Dealership
Agreements
I.
Preliminary.-
It is the common feature of the manufacturing operations of the industrial
concerns that dealers are appointed to sell the goods so manufactured . it is
because of this that dealership agreements are invariably entered into by the
manufacturing concerns with the other parties so as to demarcate the contours
of relations inter se.
II.
Model Forms
Dealership
Agreement between a Manufacturing
Company
and Firm
This
Agreement Made On This...............day of................between Chandika & Co. Ltd., a
company incorporated under the Companies Act, 1956 and having its registered
office at ............(hereinafter called the ‘company’ which expression shall, unless
the context admits otherwise, includes its representatives) of the one part and
Jumb & Jumboo, a partnership firm consisting of
Shri.................,Shri........................Shri...................and Smt.................w/o Shri.....................partners,
having its main business place at..................and branches at.............. and
.................(hereinafter called “the firm” which expression shall, unless the context
admits otherwise, include the partners, their heirs, executors, administrators,
representatives and assigns) of the other part.
Whereas
The
company manufacturers cotton and polyster fibre yarn suitings and shirtings.
2. The
firm has its own well-established marketing network and is selling goods of
various manufactures and is desirous of selling the goods of the company at a
new sales depot recently taken by it on rent for the purpose.
3. The
company, after having considered the proposal of the firm, has agreed to
appoint the firm as its dealer on the terms and conditions as hereinafter
appearing.
Now
this Agreement Witnesses as under :
That
the company hereby appoints the firm as its dealer for selling its products,
more particularly described in the Schedule annexed hereto.
2. That
the agreement shall remain in force originally for three years commencing
from............but may be renewed for similar periods on the terms and conditions as
may be agreed by and between the parties hereto.
3. That
the firm shall keep a minimum stock of............pieces each of the company’s products
described in the Schedule to meet the demand of the ultimate users/consumers,
and such quantity shall be reviewed every quarter in the light of the sales
during the previous quarter the demands, consumers likings and the market
trends.
4. That
the company shall supply to the firm its products on credit for fifteen days
from the date of the invoice and shall charge interest at the rate of.............per
cent per annum from the sixteenth day of the invoice till payment in full if
payments are not made within the period credit aforesaid.
5. That
the company shall supply to the firm publicity and advertisement material in
sufficient quantity for display at the firm’s sales depot and for the
distribution in its area of operation.
6. That
the company shall bear 60% of the cost of maintaining the firm’s sales depot
including rent thereof subject to a maximum of 6% of the invoice value of all
the products of the company sold to the firm, which amounts shall be credited
to the firm’s running account maintained with the company at the end of each
quarter.
7. That
the accounts between the parties will be settled half-yearly and the
credit/debit balance shall be squared up by making necessary payment6s by the
parties.
8. The
firm shall make all efforts for the promotion of the sale of the company’s
products and in the event of the company being of opinion on the basis of sale
records that the firm is failing in properly performing its duty as dealer, the
company shall be at liberty to terminate this agreement by giving the firm one
month’s notice in writing and on the expiry of the notice period, this
agreement shall stand terminated and the parties shall settle their accounts
within a week thereafter.
9. The
company hereby agrees and undertakes to supply to the firm its products as per
the firm’s orders and on the company failing to supply the goods under the
firm’s orders ,the firm shall be at liberty to terminate the agreement by
giving the company one month’s notice in writing and after the expiry of the
notice period, this agreement shall stand terminated and the parties shall
settle their accounts within a week thereafter
10. The
firm shall at no time sell any product of the company at a price higher than
that fixed by the company from time to time
11. The
firm shall be free and entitled to appoint sub-dealers, salesmen, commission
agents or other sales personnel on salary, commission or any other basis, but
with the condition that they will function in accordance with the provisions of
this agreement and not do anything which is detrimental to the interest of the
company, or the firm and the collective interests of both.
In
Witness Whereof, etc.
Schedule
Reprred to Above
4. Hire-Purchase
Agreements
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Preliminary .- Hire-purchase agreements
have acquired special importance in the developing economy of the country. What
does hire-purchase agreement connote ? By a contract of hire-purchase is meant
a contract which in addition to terms of hire, provides that on payment of the
rent for a certain period, or for a certain number of times, or on the payment
of a certain sum after such payment of rent, or at some time during the hiring,
the property in the goods hired shall (or may) pass from the owner to the
hirer. [Periar’s Law of Hire and Hire-Purchase 2nd Ed., p.2]. In effect
hire-purchase agreement is a contract of bailment and is governed by the
provisions of Chapter IX of the India Contract Act, 1872. This agreement is
with an option to purchase though it is sometimes used in a wider sense to
include agreements where there is an irrevocable agreement to buy in Installments
are paid. A hire-purchase agreement thus creates a bailment, but is a bailment
plus an option to purchase. The transaction is composed of the element of both
the law of hire and sale, it would be clearly wrong to assimilate it to a
hypothecation of moveable property .[V. Dakshinamurthi Mudaliar v. General
& Credit Corporation (India) Ltd., AIR 1960 Mad. 328, 330].
