COMMERCIAL LAW

HIRE PURCHASE AND CONDITIONAL SALE AGREEMENT

CREDIT TRANSACTIONS

  • A conditional sale is a credit transaction governed by the Hire Purchase Decree, 1974 (NRCD 292) in Ghana.

  • Credit sale only covers transactions where the price is not paid immediately and is paid over time through instalments:

    • Outright sales are governed solely by the Sale of Goods Act, regardless of the payment mode.

  • The credit transactions discussed include Hire Purchase Agreements and Conditional Sale Agreements, both of which are conditional contracts where the passing of property depends on payment of the price.

HIRE-PURCHASE AGREEMENT

  • Hire purchase serves as a financing mode for goods sold at a future date.

  • General Characteristics:

    • Goods are leased while purchase payments are made in instalments.

    • Hirer can purchase the goods by paying all instalments.

    • Ownership of goods remains with the owner until the final payment is made.

  • Definition of Hire-Purchase Agreement per the Hire-Purchase Act, 1974 (NRCD 292), Section 24:

    • It's an agreement for the bailment of goods that allows the bailee the option to purchase or wherein the property in the goods may pass to the bailee.

CONDITIONAL SALE AGREEMENTS

  • Defined as agreements for the sale of goods where the purchase price is payable by instalments.

  • Key Characteristics:

    • The property in the goods remains with the seller, even if the buyer has possession, until certain conditions are met (usually full payment).

NATURE OF THE HIRE-PURCHASE AGREEMENT

  • Common Law Definition:

    • A contract where the owner delivers goods on hire to the hirer in exchange for periodic payments.

    • The hirer may return the goods or elect to purchase them at the end of the hiring period.

  • Essential Features identified in Helby v Matthews [1895] AC 471:

    • A hire-purchase agreement includes a hiring contract terminable at the hirer’s will, along with the option for the hirer to purchase.

BAILMENT IN HIRE-PURCHASE

  • Hire-purchase is likened to a bailment transaction with the owner as the bailor and the hirer as the bailee:

    • Upon agreement completion, the hirer utilizes the goods while ownership remains with the owner.

    • Ownership is retained until the hirer opts to purchase the goods through full payment.

STATUTORY DEFINITION OF HIRE-PURCHASE AGREEMENT

  • Statutory definition as stated:

    • An agreement for the bailment of goods allowing the bailee the option to buy or the property may pass to the bailee.

  • Essential elements of a hire-purchase agreement include:

    • Element of Hiring: Every HPA involves the bailment of goods in return for periodical payments while possession is given to the hirer.

    • Option to Purchase: The hirer can choose to purchase or return the goods and terminate the agreement.

OPTION TO PURCHASE

  • The hirer's option can be drafted in two ways:

    1. After all instalments are paid, an option fee (about 1-5% of the goods’ price) is paid to purchase.

    2. The instalments include an option fee, and no further payment is necessary to own the goods.

    • Common Practice: Hirers usually intend to execute their option to purchase.

DIFFERENCES BETWEEN HIRE PURCHASE AND CONDITIONAL SALE AGREEMENTS

  • Hire Purchase vs. Conditional Sale:

    • Hire purchase is a bailment agreement with a purchase option; the hirer is not obligated to buy.

    • Conditional sale binds the buyer to purchase goods according to contract terms.

  • Terminology:

    • Parties in Hire Purchase: Hirer and owner.

    • Parties in Conditional Sale: Seller and buyer.

  • Shared legislation: Many English legislations regarding Hire Purchase also apply to Conditional Sale Agreements; they are treated similarly by the Hire Purchase Act, 1974 (N.R.C.D.292).

HISTORY OF HIRE PURCHASE TRADING

  • Origin in England, late 19th century, with the Singer sewing machine facilitating early hire purchase agreements.

  • This model expanded to items like wagons, furniture, motorcars, etc.

  • Initially operated solely under Common Law, later facing issues leading to abuses within the system.

ABUSES IN HIRE-PURCHASE SYSTEM

  • Common Law offered little relief against abuses such as:

    • Signing of Blank Forms: Hirers signing blank contracts without knowing the final terms.

