Article: Indian Law governing the Hire Purchase agreement

Article: Indian Law governing the Hire Purchase agreement Hire Purchase Agreement Indian Law
Article: Indian Law governing the Hire Purchase agreement Hire Purchase Agreement Indian Law

Hire Purchase Agreement Indian Law

A hire contract, is governed and regulated by the provisions mentioned in Chapter IX of the Indian Contract Act. Various day to day purchases of consumer durables like Computers, Motor Vehicles, Household appliances like Televisions, Refrigerators, etc. are covered in this. Also, purchase of machinery in the industrial sector is covered by this method only.

The basic principle facilitating it is that the installment, which is determined becomes the Hire (rental) till the full installments are paid as part of the agreement. Once, the period is decided between the Hirer (purchaser) can pay a nominal amount to become the owner of the goods.

Salient features of Hire-Purchase Agreement

  • In this agreement, the owner hires (rents) goods to the hirer (purchaser) on a certain rental for the said period. The rental becomes installments and the hirer has the option to purchase the goods once the rental for a certain period has been paid.
  • With the help of this system, the buyer who is unable to acquire the asset in one lump sum payment of money, has the option to acquire it. After payment of an initial amount called the premium, the buyer pays the balance consideration amount in installments.
  • As discussed above, once the full payment is made for the said period, the hirer becomes the owner of the goods.
  • The hirer can return the goods during the tenure of the agreement. Also, the hirer can terminate the agreement at his pleasure and is not bound to pay the value of the goods.
  • This agreement is a form of bailment in which the hirer is given the right to purchase only on certain terms and conditions. However, the purchase is only an option, not an obligation.
  • If the hirer elects to purchase the goods, the title will pass to him once he fulfills all the conditions prescribed in the agreement. On the other side, if he does not elect to purchase the goods, he is entitled to return the goods and terminate the agreement in the manner provided therein.

Kinds of Hire-Purchase Agreements

These are mainly of two types:

  • First form: In this form, the goods are purchased from the dealer by the financier and the financier obtains a hire-purchase agreement from the customer, under which the customer on paying all the installments of the agreement period and exercising his right to purchase the goods by paying nominal amount, becomes the owner of the goods. The dealer gets his money from the financier who in turn recovers the cost from the customer.
  • Second form: The goods are purchased by the customer and he executes a hire-purchase agreement with the financier, under which the possession of goods remains with the customer, subject to payment of the amount paid by the financier to the owner of behalf of the customer. In this case, the financier also gets the right to seize the goods in case of non-fulfillment of conditions of hire-purchase agreement by the customer.

How the Nature of Agreement is determined?

It is the terms of the agreement which determines the true nature of the agreement. Also, the court unless prohibited by statute can go behind the document to determine the true nature of the documents.

If the hirer (purchaser) who desires to purchase the goods, but does not have sufficient money for purchasing the same, borrows the amount from the third party and pays it over to the vendor, the transaction between the purchaser and lender will be treated as a loan transaction. This does not change the nature of the transaction if the lender himself is the owner of the goods and the purchaser promises him to pay the balance money against the delivery of goods.

Ways in which Hire-purchase agreement can be terminated

  • By the terms of the agreement: In this way, the hire purchase agreement mentions the circumstances in which the agreement can be terminated. The agreement is terminated in three common ways:
    • When the purchaser returns the goods to the owner
    • Termination notice by the owner on account of hirer’s breach of conditions
    • Termination notice by the hirer
  • By Hirer’s exercising option to purchase the goods: Once the hirer exercises the option to buy the goods, the agreement gets terminated by itself.
  • By means of renewal: The parties may plan to enter into a fresh agreement and if that is done, the old hire purchase agreement is terminated automatically.
  • By giving notice by either party: It can be terminated by giving notice by either party.
  • By the method of accepting repudiation by other party: When a party to an agreement renounces its future obligations, which indicates that the party does not want to get bound by its provisions, or commits a breach of the agreement and the same is accepted by the other party, the agreement can be terminated.
  • By release: Where one party releases the other party from the performance of their part of the obligations, the agreement comes to an end.
  • By the means of frustration: When the performance of the agreement becomes difficult by some act or some event occurrence after the formation of the agreement, the agreement comes to an end. For e.g. When the goods are destroyed during the currency of hire-purchase agreement, without negligence shown on the part of the hirer, the agreement gets cancelled.
  • When time gets over: When the hirer fails to exercise the option to purchase of goods within a stipulated time in the agreement, the agreement automatically comes to an end.

Remedies available in case of breach of the contract

In case of breach of the hire-purchase agreement, the owner has the right to:

  • Get the goods back in physical possession
  • Any claim to the goods can by abandoned by the owner and sue for damages

Is it mandatory to get the hire-purchase agreement registered?

It is not mandatory to get a hire-purchase agreement registered, as no immovable property is involved in this case.





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