The
transaction partakes of a contract or bailment with an element of sale added to
it. In such an agreement, the owner of the goods lest them on hire for periodic
payments by the hirer upon an agreement that when a certain number of payments
by the hirer upon an agreement that when a certain number of payments have been
completed, the absolute property in the goods will pass to the hirer, but so
that the hirer may return the goods at any time without any obligation to pay
any balance of rent accruing after return; until the conditions have been
fulfilled, the property remains with the owner. In this agreement the hirer is
not bound to purchase the thing hired, he has an option, he may or may not
purchase. But in either case, if there an obligation to buy, or an option to
buy, the goods delivered to the hirer by the owners on the terms that the hirer
on payment of a premium as also of a number of Installments shall enjoy the use
of the goods, which ultimately may become his property, the transaction amounts
to one of hire-purchaser, even though the title to the goods has remained with the
owner and shall not pass to the hirer until certain event has happened, namely
that all the stipulated Installments have been paid, or that the hirer has
exercised his option to finalise the purchase on payment of a sum nominal or
otherwise. [Installment Supply (P) Ltd. v. Union of India, AIR 1962 SC 53, 58:
Sundaram Finance Ltd. v. State of Kerala, AIR 1966 SC 1178].
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Hire-Purchase
agreement not sale.-It has to be remembered that a hire-purchase agreement is
not a sale even if it contains a stipulation in the form of option of the hirer
to purchase the article hired. Even where the price for sale is to be pain in Installments
later, the property in the goods passes as soon as the sale is made. This
follows from the definition of sale in section 4 of the Sale of Goods Act, 1930
(as distinguished from an agreement to sell) which requires that the seller
transfers the property in the goods to the buyer for price. The essence of sale
is that the property is transferred from the seller to the buyers for a price
whether paid at once or paid later in installments. On the other hand , a
hire-purchase agreement as its very name implies, has two aspects. There is
first an aspect of bailment of the goods subjected to the hire-purchase
agreement, and there is next an element of sale which fructifies when the
option to purchase, which is usually a term of hire-purchase agreements, is
exercised by the intending purchaser. Thus the intending purchaser is known as
the hirer so long as the option to purchase is not exercised, and the essence
of the hire-purchase agreement properly so called is that the property in the
goods does not pass at the time of the agreement but remains in the intending
seller, and only passes later when the option is exercised by the intending purchaser.
The distinguished feature of a typical hire-purchase agreement is made but only
passes when the option is finally exercised after complying with all the terms
of the agreement. [K.L. Johar & Co. vi Dy CTO, AIR 1955 SC 1082,1088].
The
position of the owner of goods under a hire-purchase agreement is that of a
person who has made on irrevocable offer to sell but no obligation to buy.
[Helby v. Mathews, (1895) AC 471 ; Lee v. Butler, (1893) 2 Q.B. 318]. T essence
of the hire-purchase agreement is that the hirer is not bound to purchase .
[Dalpat Rai v. Manohar Lal & Sons, AIR 1974 Raj. 61]. A hire-purchase
agreement has two elements ; (I) element of bailment, and (ii) element of sale,
in the sense that it contemplates an eventual sale. The element of sale
fructifies when the option is exercised by the intending purchaser after
fulfilling the terms of the agreement. When all the terms of the agreement are
satisfied and the option to purchase is exercised, a sale takes place of the
goods which till then had been hired. [K.L.Johar & Co. v. Dy. CTO, AIR 1965
SC 1082, 1090].
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Duty
of hirer.-According to section 151 of the Contract Act, 1872, the hirer is
bound to take as much care of the goods hired to him as a man of ordinary
prudence would under similar circumstances take of his own goods of the same
bulk, quality and value as the goods hired. Under Section 152 of the Contract
Act, the hirer in the absence of any special contract is not responsible for
the loss, destruction or deterioration of the thing hired, if he has taken such
care. Accordingly, the parties may provide by stipulation in that behalf that
the hirer will be liable for any loss or damage to the goods arising from any
cause whatever.
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Parties
.-Normally , there are two parties to the hire-purchase agreement, viz., the
owner and the hirer. However, sometimes a financier, for example in case of
motor vehicles, is also brought in as a necessary party who purchase the
vehicle from the owner and lets the same on hire to the hirer on Installments
and in such case, a guarantor is also required to be supplied by the hirer to
secure fulfilment of the obligations imposed on the hirer under the agreement.
