Commercial Law: The Law of Hire-Purchase

MRS. CHRISTINE DOWUONA-HAMMOND
DR. SAMUEL OBENG MANTEAW
DR. ABDALLAH ALI-NAKYEA

Lesson Objectives: By the end of this session, students should be able to:
- Discuss the common law and statutory definition of hire-purchase and conditional sale agreements.
- Identify the essential elements that differentiate a hire-purchase agreement and conditional sale agreement from a contract for the sale of goods.
- Analyse the judicial definition of a hire-purchase agreement as provided in the case of Helby v Matthews as well as the statutory definition provided in section 24 of the Hire-Purchase Act of Ghana, 1974 (NRCD 292).

A hire-purchase agreement at common law is a contract for the bailment of goods under which the hirer is granted an option to purchase the goods.
It is a hybrid form of contract that combines features of:
- A hiring or bailment contract: Prescribes terms for the use of the goods.
- A contract for the sale of goods: Provides the option/right for the hirer to acquire title.
Thus, it is neither a simple bailment contract nor a contract for the sale of goods.

At common law, a contract of hire-purchase is defined as an agreement where:
- The owner of goods delivers them on hire to the hirer in return for periodic payments made by the hirer.
- The hirer may return the goods and terminate the hiring or elect to purchase the goods at the end of the hiring period.
The hire-purchase agreement is akin to a bailment transaction, where the owner is the bailor and the hirer is the bailee.
Bailment is defined as the delivery of goods by one person to another for a specific purpose, with an agreement for them to be returned or disposed of according to the original owner's directions upon the purpose being accomplished.

Upon completion of the hire-purchase agreement, the hirer receives actual possession and use of the goods.
The owner retains property or title to the goods.
Property remains with the owner until the hirer exercises the option to purchase by paying the full hire-purchase price.

In every hire-purchase agreement:
- Goods are delivered to the hirer for a specified period.
- The hirer makes periodic payments for hiring the goods.
- At the end of the period, the hirer has the option to buy the goods by making a further modest payment.
Contracts for the sale of goods can be categorized into two forms:
1. Credit Sale: If the sale allows the property in the goods to pass to the buyer upon delivery, but the price is paid in installments, it is termed a "credit sale."
2. Conditional Sale Agreement: This stipulates that the seller retains the property until the price is wholly paid.
In both credit sale and conditional sale, the buyer has a binding obligation to purchase, while the hirer in a hire-purchase agreement has an option to buy and may terminate hiring before expiry.

In Helby v Matthews [1895] A.C. 471, a hire-purchase agreement is defined as:
- A contract of hiring that is terminable at the hirer's will, combined with a condition allowing the hirer to either keep the goods and pay for them, or return them.
- Features noted in the case include:
1. The hirer received possession of the items (e.g., a piano).
2. The hirer was not legally obligated to buy but had the option to either buy or return the goods.
3. No property passed to the hirer since they had not exercised the option to purchase, and thus could not transfer valid title to third parties.
Lord Macnaughten emphasized that monthly payments did not grant any proprietary rights until final payment was made, reinforcing the option nature of the hirer's relationship.

Question: If the agreement was found to be a sale contract and the defendant (buyer) was in possession with consent of the owner when the property had not passed due to non-payment, could the buyer convey title to a third party?

Governed by the Nemo dat quod non habet rule found in sections 28-33 of the Sale of Goods Act.
Exceptions defined under Section 32:
- Disposition by Buyer in Possession: If a buyer has obtained possession with consent before property passes, their transfer to a third party in good faith without notice of their lack of title is effective.

Defines a hire-purchase agreement (HPA) as an agreement for the bailment of goods where:
- Bailee may buy the goods.
- Property in the goods can pass to the bailee.
Signifies HPA combines elements of hire and purchase.

Involves the bailment of goods by the owner to the hirer for periodic payments.
- Bailment gives possession while ownership remains with the owner until the option is exercised.
The hirer has an option to purchase the goods or return them, thereby terminating the hiring.

The owner grants the hirer an irrevocable offer to sell if conditions are fulfilled (i.e., full payment).
Hirer is under no obligation to purchase; they can opt to return the goods.
Drafting the Option:
1. An option fee may be paid at the end to signify intent to buy, combining all payments into a total hire-purchase price.
2. Installments may include the option fee, requiring no additional payment at hiring period's end.

Defined as an agreement for the sale of goods under which the price, or portion thereof, is payable in installments, with property remaining with the seller until conditions are fulfilled.

Both hirers under HPA and buyers under CSA receive possession of goods.
Property remains with the owner until full price payment.
Critical Difference: CSA obligates buyers to purchase, while HPA allows hirers only an option to buy.
Terminology: Parties to CSA are