HIRE

PURCHASE
 Learning outcomes
By the end of the lesson, learners should be able to:
•Distinguish between the hire purchase contract and
the contract of sale
•Explain the concept of passing of property in the hire
purchase contract
•Analyse the Hire Purchase Act with a view to
explaining the obligation of parties and remedies in
the event of breach of those obligations in the hire
purchase contract
 Definition and Nature of HP Agreements
The role of capitalism on the development of hire
purchase: Reaping maximum profit at whatever
expense
The Hire purchase Act was enacted to bring sanity
to HP agreements and narrow the variance in
bargaining power between parties.
Presently HPs in Kenya are governed by the Hire
Purchase Act Cap 507, which is mainly modelled
on the English Hire Purchase law
 The UK Act transplanted to Kenya
▪ The UK Act was passed in 1938.
▪ This Act was amended twice, in 1954 and 1964. The 1965 Act repealed
and consolidated all the three legislations
▪ The current Kenyan Law of Hire Purchase was transplanted from
England
▪ The Hire Purchase Act of 1968 Cap 507 Laws of Kenya was privately
sponsored to the parliament by the late J.M. Kariuki. The effect of this
Act is that it either modified, confirmed, or supplemented the common
law on hire purchase First enacted as No. 42 of 1968. The Act has
undergone several minor amendments. Earlier drafts had been rejected
by the finance companies of the time for favouring the hirer more than
the seller and this would portend a bleak future for the hire purchase
business in the country.
 The Kenyan Act
A review of this Act will show that the Act was introduced to offer more
protection to owners of goods only as opposed to protecting both the owner
of the goods and the hirer from breach by either party to the contract. The
Late Honourable Martin Shikuku captured the nature of this Act regarding
the purported protection that it offered the hirer of the goods:
…Although it is said that it (the Hire-Purchase Bill) is a poor man's
charter, I am of the opinion that it is not quite a poor man's charter,
because it is for middle class people like myself, yourself and any higher
people who are interested. Poor men do not buy even bicycles, Sir, I am
their president and I know they do not go in for cars on hire purchase.
So, it should be called the middle and high-class charter; it is for the
benefit of us who are able to buy these things but not for the benefit of
the poor people. However, it is welcome by that class, and also by the
other higher classes, and I hope the government will make sure it works
 The Kenyan Act cont’d
▪ Although the Bill was a private member’s bill, it was passed unanimously
by the House
▪ An examination of market trends shows that hire purchase business
involves the sale of such consumer durable goods as cars, television sets,
washing machines, vacuum cleaners, etc. and these are clearly not goods
that poor people will purchase every other day. This was, clearly, not a
poor-man’s charter
▪ J.M. Kariuki, the sponsor of the Bill, even stated that he had bus owners in
mind when preparing the Bill. Talking about the financial ceiling, which
was initially fixed at £4,000, he stated as follows:
…The reason why I thought fit to leave it at £4,000 is because most of
our people who are taking goods on hire-purchase are the bus owners,
and most of the buses in this country costs (sic) between £3,000 and
£4,000
 The Kenyan Act cont’d
▪Members who spoke about the Bill were very concerned about the
provision on the right of the owner to repossess the goods. There
was also a proposal to have a finance company ran by the
government
▪The poor are not likely to own buses, and therefore this could not
have been a poor man’s charter as the Honourable Members
eloquently stated during the debates.
▪It was meant to protect the Kenyan bourgeoisie who import these
goods from overseas markets and sell them to Kenyan consumers at
exorbitant prices.
▪The hire purchase price is always higher than the cash price, even
when most hirers will pay to the very last instalment
 The Kenyan Act cont’d
▪This bourgeois ideology was clearly demonstrated by
the Honourable Masinde Muliro when he stated as
follows during the debates:
…we as the legislators should be primarily interested
in the majority of the people of this country, not in
the few, the handful of unscrupulous businessmen
who would like to rob everything and make
themselves rich despite the fact that their actions
bring misery to millions of Africans in this country…
 The Kenyan Act cont’d
▪ Mr. Mati stated it during the Parliament debates:
…Mr. Speaker, Sir, our present kind of life is such that we cannot do
without the hire purchase system. Most of the members here, perhaps
unknown to most of the public outside, live on almost nothing else but
hire-purchase. We could not move without cars and yet I wonder who
could claim here to have bought his car for cash? Perhaps, there are
few, but very few indeed. Farmers could not do their work properly if
they had to buy tractors for cash, and things like that. This hire-
purchase system is, therefore, indispensable for the raising of the living
standards of the people, and because of this, we know our people want
to live at a higher standard. We must have a provision to protect them
against exploiters…
 Definition under the Act
• Section 2
• “hire-purchase agreement” means an agreement for the
bailment of goods under which the bailee may buy the
goods or under which the property in the goods will or
may pass to the bailee; and, where by virtue of two or
more agreements none of which by itself constitutes a
hire-purchase agreement there is a bailment of goods
and either the bailee may buy the goods or the property
therein will or may pass to the bailee, the agreement
shall be treated for the purposes of this Act as a single
agreement made at the time when the last of those
agreements was made
The element of bailment of hire and the element
of an option to buy
❑Helby vs Matthews (1895), the owner of a piano agreed to
let it on hire, on terms that the hirer (a man called Brewster)
would pay it by 36 monthly instalments. The agreement
permitted the hirer to terminate the hiring by delivering up
the piano to the owner, the hirer remaining liable for all
arrears of hire. The agreement provided that if the hirer
punctually paid over the monthly instalments, the piano
would become his sole and absolute property, and that until
such full payment, the piano would continue to be the sole
property of the owner. The hirer received the piano, paid a
few instalments and then pledged it to a pawnbroker
(Matthews) as security for an advance
 Elements cont’d
▪The contract of hire
▪The option to purchase- no obligation
▪There is no purchase and no agreement for purchase,
until the hirer actually exercises the option given him
▪A contract of hiring which could be terminated at the
will of the hirer, who had the option to purchase the
goods by making full payment
▪Hire purchase legislation was passed based on this case
▪Parties: Owner, hirer, in some cases financial
institutions
 Agreements regulated by the Act
✓s.3: the Act applies to agreements where the hire
purchase price does not exceed Kshs 4,000,000/-
✓This sum may be revised from time to time by the
relevant Minister.
✓Meant to protect economically disadvantaged persons
who are presumably more vulnerable to exploitation
✓The presumption is that individual hirers of goods of a
value exceeding Kshs 4,000,000/= are able to protect
and safeguard their interests and are economically
empowered.
 Hire
Purchase Contract
and Credit of sale
Distinction sale
with Other
Transactions
Bailment Etc.
 Formalities of HP Agreements
▪5(1) requires that all HPA must be in writing and registered with the
registrar of HP agreements within 30 days after making the
agreement and a certificate obtained.
▪A hire purchase agreement cannot be registered if it is not in
English or where the required stamp duty has not been paid as per
▪S. 4 establishes the registry of HPA’s and offices thereto.
▪It is also required that the document be in English.
▪S. 6: a trader is required by law to inform a hirer in writing of the
cash price of the goods.
▪S.6 (2) the Act requires that there is a written agreement, which
must be signed by the hirer
 Formalities cont’d
oThe agreement contains the amount and dates
of payment of each instalment
oAgreement sets out the hirer’s rights under
the contract and this should be as prominent
as the rest of the contents of the agreement.
oA copy of the agreement is sent to the hirer
within 21 days of the date of the agreement.
oNon-compliance of these requirements would
render the agreement unenforceable
 Consequences of non-registration
provided for under s.5(4)
oThe agreement cannot be enforced against the hirer or the guarantor and
the owner will not be allowed to recover the goods from the hirer.
oSecurity given by the hirer or by guarantor is not enforceable against the
hirer or the guarantor.
oIn Fidelity Commercial Bank Ltd v Agritools Ltd & 3 others [2004]
eKLR, it was held that an owner has no right to recover a motor vehicle
from the hirer where the hire purchase agreement had not been registered
 Consequences cont’d

