[easyazon_block add_to_cart=”yes” align=”left” asin=”1112044760″ cloaking=”default” layout=”left” localization=”default” locale=”US” nofollow=”default” new_window=”default” tag=”thecorpro-20″]The Law Relating to the Hire-Purchase System : With An Appendix of Forms[/easyazon_block]The term “hire-purchase” relates to two different transactions rolled up into one: a hire and a purchase. It is a commercial transaction which has some similarities with other commercial transactions such as bailment, credit-sale, loan and mortgage, equipment lease, and conditional sale, etc. In spite of its similarities with those other commercial transactions, a hire-purchase transaction is clearly distinct from those other commercial transactions.
Ordinarily, there are two parties involved in a hire-purchase transaction. However, this is not always the case in some situations as some hire-purchase transactions take what may be referred to as the “triangular form”. This is aptly illustrated in the diagram below.
The diagram above depicts a scenario of a hire-purchase transaction involving a motor vehicle as its subject matter. In other words, circumstances may arise in which the owner of the goods does not have the resources necessary to finance a hire-purchase transaction. This is particularly true in the car trade. In such cases, the services of a finance company are used. The finance company finances the transaction for a consideration (the finance charge) that is included in the total hire-purchase price and thus has to be borne by the hirer.
In law, the transaction takes a very different form: the car dealer sells the car to the finance company for the cash price less the deposit which is paid directly to the car dealer by the hirer. Thereafter, the finance company lets the goods on hire-purchase to the hirer for the cash price plus hire-purchase charge (interest) usually at somewhat substantial rate. In such situations, there are, therefore, at least three possible contractual relationships. These are namely: the relationship between the finance company and the hirer; the relationship between the car dealer and hirer; and the relationship between the finance company and the car dealer. This is evident in the diagram above.
In practical terms, therefore, where the services of a finance company are used, the hire-purchase transaction takes the following triangular form:
- The original owner of the goods, for example, the car dealer, sells the goods to the finance company under an outright contract of sale. The car is immediately transferred to the finance company which becomes the subsequent owner of the car. The finance company pays the cash price for the car to the original owner. Assuming the property involved is a car and the dealer accepts the buyer’s car in part exchange, he will give the finance company credit for the car taken in part exchange.
- The finance company, as the new owner of the car, then enters into a hire-purchase contract with the person who intends to purchase the car (the hirer). The hirer pays directly to the finance company installments which will include finance charges. If, however, he exercises his option to purchase the car after the payment of the last installment, title to the car will pass from the finance company to the hirer.
- No contract of sale or hire-purchase exists between the original owner (the car dealer) and the hirer. However, their relationship might not be entirely devoid of legal effect. It is possible that a collateral contract of warranty may exist by virtue of which the original owner has undertaken a warranty relating to the car to the hirer in consideration of the latter entering into the hire-purchase contract with the finance company.
Hence, the three parties to the hire-purchase transaction in this instance play vital role in the unique nature of the hire-purchase transaction different from other commercial transactions. Where a car dealer has connected the hirer to a financial company, he is paid the full cash price by the finance company which becomes the new owner, and subsequently enters into a hire-purchase agreement with the hirer which entitles the hirer to the possession and use of the car. Thus, the parties to the hire-purchase agreement are still two: the owner and the hirer.
The owner, hirer, and the third party who most times may be finance companies are in some situations key factors in hire-purchase agreements. In this case, the hire-purchase transaction takes a triangular form, which additionally underscores the distinction between a hire-purchase and other commercial transactions.
[easyazon_block add_to_cart=”yes” align=”center” asin=”1112044760″ cloaking=”default” layout=”left” localization=”default” locale=”US” nofollow=”default” new_window=”default” tag=”thecorpro-20″]The Law Relating to the Hire-Purchase System : With An Appendix of Forms[/easyazon_block]