LAW ON HIRE PURCHASE

LECTURE 9

Charles Nicholson
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APPLICABLE LAW
The law on hire purchase in Malaysia is contained in the Hire Purchase Act 1967 amended by the Hire Purchase (Amendment) Act 2010. 2010. The Act regulates the form and contents of hire-purchase hireagreements, the rights and duties of parties to such agreements and makes provisions for other matters connected therewith.

The Act applies throughout Malaysia in respect of hire purchase agreements relating to the goods specified in the First Schedule - s. 1(2) HPA LIST OF GOODS under the First Schedule. 1. All consumer goods 2. Motor vehicles, namely a) Invalid Carriages b) Motor Cycles c) Motor Cars including taxi cabs and hire cars d) Goods Vehicles limit on max. weight - 2540 kg. e) Buses, including stage buses

Consumer goods means goods purchased for personal, family or household purposes s. 2(1) invalid carriages: motor vehicles which are specially designed and constructed or adapted for the use of a person suffering from some physical defect or disability and the unladen weight of which does not exceed 250 kilogrammes s. 5(1)(a) Road Transport Act 1987 The Act would apply to hire purchase agreements in respect of goods not covered by the Act if the parties have agreed to be bound by the provisions of the Act. Kesang Leasing Sdn Bhd v. Mohd Yusof bin Ismail & Anor. [1990] 1 MLJ 291
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In respect of goods not specified under the First Schedule the parties are free to contract outside the provisions of the Act if they do not agree to be bound by the Act. Even though an agreement may not fall within the ambit of the Hire-Purchase Act (not within the First Schedule) Hireand is also not a bill of sale, it is a valid hire-purchase hireagreement under common law. law. A hire-purchase agreement at common law is regarded as hirea 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. MBF Finance Bhd. v. Low Ping Ming T/A Low Peng Enterprise [2005] 3 MLJ 208 CA 5

DEFINITIONS S. 2(1) A hire-purchase agreement is defined in s. 2(1) HPA to hireinclude:include:a letting of goods with an option to purchase, and an purchase, agreement for the purchase of goods by instalments. instalments. Property in the goods does not pass at the time of the agreement or at any time before delivery. Until the hirer had exercised his option to purchase by paying the total amount and fulfilling all his obligations under the hire purchase agreement, property in the goods do not pass to the hirer. It remains with the owner. Credit Corporation (M) Sdn Bhd v. the Malaysian Industrial Finance Corp. & Anor [1976] 1 MLJ 83.
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It excludes agreements under which goods are delivered to a dealer for the purpose of sale of the same goods. A hirer is a person who takes goods from an owner under a hire-purchase agreement and includes a person hireto whom the hirers rights or liabilities under the agreement have passed by assignment or by operation of law. The owner is a person who lets goods to a hirer under a hire-purchase agreement and includes a person to hirewhom the owners rights or liabilities under the agreement have passed by assignment or by operation of law.

FORMATION OF A HIRE PURCHASE AGREEMENT Before a hire purchase agreement is entered into, the owner is required to give the prospective hirer a written statement duly completed and signed in accordance with Schedule. the form set out in Part 1 of the Second Schedule. The document contains a short description of the goods comprised in the hire purchase agreement and a summary of the hirers financial obligations under the proposed hire purchase agreement. s. 4(1)
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Particulars include:- cash price of the good, deposit, include:insurance, term charges, duration of payment of instalments, number of instalments, amount of each instalment, etc. This pre-contractual duty of disclosure is a mandatory preobligation on the part of the owner the nonnoncompliance of which would render a hire-purchase hireagreement void s. 4(4) Affin Credit (Malaysia) Sdn Bhd v. Yap Yuen Fui [1984] 1 MLJ 169 (Federal Court)

  

A hire purchase agreement shall be in writing and it shall be either in the national language or the English (1A). Language - s. 4A(1) & (1A). Otherwise it shall be void s. 4A(2). 4A(2). The agreement is deemed not to be in writing: writing: if the handwriting is not clear and legible; or where it is printed and the print is of a size smaller than the type known as ten-point Times; ten45(1). or that is not printed in black - s. 45(1). It must be signed by or on behalf of all parties to the agreement - s. 4B(1) The hire purchase agreement must be duly completed before it is signed by the hirer - s. 4B(2). It shall be void 4B(2). if it contravenes s. 4B(1) &(2).
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s. 4C(1) lists the information that must be contained in every hire purchase agreement the contents include:include:     

