Commercial Law Chapter 3: Hire-Purchase Quiz & Flashcards

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Questions and Answers

What is meant by 'merchantable quality'?

Merchantable quality means that the goods are fit for their proper uses and free from defects not apparent on ordinary examination.

What does Section 7(2) of the HPA imply about merchantable quality for second-hand goods?

For second-hand goods, merchantable quality is implied unless the agreement explicitly states that all quality conditions and warranties are negatived.

In a hire-purchase agreement, there is an implied warranty that the hirer shall have quiet possession of the goods.

True

What does Section 7(1)(c) of the HPA imply about the goods in a hire-purchase agreement?

They must be free from any charge or encumbrance Signup and view all the answers

What is the definition of hire purchase?

System of buying things on credit where the buyer pays in installments Signup and view all the answers

Who is regarded as the hirer in a hire purchase agreement?

Purchaser Signup and view all the answers

Ownership of goods bought on hire purchase immediately passes to the hirer upon delivery of the goods.

False Signup and view all the answers

What is the purpose of pre-contractual obligations under HPA?

To provide written information to prospective hirers and protect them. Signup and view all the answers

Hire Purchase Act 1967 is part of consumer law that addresses the imbalances between the three parties: the hirers, owners, and other parties to hire purchase ______.

agreements Signup and view all the answers

Match the following terms with their definitions:

Ownership of goods in hire purchase = Remains with the owner until full payment Hire Purchase Act 1967 = Regulates hire purchase financing business Pre-contractual obligations = Obligations before entering the agreement Signup and view all the answers

What is the consequence of not signing a HP agreement by all parties?

The agreement is void. Signup and view all the answers

In an HP agreement, failure to comply with section 4D of HPA results in the agreement becoming ____ and the owner being guilty of an offense.

void Signup and view all the answers

Failure to serve a copy of the agreement to the hirer and guarantors within 21 days makes the HP agreement unenforceable.

True Signup and view all the answers

Match the implied terms under HP with their descriptions:

Right to sell = Owner must have the right to sell goods at the time of passing Merchantable quality = Goods must meet a standard of quality Fitness for purpose = Goods must be suitable for their intended purpose Quiet possession of the goods = Hirer must have peaceful possession Goods must be free from encumbrances = Goods should not have any liabilities or charges Signup and view all the answers

How long must the owner retain possession of repossessed goods before selling or disposing of them?

twenty-one days Signup and view all the answers

What can the hirer do within twenty-one days after receiving the repossession notice?

Require the owner to sell the goods to any person introduced by the hirer Signup and view all the answers

If the hirer returns the goods within 21 days of receiving the repossession notice, the owner can still impose additional payments.

False Signup and view all the answers

The owner must retain possession of the repossessed goods for _____ days after repossessing them.

21 Signup and view all the answers

Match the following actions with their consequences:

Owner sells or disposes of the goods without consent = Owner guilty of an offence Owner fails to serve Fifth Schedule Notice = Loses rights under hire purchase agreement If hirer returns goods within 21 days = Owner cannot impose additional payments Signup and view all the answers

When can the owner repossess the goods in a hire-purchase agreement?

The owner may repossess the goods only if: I. The hirer defaulted to pay 2 successive installments; and II. The total payment of installments paid by the hirer amount to not more than 75% of the total cash price of the goods. Signup and view all the answers

Without obtaining a court order, the owner can repossess goods from a hire-purchase agreement if the conditions are met.

True Signup and view all the answers

If the balance of the loan is less than one-third of the purchase price of the goods, the owner can repossess the goods after two successive ________.

months Signup and view all the answers

What is required for the owner to repossess the goods after obtaining a court order?

Serving a notice following the Fourth Schedule Signup and view all the answers

Study Notes

Law of Hire-Purchase

Hire-purchase is a system of buying goods on credit, where the seller is the dealer, the purchaser is the hirer, and the finance company is the owner.

Definition of Hire-Purchase

Hire-purchase is an arrangement for buying expensive goods, where the buyer makes an initial down payment and pays the balance plus interest in installments.
It is a legal term for a conditional sale contract developed in the UK.

The Law on Hire-Purchase

The Hire Purchase Act 1967 (HPA) addresses the imbalances between the three parties (hirer, dealer, and owner).
The HPA regulates the form and contents of hire-purchase agreements.
The Act defines the legal rights, duties, and liabilities of hirers, owners, and other parties to hire-purchase agreements.

Ownership and Possession

The ownership of the goods bought on hire-purchase does not pass to the hirer at the time of the agreement or upon delivery of the goods.
Ownership remains in the owner until the hirer has fully paid the price agreed upon in the hire-purchase agreement.

Cases

Arab Malaysia Finance Ltd v Borneo Wood (Sabah) Sdn Bhd & Ors (1993): the court held that the agreement was not a hire-purchase transaction but a loan transaction disguised as a hire-purchase transaction.
Tan Tien Choy v Kiaw Aik Hang (1975): the court must take into account the real nature of the agreement to determine the true rights and interests of the parties.
United Engineering (M'sia) Ltd v Lai Ping Yoon (1984): the HPA confers the hirer the option to purchase the goods, making it more than a simple contract of hire.

Definition and Exclusions

A hire-purchase agreement is an agreement for the purchase of goods by installment (Section 2(1) of the HPA).
The HPA excludes agreements where the property in the goods passes to the hirer at the time of the agreement or upon delivery.

