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Hire purchase system is unknown to customary law. This is not surprising as the goods which normally attract this form of agreement were unknown to customary law, viz. Piano, radios, television sets, sewing machines, etc. The hire purchase devices immigrated into the Nigerian Legal system when the need for secured financing of these consumer goods arose. Agreeing to purchase goods in installments over a period of time is the foundation of hire purchase. The need for the installment buying of passenger cars and lorries and other commercial vehicles was realized when it was discovered that the full purchase price of any of these goods could be applied through the system of hire purchase, in obtaining possession and use of more than one of them for making profit.

The interpretation Act, section 12 has defined hire-purchase to mean the “bailment of goods in pursuance of an agreement under which the bailee may buy the goods or under which the property in the goods will or may pass to the bailee.”  Also hire-purchase comprises agreement for the delivery of goods under which the recipient pays a small deposit to the owner of the goods while promising to pay certain sums as installments, usually each month, in consideration of being granted possession and use of the goods and an option to purchase them after a stipulated period having paid stipulated total sum.

In an ordinary contract of hire the owner of the subject matter of the contract transfers possession to the hirer in return for periodical payment. According to common law, the hire-purchase transactions is a contract whereby the owner lets out goods on hire and agrees that on completion of the necessary payments, the hirer may either return the goods and terminate the contract or elect to buy the goods. In other words, the hirer is given an option to purchase at the end of the duration of hire. They may decline to accept this option if he so chooses. Furthermore, in every hire-purchase agreement, the hirer cannot sell the goods under hire. This is because the hirer is not the owner of the goods and as such, he cannot pass a good title to the third parties. If he sells the goods, he may be liable to the owner for conversion. Thus the aim is that the hirer is not to buy but to use it; A hire purchase agreement on the other hand is a contract of hire coupled with an option to purchase.

As a commercial transaction, a hire-purchase contract has its distinguishing features which mark it out from other commercial transactions. These features include the following:

 a. It is a contract between the owner of the goods and the hirer, which by law must be in writing.

 b. There is a bailment relationship between the owner of the goods and the hirer in which the owner is the bailor and the hirer is the bailee.

c. The object of a hire-purchase is to ensure the property in the goods let on hire remains in the owner even though the owner parts with possession. From the inception of the transaction to the time the hirer exercises his option to purchase, the property in the goods remains in the owner. The hirer only gains property when and if he exercises his option to purchase the goods under the contract. Consequently, the hirer will be unable to pass good title to a third party, unless a bona fide purchaser for value without notice, during the continuance of the bailment. The hire purchase agreement confers on the hirer an option to purchase the goods or return same during the continuance of the contract.

d. The hirer has the inalienable right to determine the agreement and return the goods to the owner. Any provision in the agreement which excludes or restricts this right is void and unenforceable.

 e. The hirer may elect to return the goods, or purchase them at the end of the transaction. This isknown as the option to purchase which essentially distinguishes hire-purchase transactions from other forms of commercial transactions.

In conclusion, irrespective of this and other advantage of the system, its development reminded slow and its expansion hampered for some time in Nigeria. There are two reasons for this. In the first place, the unscrupulous business practices of some hire purchaser traders made the system unattractive to customers. Secondly, traditional attitude to sale of goods transaction militated against the development of hire purchase as a method of selling goods.

Once a Nigerian customer obtains possession of goods by paying, he automatically regards himself as the owner. Any agreement to the contrary will be favored. With the continuing education of the society, coupled with the protection afforded to customers of goods under Hire purchase agreement by the Hire purchase legislation, the advantages of the system have been grasped and the system fully received.

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This article was first published on 17th June 2019


Foluke Akinmoladun is the Managing Solicitor of Trizon Law Chambers. She has been a legal practitioner for 13 years and has experience in a wide range of commercial matters. She is a certified mediator, a member of the Chartered Institute of Arbitrators(UK), holds an Advanced Diploma in Accounting from the Association of Chartered Certified Accountants (UK) and is also a tax consultant. She is a dispute resolution expert, handling commercial disputes from negotiations all the way to litigation (if need be).

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