the date of commencement of the hiring; the number of instalments; the amount of instalments, time of payment, to whom and where they are payable; the description of the goods sufficient to identify them; the address where goods are situated; consideration where consideration is not cash such as an old car used for trade-in, then there has to be a tradedescription of the trade in; particulars on the cash, deposit, freight, vehicle registration fees, insurance, charges and the amount payable (all this has to be contained in a table);
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There must be a separate HP agreement in respect of every item of goods purchased under the Act - s. 4D(1) Otherwise, the agreement is void - s. 4D(2) and the owner is guilty of an offence - s. 4D(3) ArabArab-Malaysian Finance Bhd v. Borneo Wood (Sabah) Sdn Bhd & Ors. [2008] 7 MLJ 834 where an agreement which listed three goods cumulatively instead of item by item was held by the High Court to be void. Where the good is a motor vehicle, the hirer may request in writing to the owner to keep the registration certificate of the motor vehicle and the owner shall furnish the same to the hirer. Failing which, the owner commits an offence under the Act s. 4E
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A hire-purchase agreement relating to a motor vehicle hireshall be void if the motor vehicle has been altered or modified in its construction and structure - s. 4F. 4F. Where the good is a second-hand motor vehicle, the secondvehicle, owner/dealer shall declare in writing any defects of the secondsecond-hand motor vehicle in accordance with the inspection report by the relevant authority determined by the Controller of Hire-Purchase - s. 4G Hire-

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If there is any alteration or addition in the hirehirepurchase agreement, the hirer must sign or initial the margin opposite to the alteration or addition to show his consent thereto. If not, the alteration or addition will have no effect - s. 39 The owner is required to serve on the hirer and the guarantors a copy of the hire purchase agreement 5(1). within 21 days after it has been made s. 5(1).

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IMPLIED CONDITIONS AND WARRANTIES The law implies certain conditions and warranties in every 7(1). hire purchase agreement - s. 7(1). These are:are:(a) an implied warranty that the hirer shall have and enjoy 7(1)(a). quiet possession of the goods - s. 7(1)(a). (b) an implied warranty that the goods shall be free from any charge or encumbrance when the property in the goods is to pass- s. 7(1)(c). pass- 7(1)(c).
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(c) an implied condition that the owner has the right to sell the goods at the time when the property is to pass s. 7(1)(b). 7(1)(b). See: Krishnasamy a/l Supramany v. Arab-Malaysian ArabFinance Bhd [2009] 7 MLJ 455 where the issue before the court was whether the defendant had a good title to the said car when the hire purchase agreement was entered into and whether they could give a good title to the plaintiff. S. 7(2) provides that there shall be an implied condition that the goods shall be of merchantable quality.
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Merchantable quality means that goods sold are reasonably fit for the purpose for which they are required the hirer has made known to the owner or dealer the particular purpose for which the goods are required. Such condition shall not be implied :

   

where the hirer has examined the goods or a sample thereof, as regards defects which the examination ought to have revealed. if the goods are second-hand goods and the agreement secondcontains a statement to the effect that the goods are second-hand; secondall conditions and warranties as to quality are negatived; the hirer has acknowledged in writing that he had been 7(2)(b). notified - s. 7(2)(b).
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LIABILITY OF OWNER AND DEALER FOR MISREPRESENTATION If the owner made a misrepresentation in the course of negotiations leading to the hire purchase agreement, the hirer has the right to rescind the agreement and sue for damages s. 8(1)(a). 8(1)(a). Where the dealer has made a misrepresentation, the hirer cannot repudiate the agreement. He can only sue for damages s. 8(1)(b)

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RIGHTS OF HIRERS Sections 9-15 9Right of hirer to a statement relating to his financial position. Right to appropriation of payments. Right to apply to court for an Order for the goods to be removed to some other place. Right of hirer to assign rights with consent of owner. Right to have title and interest passed by operation of the law to PR of hirer or liquidator, if a co.. Right to complete the purchase of the goods earlier than the due date. Right to terminate the Agreement by returning the goods.

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DUTIES OF HIRERS The main duties of the hirer are as follows:follows:Goods must be stored in the place specified in the hire purchase agreement. To pay his instalments regularly. Given that the hirer has no title to the goods comprised in the hire purchase agreement, he may not remove, sell or dispose of any of the goods so as to defraud the owner.