Stages of HP Agreement

Pre-contractual obligations: before entering into the agreement.
Construction of hire-purchase agreement: signing the agreement.
Post-contractual obligations: after entering into the agreement.

Formation and Content of HP Agreements

Part II of the HPA regulates the procedure, form, and content of hire-purchase agreements.
The law imposes a number of legal obligations on the owner, dealer, or agent.
The HPA alters the common law of contract in some respects.

Information to be Provided

The owner must provide written information to the prospective hirer (Section 4(1) of the HPA).
The HP agreement must be in writing, signed by or on behalf of all parties (Section 4B(1) of the HPA).
The agreement must contain specified information, including the amount paid in cash and the amount provided by the owner (Section 4C of the HPA).

Rationale and Alterations

The rationale behind the HPA is to protect the hirer.
Any alteration or addition to the HP agreement will have no effect unless the hirer or agent has consented (Section 39 of the HPA).

Copy of Documents

The owner must serve or cause to be served on the hirer a copy of the agreement within 21 days after the making of the agreement (Section 5(1) of the HPA).
Failure to comply with this section would render the hire-purchase agreement unenforceable by the owner.

Implied Terms under HP

There are certain implied terms in the HPA, which may be conditions and warranties.
The distinction between conditions and warranties lies in their seriousness and the remedies available.### Implied Conditions and Warranties in Hire-Purchase Agreements
Right to Sell: implied condition on the part of the owner to have the right to sell the goods at the time when the property is to pass (s7(1)(b) of HPA)
- Means the owner has the right to pass good title to the goods
- Breach of this condition entitles the hirer to recover the amount already paid (Public Finance Bhd v Ehwana Saring)
Merchantable Quality: implied condition that the goods shall be of merchantable quality, but not implied if:
- Hirer has examined the goods or a sample thereof and should have revealed defects
- Goods are second-hand and the agreement contains a statement that the goods are second-hand and all conditions and warranties as to quality are negatived (s7(2) of HPA)
- Definition of "merchantable quality" according to Lord Wright in Grant v Australia Knitting Mills Ltd: goods must be fit for their only proper uses, even if they have defects not apparent on ordinary examination
Fitness for Purpose: implied condition that the goods shall be reasonably fit for a particular purpose made known to the owner or dealer (s7(3) of HPA)
- Not implied if goods are second-hand and the agreement contains a statement that the goods are second-hand and all conditions and warranties of fitness and suitability are negatived

Implied Warranties in Hire-Purchase Agreements

Quiet Possession of the Goods: implied warranty that the hirer shall have and enjoy quiet possession of the goods (s7(1)(a) of HPA)
Goods shall be free from any Charge or Encumbrance: implied warranty that the goods shall be free from any charge or encumbrance in favor of any third party at the time when the property is to pass (s7(1)(c) of HPA)

Repossession of Goods

Rights and Duties of Owner in Repossession: owner may repossess the goods only if the hirer has defaulted to pay two successive installments and the total payment of installments paid by the hirer amounts to not more than 75% of the total cash price of the goods as in the HPA (s16(1) of HPA)
- Procedures of repossession: before repossession, the owner must give notice to the hirer, and if the hirer fails to pay, the owner can repossess the goods without a court order### Repossession Process
After 75% of the total cash price of goods has been paid, an owner cannot repossess goods without a court order, unless the hirer has defaulted on two successive payments.
The owner must serve a notice in writing (Fourth Schedule Notice) on the hirer, and wait 21 days before repossessing the goods.
If the hirer does not comply with the notice, the owner can repossess the goods after 21 days.
The owner must obtain a court order to repossess the goods if the balance of the loan is less than one-third of the purchase price.

HIRER'S RIGHTS AND IMMUNITIES WHEN GOODS ARE REPOSSESSED

Within 21 days after the service of the notice, the hirer can:
- Require the owner to re-deliver the repossessed goods.
- Require the owner to sell the goods to a person introduced by the hirer.

CASES ON REPOSSESSION

Pang Brothers Motors Sdn Bhd v Lee Aik Seng: A notice of repossession with a period less than 21 days is invalid.
United Manufacturers Sdn Bhd v Sulaiman B Ahmad: An owner can repossess goods even after 2 years of serving the notice, as long as the provision of Section 16(1) has been complied with.

AFTER REPOSSESSION

The owner must deliver a document acknowledging receipt of the goods to the hirer personally.
Within 21 days after repossession, the owner must serve the Fifth Schedule Notice on the hirer and every guarantor.
The Fifth Schedule Notice gives the hirer the option to either:
- Require the owner to re-deliver the goods and pay arrears of installments, interest, and costs.
- Finalize (complete) the agreement by paying the balance due and costs of repossession.

MODIFICATIONS TO THE RULE OF REPOSSESSION DURING MCO (COVID-19)

From 1 April 2020 to 31 December 2020, no owner can exercise the power of taking possession of goods comprised in a hire-purchase agreement for any default of payment of installment.

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Description

This quiz covers the basics of hire-purchase, a system of buying on credit where the seller is the dealer, the purchaser is the hirer, and the finance company is the owner. It is an arrangement for buying expensive goods in installments.

Commercial Law Chapter 3: Law of Hire-Purchase

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