Consumer Hire and Hire Purchase
Goods and equipment may be let and hired. Hiring is a type of bailment for reward, and the common law provisions apply, subject to legislative modifications. The ordinary rules for the formation of a contract and its avoidance by fraud, mistake, misrepresentation, incapacity etc. apply to hire purchase contracts.
Consumer hire, leasing and hire purchase are regulated under the Consumer Credit Act. It makes overriding requirements in relation to the circumstances of the lending and hiring and the terms of the contract. Other legislation requires that the consumer hirer is regulated in most cases.
A hire purchase agreement is an agreement for the bailment / hire or lease of goods with an option or a provision for their purchase under the terms of the agreement. Two or more agreements may together constitute a hire purchase agreement.
The terms and conditions of the hire and hire purchase agreement largely determine the legal relationship between the parties. This is subject to the mandatory provisions of consumer credit legislation, which varies or limits the contractual position.
Hire purchase originated in the 19th century as a form of credit extended to people who did not otherwise qualify for credit. Hire purchase was commonly employed in consumer “sales”. It is less common in recent decades, due largely to the existence of other types of consumer credit.
Hire purchase involves the hiring or letting of a good for a period at a fee /rent with an option to purchase at the end of the agreement subject to compliance with the applicable terms and conditions. The option to purchase may be for a nominal sum.
Hire purchase allows the hiree to have possession of the hired goods, without becoming the owner until the whole purchase monies are paid. In the meantime, he pays a combination of hire fees and purchase monies. It in effect operates as a form of secured credit.
Avoids Problematic Legislation
Hire purchase avoids the Bill of Sales Act, as the hirer is not the owner of the goods during the hire period. The Bill of Sales Act, with which it is difficult to comply, applies to an owner who transfers or mortgages goods which he already owns. Hiring does not involve the creation of a security interest as the interest is not vested in the user, until the end of the contract.
Hire purchase agreements does not come within the Sale of Goods Act provisions which allow a buyer in possession to sell the property and give title to a successor, free of the title of the true owner. This is because there is no agreement to sell the property. The person who hires (the hiree) is not a buyer within the meaning of the Act. He has an option to purchase only. This position protects the interests of the owner /hirer.
Implied Warranties on the Hire of Goods
In a contract of hire, the bailor promises that he has the right to bail (hire, let) the goods. The bailee may reject the goods and sue for damages if the bailor does not have this right. The same principles apply to hire purchase.
There is an implied warranty of quiet possession. Breach gives the bailee a right to damages for any loss sustained, such as for example, where an incumbrancer or third-party under the control of the bailor interferes with possession.
The Sale of Goods Act provisions regarding the nature and quality of the goods and their compliance with description apply to the hire and letting of goods. The same principles as apply to the sale of goods apply to the hire and letting of goods apply. The loss or damage sustained may be less because the hiree’s economic interest in the goods is less than that of a buyer.
Where goods of any class or description are let under a hire-purchase agreement to a dealer who deals in goods of that class or description, and the dealer hires the goods when ostensibly acting in the ordinary course of his business, the sale is deemed valid by statutes as if the dealer was expressly authorised by the owner to make the sale. This is provided that the buyer acts in good faith and has not at the time of the sale notice that the dealer has no authority to make the sale.
Statements of Terms
A hire or hire purchase agreement must be in writing signed by the hirer. A copy of the agreement must be handed to the hirer personally or delivered within 10 days. Similar provisions apply to a guarantor of the principal debtor’s obligations.
The agreement must contain
- a statement of the price;
- the hire-purchase price;
- the cash price;
- the number of instalments;
- the date and method of determination of the agreement;
- the date on which they are payable;
- the number of instalments,
- the name and address of the parties to the agreement;
- costs and penalties.
The agreement must contain a list of goods and a notice in a prescribed form, setting out the hirer’s rights to terminate the agreement, the conditions applying and restrictions on the owner’s right of recovery.
There is a 10-day cooling off period in relation to hire and hire purchase agreements. This may be waived.
Enforcing Hire Purchase Agreements
The court may not enforce a hire or hire purchase agreement, security or a guarantee granted in connection with it unless the above requirements have been complied with. A court may, however, if satisfied that the failure was not deliberate or did not prejudice the hirer and that would be just and equitable to dispense with the requirement, may allow the agreement to be enforceable on such terms as it sees fit to impose. This relieving power does not appear to apply to the guarantee.
Certain terms in hire purchase agreements are invalidated including
- any authority by the owner to reenter any premises to retake the goods;
- any restriction of the hirer’s right to terminate;
- liability over and above that imposed by statute by reason of termination.
Third Party Finance
Hire purchase is often arranged with a third-party financier by a dealer in the goods. Motor vehicles, being one of the most expensive consumer goods for most persons, is the prime example. The dealer typically sells the goods to the finance company, which hires them to the consumer user / owner. The technique is equally applicable to commercial goods.
The hire purchase agreement may oblige the seller or dealer in goods to repurchase them from the finance company if they are repossessed. The re-purchase price will reduce depending on the total amount outstanding. The right of the finance company to call on the dealer is usually predicated on the lawful termination of the agreement and on the right, being exercised within a reasonable time.
Residual Rights of Hirer
The owner of goods is entitled to proceed against a third-party for damage caused to his interest in the goods. An owner who bails (hires or lets) a good or otherwise may sue a third party in damages or deprives him of the goods, if he has immediate rights of possession or if the bailment has been wrongfully terminated or if his interest in the bailed goods is injured.
Subject to the terms and any restrictions in the agreement, the party who hires may assign his rights, including the benefit of the right of sale, to a third-party. Even an unauthorised sale or pledge may pass these rights to the third party.
In an action for conversion by the owner, the measure of damages is the value of the goods converted. However, if the defendant has an interest in the goods, the measure of damages is the value of the claimant’s interest as between himself and the defendant. Accordingly, even where there is a sale and/or letting in breach of the agreement or pledging, the amount recoverable by the owner against the pledgee for conversion is reduced by the amounts paid by hiree.
References and Sources
Consumer Credit Law in Ireland 1998 Bird