INTRODUCTION
Hire purchase is one way recognised in law by which goods may be obtained without the necessity of paying the full price.
In this transaction, the customer is allowed to take possession of the goods on the agreement to pay instalments at stated intervals. Often, the hirer is required to pay a deposit and then defray the remaining sums by instalments.
Hire purchase transaction is quite different from the sale of goods transactions in the sense that the property does not pass to the hirer unless and until he pays the last instalment. This, by implication in law, means that the transfer automatically lies on the action or conduct of the hirer.If he continues to pay the instalments until the last instalment is paid, property will pass to him.
If by any chance he defaults in his obligations to payment as and when due, the owner will be entitled to take over or repossess the subject matter. This is because payment is condicio sine qua non and the active ingredient to activate full ownership.
DEFINITION OF HIRE PURCHASE AGREEMENT
Hire purchase, in its simplest definition, is a contract to hire with an option to purchase a hired good.
So, typically in any contract of hire purchase, there is an owner and a hirer. It is a commercial transaction where the owner of goods, while retaining ownership, transfers possession of the goods to a hirer in return for an agreed periodic payment.
At the end of the agreed period,ownership of the hired goods may be transferred to the hirer, or the hirer may purchase the hired goods, or the possession of the hired goods may be transferred back to the owner.
Hire purchase can also be regarded as a bailment of goods with an option to purchase them.
CASE LAW: Helby v. Matthews (1895) – Landmark Decision on Hire purchase Agreement
The case of Helby v. Matthews is a locus classicus decision in English common law, particularly relating to the legal concept of ownership under hire-purchase agreements.
It helps to clarify the difference between possession and ownership, which is a key principle for understanding various legal transactions involving goods.
Facts of the case of Helby v. Matthews:
Mr. Matthews entered into a hire-purchase agreement with Helby, the owner of a piano. Under the terms of the agreement, Matthews was allowed to take possession of the piano and make monthly payments with the option to purchase it outright at the end of the payment period.
Importantly, this type of agreement meant that Matthews was only a hirer and not the owner of the piano until he completed all the agreed payments.
However, before Matthews finished paying the full amount,he sold the piano to a third party. This raised a serious legal question:
Can someone who is merely hiring an item, without yet owning it, lawfully sell that item to another person?
The court ruled that Matthews could not legally sell the piano.Since ownership had not passed to him he was merely in possession he had no legal right to transfer ownership to someone else.Therefore, the third party who bought the piano from Matthews did not acquire valid ownership either.
Principle Established:Helby v. Matthews (1895)
Under a hire-purchase agreement,the hirer does not become the owner of the goods until all contract conditions are fulfilled,typically when the final payment is made. Until then, the hirer only has possession and cannot pass legal ownership to a third party.
CASE LAW: Lee v. Butler (1893) 2 QB 318
A similar view was expressed in Lee v. Butler.
Facts of the case:
Lee, a furniture dealer, entered into a hire-purchase agreement with a buyer. According to the agreement, the buyer was to pay in instalments, and ownership would remain with Lee until all instalments were fully paid.
However, the buyer sold the goods to a third party, Butler, before completing the payments. Butler bought the goods in good faith, not knowing about the hire-purchase terms.
Later, Lee discovered this and tried to recover the goods from Butler, claiming he was still the legal owner.
The Main Issue Before the Court Lee v. Butler (1893) 2 QB 3 was
Can someone who does not own goods pass good title (ownership) to someone else?
The court held in favour of Butler, the third party who bought the goods.
Reason for the Holding:
According to the courthe agreement between Lee and the buyer gave the buyer possession and an option to purchase, the court found that the terms made it look more like a conditional sale rather than a pure hire.
N.B: This depends on whether the hire-purchase agreement gave the buyer enough authority or ownership to resell.
Key Takeaway from Both both judicial authorities cited above in analysis of Hire purchase agreement both in common law and Nigeria.
These two cases are clear on the principle that:
If there’s no option to terminate the agreement and return goods, the contract is a Sale
If a party enjoys the right to terminate at any stage, it is hire purchase.
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