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Hire purchase
 

 

Lord Greene M.R. once said that a great part of his time on the bench was concerned '. . . with people who are persuaded by persons whom they do not know to enter into contracts they do not understand to purchase goods they do not want with money they have not got'.

Hire purchase was defined by the Hire Purchase act 1965 as 'an agreement for the bailment of goods under which the bailee may buy the goods or under which the property of the goods will or may pass to the bailee'. That is, a hire purchase agreement is in effect an agreement to hire goods for a specified period, with an option for the hirer to purchase the goods at the end, usually for a nominal sum. The property in the goods does not normally pass to the hirer until the last payment is made. Both the seller and the hirer or buyer have certain rights and obligations defined by the Act. The hirer may terminate the agreement at any time by giving notice but must allow the seller to retake possession, and must also pay instalmentsdue and the additional amount necessary to bring total payments up to 50 per cent of hire purchase price (unless a lesser sum is specified in the agreement).

The hirer may also be liable for any damage done to the goods due to his neghgence. The agreement cannot restrict the hirer's right to terminate. The seller has certain rights. He may retake the goods if an instalment is not paid provided he serves a 'notice of default' requiring payment within seven days, and the payment is not made. This right is restricted in so far as after one-third of the hire purchase price is paid, the seller cannot recover the goods except by action in a county court. If he does otherwise, the agreement is terminated and the hirer may recover all sums paid. There must be a written agreement which must state the cash price of the goods, the hire purchase price, the amount and date of the instalments, and a list of the goods. The agreement must be signed by the hirer and all other parties and must contain a notice of the right of the hirer to terminate the agreement and the restriction of the seller's right to recover the goods. A copy of the agreement must be sent to the hirer within seven days.

Certain other regulations also apply. Ihe principal legislation is the Consumer Credit Act 1974, which replaced the Hire Purchase Act 1965. Hire purchase sales are also, in so far as they involve goods, subject to the Sale of Goods Act 1893 and the Supply of Goods (Implied Terms) Act 1973.

Most hire purchase contracts are financed by specialized finance companies which, by taking over the collection of instalments from him, enable the vendor to maintain his liquidity. The hire purchase contract will then be between the company and the purchaser, but the latter will retain rights against the vendor concerning conditions and warranties applying to the goods themselves.

Reference: The Penguin Business Dictionary, 3rd edt.