LAW ON HIRE PURCHASE

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 INTRODUCTION
The relevant law is HIRE PURCHASE ACT 1967.
The transaction - sale of goods between seller and
buyer but payment for the goods is done by
another third party.
The third party will then enter into a hire
purchase agreement with the buyer, where the
buyer will pay the third party by way of
installment the price of the goods.
In law, the third party is known as OWNER and
the buyer is known as HIRER.
The law on hire purchase will only govern the
relationship between owner and hirer.

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 The list of goods are also limited because only
goods under First Schedule of HPA is covered:
Goods under First Schedule are:
All consumer goods;
Motor vehicles namely:
Invalid carriages,
Motorcycles,
Motorcars, including taxi and hire cars,
Goods vehicles (maximum permissible laden is
2540 kg)
Buses including stage bus.

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 INTERPRETATION
Hire Purchase Agreement a letting of goods with
an option to purchase and an agreement to purchase
the goods by way of installment.
Hirer who has taken goods from owner under a
hire purchase agreement.
Owner let goods to hirer under a hire purchase
agreement.
Consumer goods goods purchased for personal,
family and household purposes.
Goods only those listed in First Schedule of HPA
1967. It could be new or second hand goods.
Case: MBF Finance Bhd v. Ting Kah Kuong
(1993) 3 MLJ 73
Whether forklift was a motor vehicle listed in the
First Schedule?
Held: Forklift was NOT a motor vehicle listed in
the First Schedule.

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 FORMATION AND CONTENTS OF HP
AGREEMENT
There are three stages that need to be complied with
by owner:
Before signing of HP Agreement:
Section 4(1) negotiation stage leading to the making
of HP Agreement, prospect owner shall serve on the
intending hirer a written statement duly completed
Form 1 of the Second Schedule.
Section 4(1)(b) if negotiation handled by dealer
(seller), dealer must serve a duly completed Form 1 of
Second Schedule.
Section 4(3) prospect is NOT obliged to :
- enter into HP Agreement; and
- pay any consideration.

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 Effect for non compliance with this provision:
- Section 4(4) HP Agreement is void.
- Section 4(5) owner/dealer shall be guilty of an
offence under HPA.
- Section 4(6) if owner charge payment for serving
the written statement, he is guilty of an offence
under HPA.

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 Signing of HP Agreement:
Section 4A (1) HP Agreement must be in writing.
Section 45(1) (a) if handwriting is not legible; or
(b) the printed form is not in 10 Font then it is
considered as not in writing.
Alteration Section 39 provides that it must be
initialled in the margin opposite the alteration.
Section 4A(2)(3) effect for non compliance: HP
Agreement is void and the owner is guilty of an
offence.
Contents of HP Agreement:
- Commencement of HP;
- Number of installments;
- Amount of installment;
- Time for each installment to be paid;
- Description of goods;
- Address where the goods will be kept.

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 Section 4B(1) HP Agreement must be signed by
all parties.
Section 4B(3) effect for non compliance,
agreement is void.
Section 4D(1) separate HP Agreement in respect
of every item. Exception to this provision in
Section 4D(4) when the items are essentially
similar. Example a CPU and monitor of a computer.
If the goods is a second hand good, Section 40
provides that it must be specified that as second
hand good.

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 After signing of HP Agreement:
Section 5(1) within 14 days from signing of HP
Agreement, owner shall serve on hirer/guarantor a
copy of the HP Agreement.
Section 5(2) if did not serve, HP Agreement is
not enforceable.
Section 41 provides that owner can apply to
court for an extension of time for service.
Service of HP Agreement Section 43 provides
that service is done by way of delivering it
personally to the hirer or posting by registered
post to the last known address.

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 CONDITIONS AND WARRANTIES

In every HP Agreement, there are:

(i) Terms; and
(ii)Conditions.
Terms and conditions are included expressly in the
Hire Purchase Agreement.
In addition to these express terms and conditions,
the Hire Purchase Act also protect the hirer by
stating the implied conditions. These implied
conditions are:
Section 7(1):
Hirer shall enjoy quiet possession;
Owner has right to sell the goods;

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 Case: Kaflex Ltd v. Poole (1933) 2 KB 251
Owner should have title at the time of delivery because
option to purchase maybe exercised after delivery.

Case: Public Finance Bhd v. Ehwan Saring

(1996) 1 MLJ 331
Seller sold the vehicle to buyer but before the vehicle can
be delivered it was seized by the relevant authority. As
the vehicle was seized soon after HP Agreement was
executed and had not been returned to either party, no
title was passed to hirer.

Case: Ahmad Ismail v. Malayan Motor & Co

(1973) 1 MLJ 117
Motor seized on suspicion of stolen vehicle and subsequently
released to the buyer. It was decided by the court the
seller could pass a good title.

Goods free from any encumbrances.

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 It is also an implied condition in Section 7(2) that
goods under HP must be of merchantable quality.
The exception to merchantable quality in Section
7(2):
When the hirer had examined the goods and the
defect would have been revealed.
In other words, the hirer has exercised due care
and diligent before making any decision to sign the
HP Agreement.
Case: Lau Hee Tiah v. Hargill Engineering Sdn
Bhd (1980) 1 MLJ 145
The court decided that in order to prove it is not
of merchantable quality, the hirer must show that
the goods is of no use for any purpose for which
it would normally be used and therefore not
saleable under that description.

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 If the goods are second hand goods.
Implied condition as to merchantable quality may be
waived if it specifically that all conditions and
warranties as to quality are negative.
The fact that no conditions and warranties to the
second hand good must be brought to the attention of
the hirer.
Case: Trader Finance Corp Ltd v. Rourke & Anor
(1967) 85 WN (NSW) 739
It was decided by the court that although parties are
aware that the goods are second hand goods, the
implied condition as to merchantable quality and
fitness for purpose could not be excluded unless the
agreement contained a statement that the goods are
second hand.