    • Snatch-Back Device: Owners allowing hirers to fall into arrears to repossess goods post-payment of prior instalments without refund.

    • Exclusion Clauses: Dealers including clauses outside standard warranty of quality and fitness for purpose, leaving hirers with inadequate goods.

COMMON LAW AND HIRE-PURCHASE LEGISLATION IN GHANA

  • Prior to 1958, sales in Ghana, including hire-purchase, governed by Common Law and select English Statutes.

  • Hire-Purchase Act, 1958 (Act 55) was implemented to regulate hire-purchase transactions.

  • In 1962, the Sale of Goods Act was introduced, governing credit and conditional sales along with hire-purchase.

  • The Sale of Goods Act, 1962 (Act 137) aimed to fuse regulations of sale transactions under one piece of legislation, replacing the 1958 Act.

FUSION OF HIRE PURCHASE AND SALE OF GOODS

  • The fusions combined laws regarding sales and hire-purchase to create common regulatory frameworks imposed by the Sale of Goods Act.

  • The definition stated that a hire-purchase agreement is a contract where the purchase price is paid in instalments, with greater applicability to outright sales as well.

  • Challenges:

    • Misconception that hire-purchase agreements are sales contracts, obscuring the unique aspects of hirer rights and options.

    • Definition issues led to confusion, as it overlapped with other transaction types.

ENACTMENTS OF HIRE PURCHASE ACT, 1974 (N.R.C.D. 292)

  • The problems caused by the fusion prompted the introduction of Hire-Purchase Decree N.R.C.D. 292.

  • This legislation specifically addresses hire-purchase and conditional sale agreements separately from outright sales and credit sales.

  • The scope of the Act:

    • Exclusively governs hire-purchase and conditional sale agreements with the Sale of Goods Act continuing to apply to other sales types.

FORMAL REQUIREMENTS FOR HIRE-PURCHASE AGREEMENTS

Creation of Valid Agreements

  • Requirements include:

    1. Cash and Hire-Purchase Price Disclosure: Owner must discourse cash price and total purchase price before the agreement (Section 2).

    2. Written and Signed Agreements: Must be signed by all parties (Section 1(1)(a)).

    3. Content Requirements:

    • Cash price and hire-purchase price, amount and dates of instalments, item description, and statutory notice about rights and obligations (Section 3).

COURT DISCRETION IN HIRE-PURCHASE AGREEMENTS

  • Court can enforce agreements despite non-compliance with specific provisions if it deems it just (Section 3(3)).

  • However, this discretion does not extend to mandatory notice or cash price requirements.

CONSEQUENCES OF NON-COMPLIANCE

  • Unenforceability:

    • If agreements fail to meet requirements, they become unenforceable by the owner, allowing the hirer to enforce them against the owner.

  • Loan Guarantees:

    • Guarantee contracts linked to unenforceable hire-purchase agreements are also unenforceable.

PROHIBITED CLAUSES IN HIRE-PURCHASE AGREEMENTS

  • Certain clauses are deemed void under the Act, including:

    • Owner’s right for unauthorized entry to recover goods.

    • Conditions restricting hirer’s termination rights.

    • Liabilities exceeding stipulated amounts upon termination.

    • Liability allocations that unjustly burden the hirer upon termination.

HIRER'S RIGHT TO TERMINATE

  • The hirer may terminate a hire-purchase agreement before final payment by providing written notice to the rightful payment receiver (Section 5).

  • Rights are extended similarly to conditional sales agreements, with special legal consequences defined (Sections 5(2) & (3)).

TERMINATION OF CONDITIONAL SALE AGREEMENTS

  • Buyers have the right to terminate conditional sale agreements before the final payment is due, even if property has vested.

  • Legal consequences stated in Section 5(3) clarify property retention upon contract termination.

LIABILITIES UPON TERMINATION

  • Upon termination, the hirer typically must pay the difference between amounts already paid and half of the hire-purchase or total sale price, unless a lesser amount is specified in the agreement.

  • If already above 50% payment pre-termination, no further sum is due, but no refund of overpayment is provided.