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REPOSSESSION
The owner is entitled to recover possession of the goods when the hirer has committed a breach of his contractual obligations relating to the payment of instalments under the hire purchase agreement:agreement:Provided: Provided: the payment of instalments by the hirer must not exceed 75% of the total cash price of the goods; the hirer has defaulted in 2 successive payment of instalments; the owner has served on the hirer a notice in writing in the form set out in the Fourth Schedule of his intention to retake possession (Fourth Schedule notice); and notice);
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the period fixed by the notice must have expired and this must not be less than 21 days after service of the notice S. 16(1) Pang Bros. Motor Sdn Bhd v. Lee Aik Seng [1978] 1 MLJ 179 In addition to sending out the Fourth Schedule notice and before repossession, the owner must send another notice by registered post to the hirer not earlier than 14 days after the service of the FSN to inform the hirer that the owner intends to take possession of the goods Regulation 3, Hire-Purchase (Recovery of Possession HireAnd Maintenance of Records By Owners) Regulations 1976.
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If the payment of instalments by the hirer amounts to more than 75% of the total cash price of the goods and there has been 2 successive defaults of payment, the owner is required to obtain an order of the court before taking possession of the goods s. 16(1A) Where the owner has obtained an order of the court and he has served on the hirer the Fourth Schedule Notice and after the expiry of twenty-one days from the service twentyof the notice, the owner may exercise the power of taking possession of goods - s. 16(1B) Where the hirer is deceased, there has to be 4 successive defaults of payment of instalments before the owner takes possession of the goods - s.16(1C)
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The person who undertakes repossession of the goods must obtain a written permit issued by the Controller of HireHire-Purchase s. 17A & B After taking possession of the goods, the owner must then personally deliver to the hirer a document acknowledging receipt of the goods after having taken possession of the goods s. 16(4) & (5). goods Within 21 days after the owner had taken possession of the goods, he must serve on the hirer and guarantors a notice in writing in the form set out in the Fifth Schedule of the Act - s. 16(3).
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Owner to retain goods for 21 days s. 17 Where the owner has taken possession of the goods under s. 16, he cannot sell or dispose of the goods before the expiration of 21 days after the date of service on the hirer of the Fifth Schedule Notice under s. 16(3) s. 17(1) The owner must get the written consent of the hirer if he wants to sell the goods before the expiration of the 21 days.

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Hirers Rights and Immunities when Goods are Repossessed s. 18 Upon receipt of the Fifth Schedule Notice under s. 16 (3), the hirer may within 21 days give notice to the owner requiring the owner to:(a) Redeliver to him the goods that have been repossessed (subject to compliance by the hirer of the provisions of s. 19); or (b) Sell the goods to any person introduced by the hirer who is prepared to buy for cash at a price not less than the estimated value of the goods set out in the notice - s. 18(1)(a)
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Hirer to Regain Possession of the Goods s. 19

The owner shall return the goods to the hirer if within 21 days after the hirer gives notice to the owner under s. 18(1)(a), the hirer :pays to the owner any amount due in respect of the period of hiring up to the date of the payment- s. 19(1)(a); remedies any breach of the agreement - s. 19(1)(b); or where the owner has taken possession of the goods, pays to the owner reasonable costs and expenses incurred by the owner in taking possession and of returning them to the hirer s. 19(1)(c).
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INSURANCE An owner is responsible to take insurance against any risks he thinks fit in the name of the hirer : for motor vehicles for the first year only, and for all other goods for the duration of the hire-purchase agreement s. 26(1) For motor vehicles, the hirer is responsible to insure the vehicle for the subsequent years s. 26(2) An owner cannot force the hirer to buy insurance from one particular insurer s. 26(3) The hirer shall inform the owner at least 14 days before the expiry of the insurance policy that he had renewed the said policy s. 26(5). If he fails to do it, the owner is at liberty to insure the vehicle and the costs incurred shall be borne by the hirer s. 26(6)
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SPECIFIC TERMS & CONDITIONS Term charges - shall not exceed the rate fixed by the Act. The maximum limit for term charges at a fixed rate is currently 10% per annum and for term charges Hireat a variable rate is 17% p.a. (Hire-Purchase (Terms Charges) Regulations 2005) The hirer shall have an option for the term charges to be at a fixed rate or at a variable rate where the charges will be quoted at a margin percentage above the base lending rate - S. 6A
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Booking Fee S. 30A No owner or dealer shall collect a booking fee from an intending hirer before receipt of the duly completed form set out in Form II of the Second Schedule by the hirer. The booking fee shall not exceed 1% of the cash price of the goods and it shall form part of the deposit in respect of the goods. Upon withdrawal of the booking, the owner shall refund 95% of the booking fee to the intending hirer.

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Minimum deposits - The minimum deposit in cash and/or in goods shall not be less than 10% of the cash price of the goods. The maximum financing under hirehirepurchase is therefore 90% of the cash price of the goods - s. 31 Interest on overdue loan instalments currently interest is charged at a rate of 8% per annum for term charges at a fixed rate or 2 % above the prevailing rate for term charges at a variable rate at simple interest calculated on a daily basis s. 34(c)

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