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Report No. 61

Nature of Hire-Purchase

1B.2. Nature of hire-purchase under the Indian Act.-

The definition of hire-purchase agreement in the recent Indian Act1dealing with hire-purchase is as follows:-

"(c) 'hire-purchase agreement' means an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement and includes an agreement under which

(i) possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical instalments, and

(ii) the property in the goods is to pass to such person on the payment of the last of such instalments, and

(iii) such person has a right to terminate the agreement at any time before the property so passes."

In the same Act, "hire-purchase price" is defined as follows:-

(d) "hire-purchase price" means the total sum payable by the hirer under a hire-purchase agreement in order to complete the purchase of, or the acquisition of property in, the goods to which the agreement relates; and includes any sum so payable by the hirer under the hire-purchase agreement by way of a deposit or other initial payment, or credited or to be credited to him under such agreement on account of any such deposit or payment, whether that sum is to be or has been paid to the owner or to any other person or is to be or has been discharged by payment or money or by transfer or delivery of goods or by any other means; but does not include any sum payable as a penalty or as compensation or damages for a breach of the agreement".

1. Sections 2(c) and 2(d), Hire-Purchase Act, 1972 (Central Act 26 of 1972). [It has not yet been brought into force].

1B.3. Distinction between hire-purchase and other agreements-credit sales.-

A hire-purchase agreement may be distinguished from certain other types of credit transactions. First, there are "credit sale" agreements. A credit sale agreement in the present context may be defined as an un-conditional contract for the sale of goods, under which the whole or part of the purchase price is payable by instalments.1 We are not concerned with credit sales where the entire price is payable in one instalment. We are concerned with credit sales with price payable in instalments. The contract for the sale is "un-conditional", in the sense that the property in the goods is transferred to the buyer under the contract.

If the transfer of the property is to take place at a future time, or subject to some condition thereafter to be fulfilled/1 then the agreement is not a credit sale agreement, but a conditional sale.2 Credit sales are distinct from hire-purchase agreements, because, in a credit sale, the buyer is a person to whom the property has been transferred; he is not a hirer of the goods, but the owner. A credit sale resembles a hire-purchase, inasmuch as the price is payable by instalments. It is obvious that the seller under a credit sale takes a risk, because in case of default by the buyer, his only remedy is to sue the buyer, for the price.

1. A.G. Guest Law of Hire-purchase, (1966), p. 14, para. 32.

2. As to conditional sales, see para. 1B.4, infra.

1B.4. Conditional Sale.-

Next, we must distinguish an agreement of a conditional sale from a hire-purchase. A conditional sale agreement may be defined1 as an agreement for the sale of goods under which the purchase price or part of it is payable by instalments, and the property in the goods is to remain in the seller (notwithstanding that the buyer is to be in possession of the goods) until such conditions as to the payment of instalments or otherwise, as may be specified in the agreement, are fulfilled. Property does not pass immediately, but remains in the seller during the continuance of the agreement.

To this extent, such agreements resemble hire-purchase. But the distinction is that the buyer under a conditional sale is bound to buy the goods, while, in the case of a hire-purchase, the hire-purchaser has the right to elect whether he will buy the goods or return them to the seller. It should be noted that though the seller in a conditional sale remains the owner, the buyer (in a conditional sale) is a person who, "having agreed to buy goods", obtains with the consent of the seller possession of the goods and, therefore, he can pass a good title to third parties.2

1. A.G. Guest Law of Hire-purchase, (1966), p. 15, para. 33.

2. See the Sale of Goods Act.

1B.5. Chart Showing difference.-

The following chart will show the similarities and differences between hire-purchase and other transactions:-

Credit sale with price payable in installments

Conditional sale

Outright sale

Hire-purchase

(i) Property passes immediately Property does not pass immediately. Property passes immediately. Property does not pass immediately.
(ii) Possession transferred. Possession transferred. Possession transferred. Possession transferred.
(iii) Obligation to buy exists-in fact there is already a sale Obligation to by exists. Obligation to by carried out by by sale. No obligation to by, though there is an option to by.
(iv) Price payable by installments Price payable by installments. Price already paid. Price payable by instalments
(v) Buyer can pass title to third parties. Buyer can pass title Lee v. Butter.1 Buyer can pass title to third parties Buyer cannot pass title because he has not agreed to buy (Helby 2-3 v. Mathews.

1. Lee v. Butler, (1893) 2 YB 311.

2. Helby v. Mathews, 1895 AC 471.

3. See also Butterworth v. Kingszvay Motors, (1954) 1 WLR 1286.

1B.6. Outright sale.-

In an outright sale, of course, the property passes immediately, and the obligation to buy has been carried out and therefore, it is distinct from a hire-purchase.

1B.7. Nature of interest under hire-purchase.-

At this stage it may be relevant to say a few words about the nature of the rights passing under hire-purchase. While, traditionally, a hire-purchase agreement has not been regarded as a mortgage or security transaction, a different view seems to have been taken in practice.1 Professor A.G. Guest has said,2 "It would be realistic to accept that the rights of a hirer under a hire-purchase agreement must now be regarded as a valuable species of property." It may be noted that the hire-purchase legislation of the States in Australia does recognise the "property" of hirers.3

1. See R. Baxt Correspondence, (1970) 44 Aust LJ 296.

2. A.G. Guest, Note in (1962) 73 LQR 30, 33.

3. See R. Baxt Correspondence, (1970) 44 Aust LJ 296.

1B.8. For example, section 9 of the Hire-purchase Act, 1960 (New South Wales), refers to the assignment of "the right, title and interest" of a hirer. The English decision in Wickham Holdings1rejected "the nakedness of the hirer's property rights". In an earlier English case,2 the rights of hirers had been recognised. The recognition of the property rights of a hirer is equally discernible in another English case3. The recent Indian Act also recognises certain rights of the hirer4.

1. Wickham Holdings, (1967) 1 WLR 295.

2. Relsiza Motor Supply Co. v. Coz., (1914) 1 KB 244.

3. Spellman v. Spellman, (1961) 1 WLR 921.

4. Hire-purchase Act, 1972 (Central Act 26 of 1972).



Certain Problems connected with Powers of the States to Levy a Tax on the Sale of Goods and with the Central Sales Tax Act, 1956 Back




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