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Clauses.-In
drafting a hire-purchase agreement, care should be taken to draft the following
important clause in the agreement properly ;
a. No
obligation to buy.-The agreement of hire-purchase should not amount to an
agreement to buy but it should only give the hirer an option to purchase
because where a person under an agreement to buy obtains the possession of the
goods and the hirer under the hire-purchase agreement so obtains the
possession, he would be able to give little to any one who takes the goods on
sale or pledge from him without notice of the hire purchase agreement [See
section 30 (2) of the Sales of Goods Act, 1930 and thereby the hirer would be
able to defeat the intention of the owner. Where, however, the agreement is not
an agreement to buy but it merely give an option to the hirer to buy on the
fulfillment of certain conditions, the hirer cannot gives a valid title to any
one. [Roopchand Jankidas v. National Bank, 46 Cal. 342].
b. Property
in goods not to pass.-A hire-purchase agreement must contain an express
stipulation that the property in the goods shall not pass of the hirer untill
all Installments have been paid.
c. Minimum
payment clause.-A hire-purchase agreement may be terminated either by the owner
or hirer and the hirer may return the article to the owner after terminating
the agreement. But since the articles are subject to usual wear and tear on
account of user, it is usual to insert a “minimum payment” clause in the
agreement in order to provide for depreciation of the article taken under the
hire-purchase agreement. Such a clause provides that in the event of the
agreement being determined by the owner or the hirer, the hirer shall be liable
to pay 50% of the total price after deduction of the Installments already paid
by the hirer.
a.
b.
c.
d. Seizure
clause.-It is also usual to incorporate a clause in the hire-purchase agreement
empowering the owner to seize the article hired in the event of the hirer
committing a breach of any terms thereof, particularly the non-payment of
monthly hire.
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Claim of financier to prevail over the state.-Where under a hire-purchase agreement,
the financier, i.e., the owner lets on hire a motor vehicle to the hirer,
clause 4 of the agreement states that, on default by the hirer, the owner can
seize, remove and retake possession of the vehicle and sue for all the Installments
due and for damage for breach of the agreement and for all the costs of
retaking of possession of the said vehicle and all costs occasioned by the
hirer’s default. Clause 6 would show that, only upon the hirer paying the
entire amounts due under the agreement, the said vehicle shall become the sole
and absolute property of the hirer. In regard to the registration of the
vehicle shall become the sole and absolute property of the hirer. In regard to
the registration of the vehicle, thought it is in hirer’s name, clause 8 of the
agreement states that the owners-meaning the financing company agree to permit
the hirer to have the registration of the vehicle in his name provided that the
hirer shall transfer the registration in the name of the owners whenever
required to do so by them and especially when the hirer commits breach of any
of the conditions of the agreement. In the light of these clauses in the
agreement and in the event of the financier seizing the vehicle on default on
the hirer in payment of the Installments, the claims of the financier would
prevail over that of the State. Where a person has got a prior secured right
over the property, the State’s claim will not prevail. In the Income-tax Act,
there is no substantive provision for superseding or overriding the claims or
rights of a secured creditor. Schedule II mentioned in section 222 of the I.T.
Act, 1961, which contains statutory rules in accordance with which the modes of
recovery mentioned in that section have to be exercised, relates to procedure
only and does not deal with substantive rights. [Sundaram Finance Ltd. v. RTO,
(1979) 117 ITR 334 (Ker)].
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Allowability
of depreciation of hired article.-The Board has issued the following circular
containing instructions regarding depreciation allowance on plant and machinery
acquired under hire-purchase agreement.
“The
following instructions are issued for dealing with case in which as asset is
being acquired under or on what is known as hire-purchase agreement:-
I.
In
every case of payment purporting to be for hire-purchase, production of the agreement
under which the payment is made should be insisted on.
II.
Where the effect of an agreement is that the ownership of the subject is at once
transferred to the lessee( e.g. where the lessor obtains a right to sue for
arrear of Installments but no right to recovery of the asset) the transaction
should be regarded as one of purchase by Installments and no deduction in
respect of “hire” should be made. Depreciation should be allowed to the lessee
on the entire purchase price as per the agreement.
III.
Where the terms of the agreement provide that the equipment shall eventually become
the property of the hirer or confer on the hirer an option to purchase the
equipment, the transaction should be regarded as one of hire-purchase. In such
case the periodical payments made by the hirer should not tax purposes be
regarded as made up of-
a. consideration
for hire, to be allowed as a deduction in the assessment ; and
b. payment
on account of purchase, to be treated as capital outlay, depreciation being
allowed to the lessee on the initial value(i.e., the amount for which the hired
subject would have been sold for cash at the date of the agreement).”
The
allowance to be made in respect of hire should be the difference between the
aggregate amount of the periodical payments under the agreement and the initial
value(as described above), the amount of this allowance being spread evenly
over the term of agreement. If, however, the agreement was terminated either by
outright purchase of the equipment or its return to the owner, the deduction
should cease as from the date of the termination.
An
assessee claiming this deduction should be asked to furnish a certificate from
the vendor or other satisfactory evidence of the initial value (as described
above). Where no certificate or satisfactory evidence is forthcoming, the
initial value should be arrived at by computing the present value of the amount
payable under the agreement at an appropriate rate per centum. In doubtful case
the fact should be reported to the Board”.
[Circular
No.9 of 1943, R. Dis. No. 27(4) IT/43, dated 23rd March, 1943].
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Registration.-Registration of a hire-purchase agreement is not compulsory.
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Stamp duty.-The hire-purchase agreement requires a stamp of only Re. 1 like an
ordinary agreement.
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Model Forms