It was so held in
Taawawa Supermarket
However, the Ltd. v Fina Bank
parties can (2010) eKLR that any
money paid under the
enforce the agreement is refundable
agreement as a if the parties pursue their
rights under Law of
contract. Contract and not as a
Hire Purchase
agreement
 ▪ Quiet possession
▪ Free from charge or encumbrance
▪ Right to sell
Implied ▪ Merchantability
terms ▪ Fitness for purpose
(conditions ▪ Right of the owner or his agent to enter the
and premises to repossess the goods or
warranties). ▪ The right under S 12 a hirer to terminate
the agreement and the liabilities spelt out
S. 8 there under or
▪ Liability of the hirer in case of termination
of the hire purchase agreement
 Termination of Agreement: S. 12
▪ Either party is free to terminate the contract
▪ A hirer has a right to terminate the agreement any time before the
final instalment falls due.
▪ He must give notice in writing to the owner.
▪ He is liable to pay all the instalments due by the time plus the sum (if
any), that is required to make his total payment not less than half of
the total hire purchase price (unless a lesser sum is specified in the
agreement).
▪ Any provision for a larger payment is void. This is referred to as a
minimum payment clause. The amount should reasonably represent
the actual loss suffered by the owner as a result of the breach or other
eventuality causing the termination.
 Termination cont’d
▪ Under s.12(2): The hirer will be liable in damages if he fails to take
reasonable care of the goods.
▪ Where he terminates the contract he must return the goods at his own
expense
▪ The owner may also terminate the agreement and repossess his goods
upon breach of the contract by the hirer. This is particularly due to non-
payment of instalments (default). This power to terminate is subject to s
15;
▪ Section 15(1) provides that: “Where goods have been let under a hire-
purchase agreement and two-thirds of the hire-purchase price has been
paid, whether in pursuance of the agreement or of a judgment or
otherwise, or has been tendered by or on behalf of the hirer or a
guarantor, the owner shall not enforce any right to recover possession of
the goods from the hirer otherwise than by suit.”
 Termination cont’d

The owner may

however be Elijah Barasa
compensated for Wepukhulu vs
his loss by an Munir Omar &
award of the 2 Others HCCC
outstanding 119/1999
balance of the HPA
 Rights, Duties and Remedies Under HPA
▪Duty on the hirer to take delivery of the goods
▪Duty on the hirer to exercise reasonable care of the
goods in his possession
▪Duty on the hirer not to remove/permit removal of the
goods from the premises where they are normally kept
or from Kenya without consent of the owner. S.9, s10.
▪Duty on the hirer to pay the HP instalments when due
▪Duty on the hirer to continue hiring the goods for the
agreed time and not to re let, sell or part with
possession
 What are the duties of
the owner of the goods?
 Remedies of the owner
▪ To terminate the agreement and repossess the goods. After
repossession the hirer may still redeem the goods within 28 days by
paying the balance due together with reasonable costs incurred by the
owner in repossessing and any other costs
▪ Sue for damages. It should be noted that a hirer is not in breach
where he decides to terminate the agreement by giving the required
notice
▪ Where this happens, the owner may repossess the goods and invoke
the minimum payment clause.
▪ Where the owner is in breach of any of the warranties and conditions
the hirer may sue for damages for breach of condition.
▪ The hirer may also recover all monies paid under the agreement.
END