Case: Lau Hee Tiah V Hargill Eng S/B

Loader was used a product demonstration once and
the court decided that the loader is new.

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LIABILITY OF OWNER AND DEALER FOR MISREPRESENTATION.

Section 8(1) provides that if owner/dealer

misrepresented to hirer, the hirer may:
Section 8(1)(a)-hirer can rescind the HP
Agreement;
Section 8(2)(b)-action in damages.
Section 8(2) provides that any clause that
intends to modify sub sec (1) is void.
If misrepresentation is done by third party or
dealer, owner is entitled under Section 8(3) to be
indemnified.

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STATUTORY RIGHTS OF HIRER

1.Rights to obtain written statements under HP

Agreement (Section 9).
Hirer is entitled to obtain:
Amount paid by owner;
Overdue amount;
Amount that need to be paid;
Interest.
The statement has to be given to hirer within 14
days.
But this rights can only be exercised once in every
three months.
Non compliance Section 9(3) owner is guilty and
max fine RM200.00.

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2. Right to appropriate payment (Section 10).
Hirer who is liable to make payments in
respect of two or more HP Agreements to the
same owner, is entitled to appropriate the sum
so paid towards the satisfaction of the sum
due under all the agreements in such
proportions as he thinks fit.
3. Right to remove goods (Section 11).
Hirer may apply to court for the removal of
the goods.
4. Right to assign her rights under HP Agreement
(Section 12).
Hirer may assign to third party provided that
owner is agreeable to such assignment but this
right usually is subject to the hirer bear all
the cost incurred in the assignment.

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5. Right to pass rights, title and interest through
operation of law (Section 13).
The right to pass on to the personal
representative upon death but he must comply
with the terms of the HP Agreement.
6. Right to make early settlement (Section 14).
If hirer intends to make early settlement, he
must first give a written notice to pay the net
balance and net balance would be the balance
originally payable under the agreement less the
amount already paid and a statutory rebate.

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7.Right to terminate hiring (Section 15).
Hirer can terminate the HP Agreement by
returning the goods to the owner during the normal
business hours at the place where the owner
ordinarily carries on business.
Under Section 15(5) hirer can require the owner to
sell the goods to any person suggested by hirer.
If the value of goods is more than the net
balance, hirer has the right to get the difference.
If value is less, hirer is obliged to pay the
difference.

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 STATUTORY RIGHT OF OWNER

If hirer breached the HP Agreement, owner is

entitled under the HPA to recover possession of
the goods.
But this power must be exercised in accordance
with HPA.
Before owner can repossess the goods, he must
serve a notice of intention to repossess the goods.
The notice is specified in Section 16(1), known as
Form Fourth Schedule.
This notice is valid if:
Hirer has defaulted two successive installments;
In default of last payment.
In Section 16(1A)- if hirer is deceased, there
must be four successive defaults of payments.
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 The notice must give at least 21 days for the hirer to pay
the arrears. Only at the expiry of 21 days, the owner can
take possession of the goods.
Section 16(3) provides that owner must serve on the hirer
and guarantor a written notice set out in Fifth Schedule
asking the hirer to return the goods or pay the arrears
within 21 days from the date of the notice.
Section 16(4) provides that owner must acknowledge
receipt of the goods. Acknowledgement shall set out a
short description of the goods and a date time and place
the owner takes possession of the goods.
Case: Phang Brothers Motors Sdn Bhd v. Lee Aik
Seng (1978) 1 MLJ 179
Two days before 21 days is considered as the possession
was not valid.
Section 17(1) provides that an owner who has taken
possession of goods shall not sell or dispose the goods
without written consent of hirer until after the expiration
of 21 days after the service of Form in Fifth Schedule.

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Case: Hong Leong Finance Bhd v. Lee Cheng
(1987) 2 MLJ 266
It was decided by the court that hirer may
recover damages if the goods sold below market
price.

Section 19 allows the hirer to regain possession if

he tenders payment and other incidental cost
incurred in the repossession of the goods.

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HIRE PURCHASE UNDER
THE SHARIAH LAW

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 There are two contracts involved in this concept.
i) The first contract, an Ijarah contract (leasing/renting),
ii) The second contract, a Bai contract (purchase) are
undertaken one after the other.

For example, in a car financing facility, a customer enters

into the first contract and leases the car from the owner
(bank) at an agreed rental over a specific period. When
the lease period expires, the second contract comes into
effect, which enables the customer to purchase the car at
an agreed price.

In effect, the bank sells the product to the debtor, at an

above market-price profit margin, in return for agreeing
to receive the payment over a period of time; the profit
margin on the lease is equivalent to interest earned at a
fixed rate of return.

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 ADVANTAGES OF IJARAH
1) Ijarah conserves capital as it may provide 100%
financing.
2) Ijarah enables the Lessee to have the use of the
equipment on payment of the first rental. This is
important since it is the use (and not ownership) of the
equipment that generates income.
3) Ijarah arrangements are flexible because the terms
and rental provision may be tailored to suit the needs
of the Lessee. Therefore, it aids corporate planning
and budgeting
4) Ijarah is not borrowing and is therefore not required
to be disclosed as a liability in the Balance Sheet of
the Lessee.

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5) All payments of rentals are treated as payment of
operating expenses and are therefore, fully tax-
deductible.
6) There are many types of equipment, which becomes
obsolete before the end of its actual economic life.
This is particularly true in high technology equipment
like computers. Thus the risk is passed onto the
Lessor who will undoubtedly charge a premium into
the lease rate to compensate for the risk. A Lessee
may be willing to pay the said premium as an
insurance against obsolescence.

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