Hire Purchase Agreement8th May 2020
A hire-purchase agreement is one under which a person takes delivery of goods promising to pay the price by a certain number of installments and, until full payment is made, to pay hire charges for using the goods.
From this definition it can be said that a hire-purchase agreement is a bailment plus an agreement to sell.
The main provisions of the Hire-Purchase Act are summarized as under:
- Hire-Purchase Agreement means an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement and includes a agreement under which,
(i) Possession of goods is delivered by the owner thereof to a person on condition that such a person pays the agreed amount in periodical installments, and
(ii) The property in the goods is to pass to such person on the payment of the last of such installment, and
(iii) Such a person has a right to terminate the agreement at any time before the property so passes. — Sec. 2 (e).
- Hire-Purchase agreement must be in writing and signed by parties. A surety, if any, must sign the hire-purchase agreements. The agreement shall be void if the above requirements have not been complied with.—Sec. 3.
- Contents of hire-purchase agreement must include the following.—Sec. 4:
(i) The hire-purchase price of the goods to which the agreement relates;
(ii) The cash price of the goods, i.e., the price at which the goods may be purchased by the hirer for cash;
(iii) The date on which the agreement shall be deemed to have commenced;
(iv) The number of installments by which the hire-purchase price is to be paid, the amount of each of those installments and the date, or the mode of determining the date, upon which it is payable, and the person to whom and the place where it is payable;
(v) The goods to which the agreement relates, in a manner sufficient to identify them;
(vi) Where any part of the hire-purchase price is, or is to be, paid otherwise than in cash or by cheque, the hire-purchase agreement shall contain, a description of that part of the hire-purchase price; and
(vii) Where any of the above requirements has not been complied with, the hirer may institute a suit for getting the hire-purchase agreement rescinded; and the court may, if it is satisfied that the failure to comply with any such requirement has prejudiced the hirer, rescind the agreement on such terms as it thinks just, or pass such other as it thinks fit in the circumstances of the case.
- The purchaser has the option of paying the full price before it was due. In that case the purchaser is entitled to get a rebate.—Sees. 9, 10.
- In every installment of the full price, it includes the hire of the goods and the purchasing price. — Sec. 7.
- The seller can recover the possession of the goods, if the purchaser fails to pay any of the installment price.—Sec. 17.
- The Act provides that there will be certain warranties and conditions to be implied in the hire- purchase agreement. The words and expressions are defined in Contract Act and the Sale of Goods Act.—Sec. 6.
- The Act shall not apply in relation to any hire-purchase agreement made before the commencement of this Act—Sec. 31.
Hire purchase agreement or contract is an agreement of purchase where the goods or assets are let out on hire by the seller/finance company (creditor) to the user of goods/ assets i.e. hire purchase customer (Hirer). The hirer pays installments at regular intervals in the form of consideration and gets the ownership of the asset after paying the last installment.
Hire purchase is a contract between two parties where a purchaser agrees to pay for goods in parts. The hire purchase agreement was first initiated in the United Kingdom for situations where the buyer could not afford to pay the required price for an item as a lump sum but could afford to pay at regular intervals small amounts.
The seller asks for a sum equal to the original price of the asset plus interest to be paid in equal installments. If the buyer defaults in paying the installments, the seller may repossess the goods.
Contents of Hire Purchase Agreement
- The date on which the agreement is to be made.
- The details of the seller/ finance company (of one part):
- Type of Business
- Type of organization like proprietorship/partnershipfirm/ Company etc.
- The details of the purchaser/ hirer (of the other part).
- The date on which the asset is let out on hire and the period up to which it is let out.
- The name, type, model no. and make of the asset to be let out.
- Details of installation expenses and the person who is going to bear it.
- The cash price of the asset.
- The hire purchase price i.e. (total of all installments + any deposit + any fees)
- The payment details:
- Amount of installment
- Time of payment i.e. first day / last day / any date of the month.
- Nature of interval i.e. monthly, quarterly etc.
- Mode of payment i.e. cash/ cheque.
- The authority of inspection of the asset by the owner or a person assigned by him.
Details of the rights of the hirer, in case he wants to terminate the agreement.
12. Consequences when the hirer defaults in paying the installment amount or breaches any point in the contract i.e. the owner has the rights to re-take possession of the assets on these grounds.
13. A statement that the owner at his will can grant relaxation of any sort.
Points to be remember while preparing the hire purchase agreement
- One should pay extra care while selecting the asset. He should enquire whether the asset he has asked for is not already owned by anyone else. It may so happen that the person might not actually own it and therefore does not have the right to sell it off.
- Secondly, keep a check on the cumulative installment amount to make sure it is not unreasonably more than the value of the asset.
- The hirer should also possess the copy of hire purchase agreement.
- This mode is generally used for cars and high-value electrical goods where the buyers are not able to pay for the goods directly.
After all, hire purchase agreement is also an agreement like any other agreement. There is no fixed rule like 1+1=2. Any agreement cannot be said as the good or bad. The agreement can be changed as per the convenience with the consent of both the parties i.e. hirer and the HP company. The hirer should make sure that the agreement mentions the hire charges and other terms of payment and their consequences in the manner he understands and interprets and the terms are favorable as far as possible and agreeable. Similarly, the hire purchase company should look for its interest in the agreement. In the end, the agreement should have clarity of terms mutually agreeable to each party.