The Law of Hire Purchase

INTRODUCTION

Hire-purchase is one of the most common methods by which traders, dealers and manufacturers grant extended credit to their customers. This type of arrangement is viewed by lay men as a sort of contract of sale in which the price is paid by instalments. This is in spite of the fact that contracts of sale are different from contracts of hire-purchase.

The Factors Act, 1889 and the Sale of Goods Act, 1893 contain provisions which enabled a person who had bought or agreed to buy goods and who obtained with the consent of the owner possession of them to transfer valid title to them to an innocent purchaser for value.1 This situation caused great anxiety and hardship to sellers of goods who under such circumstances lost their ownership of the goods as well as their possession and all rights accruing to ownership or possession, for example to sue for their return or conversion or detinue as the case may be.

In addition, they may not have received the price for goods or if they did this might be after a considerable passage of time or protracted litigation. This was the situation in Lee v Butler. In that case, A being in possession of some pieces of furniture under a purported hire- purchase agreement with the plaintiff sold and delivered same to the defendant before the last instalment had accrued or been paid. The defendant received the same in good faith and without knowledge of the plaintiff’s rights in respect of them. The Court of Appeal (English)held that the sale and delivery to the defendant were within the provisions of section 9 of the Factors Act, 1889 and therefore valid and the furniture could not be recovered by the original owner (the plaintiff). Hire-purchase, therefore, evolved to take care of such situations.

Two outstanding English decisions brought out the importance and advantage of an agreement based on hire-purchase. In Helby v Matthews for instance, Helby, a dealer, delivered a piano to one Brewster on terms that Brewster would pay a monthly rent of 10shillings, 6 pence and that;

• After 36 payments, the piano would become Brewster’s property;
• In the meantime, the property would remain in Helby;
• Brewster could terminate the hiring at any time by returning the piano to the owner and stopping the payment of instalments.

After making a few payments, Brewster pledged the piano to a third party, Matthews, who took it in good faith and without notice of Helby’s rights. Helby tried to recover the piano from Matthews, and the question which had to be answered was whether Matthews had a good title to the piano. The House of Lords unanimously decided that the agreement between Helby and Brewster did not constitute an agreement for Brewster to buy within section 9 of the Factors Act, 1889. All that he undertook to do was to make monthly payments in instalments, although he had the option to buy the piano. If he had exercised the option, he would have become the purchaser of the piano instead of the hirer. The judicial stamp of approval thus given by the court to the practice of hire-purchase increased the popularity of the practice, both on the part of the owner and the hirer.

It is pertinent to note that the growth and development of hire-purchase has been slow in Nigeria due to the following reasons:

• The system was unknown to customary law and was imported through the agency of the English common law;
• The luxury goods which normally attract this form of commercial transaction for example motor vehicles, televisions, fridges; air conditioners, etc were rather slow incoming into the country in an appreciable quantity. Even when they did, the number of people who could afford to purchase them were few so that the system was unattractive to the potential hire-purchase investors or traders;
• When the system became eventually known, the unscrupulous business practices of some hire-purchase investors or traders subjected it to abuses and deprived the customers of the comprehensive protection the law intended them to have which in turn made the system unattractive to potential customers. Particular abuse was a snatch back of goods by hiring companies for trivial defaults by the customers even though nearly all the instalments had been paid. The goods will be taken without any compensation to the hirer for the amount paid and thus a considerable profit would accrue to the hiring company;
• There was a traditional belief of customers that once a person has paid a deposit in respect of the goods, the goods automatically become his. Thus, any system which does not respect the traditional belief or which militates against it should be rejected and indeed was rejected.

With education, however, the Nigerian customer began to realise and accept that the hire-purchase system affords him one of the easiest and inexpensive methods of secured financing or of developing trade transactions. By the early 60s, hire- purchase system was fully welcomed by investors and customers alike. It is governed by the English Common Law Rules and the Nigerian Hire-purchase Act, 1965 and now Cap H4, LFN, 2004 (the Act). The object of the Act was to protect hirers against some existing patent abuses in the hire-purchase system. Such abuses include the following:

• Misleading Hire-purchase Advertisements: These misleading hire-purchase advertisements lured many innocent hirers into unexpected liabilities that far outweighed the anticipated benefits particularly in the UK. In a bid to check this, the British Parliament had to pass the Advertisement (Hire-purchase) Act, 1957and stringent and stiff conditions were placed on hire-purchase advertisements. The Nigerian Hire-purchase Act toed the same line. Though this problem of misleading advertisement was not notorious, it was not absent;
• Extraction of Improvident Agreements from Hirers: Dubious dealers deceived hirers into signing the hire-purchase contracts and the payment of instalments without full explanation as to the termination of the payment by instalments. They were also not informed that ownership still vested in the owner until the payment of the last instalment. These hirers were shown the agreements to sign or thumb- print, and owners carefully incorporated clauses that obligated hirers to pay certain minimum sums and also to pay a certain fixed large sum of money, all liabilities on the part of the owner arising from a breach of warranties and conditions were removed, and conferred on the owners the right to forcefully enter the hirer’s compound and repossess the goods. Because these owners have protected themselves from liabilities, they now went on to supply goods of very low qualities to the hirer and they enjoyed it while it lasted;
• Extortionate Enforcement of Terms by Owners (to Obtain by Force or Threat): On the issue of enforcement, owners became restless, ruthless, harsh and to say the least ‘Shylocks.’ Immediate repossession of goods became the order of the day on a tiny delay in the payment of instalment. The situation was seen clearly in Atere v Amao where the total sum was N2, 000.00. The hirer had paid N1,990.00, leaving a balance of N10. When this N10 fell due, the hirer could not pay. The owner seized the vehicle and sold it and was actually held to have acted rightly. Even where the owner had taken a legal action against the hirer, and beforecommencement, the hirer paid off the remaining instalment, the action would stillnot abate.

These problems precipitated the Hire-purchase Act, 1965 to curtail these excesses, among other issues. The Act has provisions covering the transactions that are regulated by it; restrictions are placed on the remedies for default by a customer.