the Registrar
forregistration within 30 days of its execution. However the Registrar is empowered to
extend theduration if satisfied that the non-presentation of the agreement was: - Inadvertent
or there wasa sufficient cause.

The Registrar may refuse to register a Hire Purchase Agreement if: -

1. It is not in the English Language
2. It is presented after 30 days of its execution
3. Stamp duty or Registrar fee payable has not been paid

Under sec. 5(3) of the Act, on registration of the agreement, the registrar issues a certificate
of Registration which is prima facie evidence of its content.
Registration of Hire purchase, serves a double purpose: -
1. It protects 3rd party who may purport to buy the goods from the Hirer.
2. It is a revenue generation mechanism for the state.

Effects of Non – Registration

1. The agreement cannot be enforced by any person against the Hirer.
2. Any contract of guarantee made in relation to the Hire Purchase
Agreement is alsounenforceable.
3. The owner cannot enforce the right to repossess the goods from the Hirer.
4. Any security given by the Hirer under the Hire Purchase Agreement or by the
guarantorunder the contract of guarantee is unenforceable.

Protection of the Hirer

The Hire Purchase Act makes half–hearted attempts to protect or safeguard the hirer’s
interests.
It adopts or employs 3 mechanisms:
1. Contents of the Hire Purchase Agreement
2. Implied Terms
3. Repossession of Goods

The Contents of the Hire Purchase Agreement

Under sec 7 of the Hire –Purchase Act, the following provisions are deemed void if contained
ina hire purchase agreement.

1. A provision which allows the owner or his agent to enter upon any premises to
repossessthe goods let under a H.P Agreement.
2. A provision whose effect is to relieve the owner from liability for such entry
3. A provision which excludes or limits the Hirer’s right to terminate the H.P
Agreementpursuant to sec 12(1)
4. A provision which imposes upon the Hirer greater liability for
terminating the H.PAgreement than is imposed by sec 12(1) of the Act.
5. A provision which deems persons acting on behalf of the owner in the
formation orconclusion of the Hire Purchase Agreement as agents of the
hirer.
6. A provision whose effect is to relieve the owner from liability for acts of
person acting onhis behalf in relation to the formation or conclusion of the
Hire
7. Purchase Agreement.
IMPLIED TERMS
The Hire Purchase Act implies both conditions and warranties in all Hire Purchase
Agreements.
Conditions
1. Right to sell - Under Sec8 (1) (a) of the Act, there is an implied condition that
the ownerwill have the right to sell the goods when the property is to pass.
2. Merchantable Quality - Under sec 8(1) (d) of the Act, unless the goods are
second hand and the agreement so provides, there is an implied condition that
they would be of merchantable quality.
3. Fitness for Purpose - Under Section 8 (2) of the Act, where the hirer expressly
or by implication makes known to the owner the particular purpose for which
the goods are ,there is an implied condition that the goods would be reasonably
fit for the purpose.
4. A condition may be implied by any other law.

Warranties
1. Quiet Possession – Under sec 8 (1) (b) of the Act, there is an implied warranty
that thehirer will have and enjoy quite possession of the goods.
2. Free from charge or encumbrance - Under sec8(1)(c) of the Act, there is an
implied warranty that the goods shall be free from any charge or encumbrance
in favour of a third party when property is to pass.
3. A warranty may be implied by any other law.

Repossession of Goods
Under sec 15 (1) of the Act, if at any time 2/3 of the hire purchase price has been paid by
the hirer or any other person on his behalf, the owner cannot repossess the goods otherwise
than by court action. This provision was intended to protect the hirer from Common Law
practice of “snatch back” underwhich the owner will reposes the goods at any time.

If the owner repossess the goods in contravention of this section;

1. The hire purchase agreement terminates
2. The hirer is discharged from all liability under the agreement
3. The hirer is entitled to recover all sums paid under the agreement or the
contract ofguarantee.
4. The guarantor is entitled to recover any sum paid under the contract of
guarantee orunder the security given.

The section does not adequately protect the hirer in that:

 1. The hirer must pay too much to be protected by the section.
2. Property in the goods does not pass to the hirer even after paying 2/3 of
the hirepurchase price
3. The court may still order the repossession of the goods

Obligations of the Hire Purchase Agreement

The hire purchase agreement imposes legally binding obligations on the owner and the
hirer. Each party is bound to observe its duties.

Duties of the Owner

1. Notice of cash Price: Under se. 6(1) it is the duty of the owner to notify the
prospectiveHirer the cash price of the gods in prescribed form.
2. Furnish Copy: Under sec. 6(2) (d) of the Act, within 21 days of execution of
the HirePurchase Agreement, the owner must send a copy thereof to the
Hirer.
3. Deliver the goods: It is the duty of the owner to put the Hirer in
possession of thegoods let under a Hire Purchase.
4. Indemnity: It is the duty of the owner to compensate the Hire for any loss
or liabilityarising by reason any defects in the goods or Hire.
5. Disclosure of defects: the owner is bound to disclose to the hirer any
defects in thegoods or in his title

Duties of the Hirer

Reasonable care- It is the duty of the hirer to exercise reasonable care in relation to the
goods let under a hire purchase agreement. However the hirer is not liable for ordinary
wear and tear.
Take Delivery-The hirer is bound to take delivery of the goods under hire purchase
agreement.
Pay Installments-The hirer is bound to pay the installments as and when they fall due.This
duty does not deny him the right to terminate the agreement in accordance with sec 12(1) of
the Act.
Continue Hiring-It is the duty of the hirer to continue hiring the goods for the agreed
duration. This obligation does not deny the hirer the right to terminate the agreement.
Notice of change of location of goods-It’s the duty of the hirer to inform the owner any
change in the location of the goods. Under Section 10 (1) of the Act, goods let under hire
purchase agreement cannot be removed from Kenya without the owner’s written consent.

Termination of Hire Purchase Agreement

 Under sec 12(1) of the Act, the hirer may at the time before the final instalment falls due,
terminatethe hire purchase agreement. This right is exercisable by:
1. Giving a written notice of termination
2. Returning the goods to the owner.

Once the hirer exercises this right, the minimum payment or depreciation clause comes into
operation in which case the hirer must pay;
1. All installments due up to the date of termination.
2. The amount by which one half of the hire purchase price exceeds the total
amount paidor such lesser amounts as the agreement may provide.

If the hirer has not taken reasonable care of the goods, he is reliable in damages under sec
12(3) of the Act, the hirer must at his own expense return the goods to the premises from which
delivery was taken.
However if the goods are returned elsewhere by reason of the owners change of location, any
additional expenses are recoverable from the owner.

Completion of Hire Purchase Agreement

Under sec. 13 (1) of the Act, the Hirer may at any time give a written notice to the owner of his
intention to compete the purchase of goods by tendering the amount due on a specified date
whereupon he becomes entitled to do so.
The right of the Hire to complete the Hire Purchase Agreement is exercisable in two
circumstances:
1. During the continuance of the Agreement
2. Within 28 days of repossession of the goods by the owner in which case the
Hirer mustpay: -
a) The amount due inclusive of interest
b) Reasonable repossession, repair, maintenance and storage charges.

Rights of the Hirer

1. He is entitled to be notified in a prescribed form the cash price of the goods.
2. He is entitled to a copy of the Hire Purchase Agreement within 21 days of the
executionof the agreement.
3. He is entitled to Indemnity for any loss or liability arising by reason of any
defect in thegoods or of title.
4. He is entitled to quiet possession of the goods let under the Hire Purchase
Agreement
5. He is entitled to damages for any breach of contract by the owner