HIRE-PURCHASE AGREEMENT

1. LAW APPLICABLE

The law on hire purchase is governed by Hire Purchase Act, 1967 (Act 212). Prior of this Act the law is governed entirely by common law and the Contracts Act 1950.

Scope of the Act – nor cover all hire purchase transactions. Goods as listed in the First Schedule which can be amended by the Minister from time to time.

KESANG LEASING SDN BHD v MOHD YUSOF BIN ISMAIL & ANOR [1990] 1 MLJ 291

The High Court held that section 1(2) did not exclude the application of provisions of the Act to hire-purchase agreements in respect of goods outside its coverage provided the parties to an agreement consented to be bound by them. In that case, the parties have agreed to be bound by provisions of the Act in respect of a computer.

First Schedule

1.    All consumer goods; and

2.    Motor vehicles, namely

·         Invalid carriages

·         Motor cycles

·         Motor cars including taxi cabs and hire cars

·         Goods vehicles (where the maximum permissible laden weight does not exceed 2540 kilograms)

·         Buses, including stage buses

“Consumer goods” are defined as goods purchased for personal, family or household purposes – S. 2(1)

Other types of goods are governed by Common Law. In Common Law, contract of sale, whereby the owner lets out goods on hire and agree that on completion of the necessary payment, the hirer may either return the goods and terminate the contract or elect to buy the goods. Therefore, hirer is given option to purchase or to decline.

Under Hire purchase, hirer cannot sell the goods under hire because he is not the owner of the goods. If he do so, he will liable for conversion (a wrongful act under law of tort)

2. DEFINITION OF HIRE PURCHASE AGREEMENT

s. 2(1)

Hire purchase agreement includes a letting of goods with an option to purchase and an agreement for the purchase of goods by instalments (whether the agreement describes the instalments as rent or hire or otherwise), but does not include any agreement:

a)    Whereby the property in the goods comprised therein passes at the time of the agreement or upon or at any time before delivery of the goods; or

b)    Under which the person by whom the goods are being hired or purchased is a person who is engaged in the trade or business of selling goods of the same nature or description as the goods comprised in the agreement

Who is ‘hirer’ and ‘owner’?

“hirer” means the person who takes or has taken goods from an owner under a hire-purchase agreement and includes a person to whom the hirer’s rights or liabilities under the agreement have passed by assignment or by operation of law;

“owner” means a person who lets or has let goods to a hirer under a hire-purchase agreement and includes a person to whom the owner’s rights or liabilities under the agreement have passed by assignment or by operation of law;

Nature of Hire Purchase

• The business is limited to transactions that involve the owner and the hirer
• The ownership will not transfer at the time the contract being made

• Under hire purchase the hirer will have an option to buy the goods upon the completion of the necessary payments

LOW PING MING v MBF FINANCE BHD [2000] 2 CLJ 307

The learned Steve Shim J in that case stated that at common law, hire purchase agreement is regarded as a form of contract whereby the owner lets goods out on hire and agrees that the hirer may either return the goods and terminate the contract or elect to buy the goods on the completion of the required periodic payments.

The court pointed out that a common characteristic or feature of such an agreement is that the hirer has the option of purchasing the goods and during that stage, title to the goods remains with the owner. It this way the hirer has the option of purchasing the goods on compliances with the terms of the agreement.

Therefore, it is nothing like a sale of goods whereby no title to the goods passes from the owner to the hirer during the period of hire. In other words, based on the definition itself, it is clearly stated that hire-purchase agreement is differs from contract of sale where in a hire-purchase agreement, the property in the goods does not pass at the time of the agreement whilst in a contract of sale, property on the goods passes at the time of the agreement or upon or at any time before the delivery of the goods.

CREDIT CORPORATION (M) BHD v THE MALAYSIAN INDUSTRIAL FINANCE CORP & ANOR [1976] 1 MLJ 83

The High Court held that until the hirer had exercised his option to purchase by paying the total amount and fulfilling all his obligations under a hire purchase agreement. No property in the car passed to the hirer.

TRACTORS MALAYSIA BERHAD v KUMPULAN PEMBINAAN (M) SDN BHD [1979] 1 MLJ 129

In this case the question arises whether a transaction involving a tractor was a sale or ahire purchase. The respondent had brought an action for damages against the appellant for wrongful repossession. The Federal court held that on a proper construction of the agreement, it was clearly the intention of the parties that property in the tractor was not to pass until full payment. In consequence, it was not a sale on instalment terms but more in the nature of hire purchase. Hence the claim failed given that the appellant had the right to repossess on breach of the terms by the respondent.