Mr Henry Moore, the Bishop’s gate piano maker claimed to have invented the hire purchase trading system in England. It must be noted however that the hire purchase system was given judicial approval in Helby v. Matthews (1895) AC 471. The judgement, in that case, seemed to undermine the provisions of the Factors Act 1889 especially S.9 of the Act.
Attempts were made to reverse the judgment by statute in 1912 but the attempts were not successful. Because of the persistent abuses of the system by the dealers and because of the little protection afforded the hirer by the system. Demand for legislation regulating the Hire Purchase system increased, and after several unsuccessful attempts, a bill was finally passed in 1938 to regulate the Hire Purchase transactions and the bill was called the Hire Purchase Act of 1938.
In a typical Hire Purchase transaction, the owner delivers the goods to the hirer on credit who then takes possession of the particular item. The hirer uses the goods and pays the rest of the instalments and the owner usually charges an interest over the amount unpaid for being deprived of the capital. In some cases, instead of the owner parting with his goods on credit, a finance company will be brought in to provide the capital for buying the goods.
Note that the finance company will want to satisfy itself with the financial standing of the hirer. If satisfied, it will enter into an agreement with the hirer for the hirer to buy the goods on credit from the seller or acquire it on hire purchase. The finance company then buys the goods from the seller paying the full cash for the goods and hand it over to the hirer for his own use who will then pay the agreed instalments to the finance company together with the interest and other charges.
Sometimes, where the dealer or the finance company is not sure of the financial standing of the hirer, the hirer is asked to provide someone who will guarantee payment of the instalments as and at when due. If the hirer defaults, the guarantor may find himself personally liable to make the payment instead of the hirer.
Note that the Hire Purchase system has been adopted in order to protect the owner’s title to goods if the hirer, in breach of his undertaking, sells them to a third party.
