1.Hire Purchase and Credit Sale.
A hire purchase agreement is a contract where a person hires goods and agrees to pay by instalments with an option to purchase at the end. Under this arrangement, ownership remains with the seller (owner) until the hirer completes all payments and expressly exercises the option to purchase.
In a hire purchase, the contract is essentially hiring arrangement with a deferred right to buy Because the seller retains ownership, they have the right to repossess the goods if the hirer defaults, particularly where less than two-thirds of the price has been paid.
On the other hand, a credit sale is defined under Section 20(1) of the Act as a sale in which the purchase price is payable by five or more instalments, and importantly, ownership passes to the buyer immediately upon entering the agreement,even though payment is not completed.
In contrast, a credit sale is an outright sale of goods with deferred payment. The seller cannot repossess the goods upon default. Their remedy lies in enforcing the debt usually by suing the buyer for the balance. usually by suing the buyer for the balance.
Resale and Transfer of Title
Under hire purchase agreement, the hirer does not have title to the goods and cannot validly transfer ownership to a third party.
In contrast, in a Credit Sale since ownership has passed, the buyer can freely resell or transfer the goods,even before full payment is made.
Minimum Instalments and Nature of Contract
A credit sale must involve at least five instalments to qualify under the Act. Anything less may fall under general contract law.
In hire purchase, there is no statutory requirement on the minimum number of instalments — what matters is the structure of hiring with an option to buy.
The court highlighted:In credit sale, ownership passes immediately.Upon default, the seller must seek court intervention, not repossession.In hire purchase, the owner may recover the goods upon default because there’s no outright sale.
JUDICIAL AUTHORITIES IN SUPPORT
🔹 Case Note: Yakassai v. Incar Motors (Nig.) Ltd (1975) 5 SC 107
Facts of the Case:
Alhaji Ibrahim Yakassai entered into an agreement with Incar Motors (Nig.) Ltd for the purchase of a Fiat lorry and a trailer. The payment was structured in instalments. After some payments, Yakassai defaulted. Incar Motors seized the vehicles, claiming their right to repossess. Yakassai sued, claiming ownership had already passed.
Legal Issue:
Was it a hire purchase or credit sale?
The Supreme Court held it was a credit sale. Ownership had passed immediately upon the agreement. Therefore, Incar Motors had no right to seize the vehicles; they should have sued for the balance
The decision of the apex court in this case has succeeded in establishing the following principles.
- Ownership Transfer:Ownership passes immediately in credit sales.
- Remedies for Default: Seller’s remedy is to sue, not repossess.
- Distinction from Hire Purchase: Hire purchase allows repossession if default occurs and ownership hasn’t passed.
🔹 Case Note: Amao v. Ajibike (1956) W.R.N.L.R. 121
Facts of the Case:
Ajibike entered an agreement with Amao to buy goods by instalments. After defaulting, Amao seized the goods. Ajibike sued.
Legal Issue:
Was it hire purchase or credit sale?
The court held that It was a credit sale. Ownership had passed. Amao could not repossess but could only sue for the balance.
2. Hire Purchase & Conditional Sale
A conditional sale is a typical agreement where ownership does not pass until the buyer fulfils specific conditions.
Just like in hire purchase, possession is given.But unlike hire purchase, there’s no option to return the goods if the buyer defaults.
Case Reference: AFROTEC TECHNICAL SERVICES LTD. V. MIA & SONS LTD.
Brief Fact:
MIA & Sons agreed to buy equipment from Afrotec for ₦702,900. They paid 40% and issued post-dated cheques for the rest, which bounced. Afrotec seized the equipment.
Trial Court: Favoured Afrotec, it was a conditional sale, and they had the right to retain the goods.
Court of Appeal: Overturned this and declared it an outright sale and ordered equipment returned.
The Supreme Court Reversed the Court of Appeal held it was a conditional sale and reinstated Afrotec’s right.
The implications of this decision: A conditional sale involves an agreement where possession passes, but ownership is deferred.If the buyer fails to pay, the seller may reclaim the goods, unlike in credit sales.
3. Distinction Between Hire Purchase and Outright Sale
Under Section 20 (Hire Purchase Act, Cap H4 LFN 2004):
A hire purchase agreement lets goods on hire with an option to purchase.
An outright sale is governed by the Sale of Goods Act (1893) and involves an immediate transfer of ownership upon agreement and typically full payment.
Section 1(1), Sale of Goods Act“A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration…”
4. Difference Between Hire Purchase and Bailment
Bailment is the delivery of goods by one person (bailor) to another (bailee) for safekeeping, repair, or other specific purposes, with the expectation of return.
Basic key distinction:
Hire Purchase: The goal is potential owners
Bailment: The goal is temporary custody, not ownership transfer. Here comes a case that illustrate this
Chapman Bros v. Verco Bros & Co Ltd (1933) 49 CLR 306
Farmers delivered wheat to millers who could either buy or return the wheat. It was held that property passed to the millers on delivery, making it a sale, not bailment.
Also note:
When goods (like rental chairs or canopies) are delivered for fixed-period use, it may qualify as bailment. Property does not pass, only possession does — and the hirer’s interest ends after the period.
Conclusion
In summary, while a hire purchase agreement appears simple, it is governed by special rules and statutory requirements, differing significantly from credit sales, conditional sales, outright sales, and bailment. The general principles of contract law still apply, but ownership transfer, remedies on default, and rights of parties vary distinctly depending on the type of transaction.
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