Report No. 20

Clause 2

Para (a)-"contract of guarantee".-(i) The definition of contract of guarantee does not use the words "at the request expressed or implied of the hirer". The omission of these words is intended to maintain conformity with the definition of "consideration" in section 2(d) of the Indian Contract Act, which says, that when at the desire of the promisor the promisee etc. has done etc. something, such act etc. is called consideration. (Under section 127 of the Indian Contract Act, anything done or any promise made for the benefit of the principal debtor is sufficient consideration to be surety for giving the guarantee).

(ii) As the Indian Contract Act uses the expression '"surety" that has been adopted here, instead of "guarantor".

(iii) In other respects, the English Act has been followed.

Para (b)-"hire".-The provision in the English Act [section 2(2)(b)1, which speaks of 'instalment' seems rather technical. The definition adopted here gives a more concrete picture. Obviously, hire is paid for possession or use of the goods-a proposition which need not be incorporated in the definition.

Para (c)-"hire-purchase agreement".-The definition of hire-purchase agreement in the English Act does not give a vivid description of the nature of the agreement. A hire-purchase agreement is an agreement

(i) for hire at the inception,

(ii) with an option to purchase.

The definition in the draft clause is intended to bring out the true nature and character of the transaction.

(A hire-purchase transaction constituted by two or more separate agreements has been dealt with separately)1

The case where without an overt act by the hirer the property automatically passes to the hirer would not be covered merely by the words "option to purchase" and an attempt has been made to cover such cases also.2-3

Para (d)-"hire-purchase price".-This follows the English Act, in substance.

The inclusive provision has been taken from section 3(1) of the (English) Hire-Purchase Act, 1954. This provision was not there originally in the 1938 Act. The words "whether that sum is to be or has been paid to the owner or to any other person" appear to have been intended partly to nullify the decision of the Court of Appeal,4 wherein it was held that a payment made to a third person (that is, a person other than the owner of the goods) could not be regarded as a part of the hire-purchase price.

It was argued in that case that such a payment formed a part of the hire-purchase price, thus increasing the amount of the hire-purchase price and taking it above the maximum to which the Act then applied. This argument was negatived, and in consequence it was held that the 1938 Act was applicable to the facts of this case. While the provision in the English Act which lays down the maximum limit for the application of the Act5 has not been adopted in the draft, it is felt that the inclusive provision can safely be retained as serving a useful purpose for governing the scope of the expression "hire-purchase price" occurring at other places in the draft clauses.

The definition has been framed so as to begin with the meaning of the expression; it then states what is included (by reason of the provision already discussed above), and then states what is excluded. It is felt that this scheme is better than that adopted in the English Act.

Para (e)-"hirer".-This follows the English Act.

Para (f)-"owner".-This follows the English Act.

Para (g)-This will be useful for expressions like "condition", "warranty", "delivery", etc.

1. See clause 5.

2. See Uniform Laws Annotated, Vol. 2A, p. 21 (Annotation by Bogert).

3. See also the body of the Report, para. 5.

4. Menzies v. United Motor Finance Corpn. Ltd., (1940) 1 All ER 549 (Court of Appeal).

5. Section 1, clauses (b) and (c) of the (English) Hire-Purchase Act, 1938, as amended by the 1954 Act.