Permitted Clauses are clauses that are automatically implied by law into every hire purchase agreement. They apply whether or not they are expressly stated in the contract. According to Section 4 of the Hire Purchase Act, these include:
A. Right to Quiet Possession.
At common law, it is an implied condition that the owner must have a good title. Section 4(1)(a) & (b) of the Hire Purchase Act LFN 2004 reads:
“In every hire purchase agreement, there shall be:
(a) an implied warranty that the hirer shall have and enjoy quiet possession of the goods; and(b) an implied condition on the part of the owner that he shall have the right to sell the goods at the time when the property is to pass.”
This condition ensures that the owner has an undisputed title to the goods.
Case Analysis: Karflex Ltd v. Poole (1933) 2 KB 251
FACT: Facts:Karflex Ltd entered a hire purchase agreement with Mr. Poole for a motor car. Poole paid an initial deposit but defaulted on the first installment. Karflex repossessed the car and sued. It was later revealed that Karflex did not have a valid title to the car at the time of agreement, though they later cured it.
Decision: The court held that the lack of title at the time of contract was a breach of the implied condition. The agreement was void, and Mr. Poole was entitled to a refund of his deposit.
Legal Principle: “Feeding a Defective Title”
In Polymer Industrial Nigeria Ltd v. Societe Richarges Etudes (1964) 1 ALR, the court upheld the doctrine that if a seller later acquires title after contracting to sell goods, it can correct the defect. However, the buyer may only be entitled to nominal damages if no substantial harm occurred.
B. Goods Free from Encumbrances (Section 4(1)(c))
There is an implied condition that goods must be free from encumbrances (third-party claims) at the time the property is to pass, except when sold as second-hand goods.
Udekwu v. Abosi (1974) ESCLR 298
Fact: Mr. Udekwu bought a car from Mr. Abosi. It was later seized by Customs for unpaid duties. Udekwu sued to recover payment, claiming defective title.
Decision; The court held that the seizure was unlawful and did not affect the seller’s title. Hence, Udekwu was not entitled to rescind the contract.
Key Takeaways are noted as follows;
1. The implied condition regarding freedom from encumbrances does not apply to second-hand goods.
2. Merchantable quality is not guaranteed for second-hand goods unless the defects are obvious or could have been discovered through inspection.
C. Fitness for Purpose (Section 4(2))
If the hirer makes known the specific purpose for which the goods are required, there is an implied condition that the goods must be reasonably fit for that purpose.
NOTE: Section 4(3) of the Hire Purchase Act invalidates any clause that:Waives the hirer’s right to quiet possession;Excludes the owner’s liability in the event of interference by third parties;Denies the transfer of property due to third-party claims.
However, the proviso to Section 4(3) allows parties to modify the clause on fitness for purpose if such modification is brought to the hirer’s notice in writing, and the hirer expressly consents to it.
In summary it stand to notice that,The Hire Purchase Act strictly prohibits certain clauses that are unjust and protects the hirer’s right to fair treatment, proper ownership transfer, and quiet possession. Meanwhile, certain essential warranties and conditions are automatically implied by the law in all hire purchase agreements.
Understanding both prohibited and permitted clauses helps parties ensure their agreements are legally sound and enforceable.
For permitted Clauses visit https://lawmadesimplelegal.com/prohibited-clauses-hire-purchase-agreement/
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