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EVERYDAY LAW: History behind hire purchase


Cecil McCarthy, [email protected]

EVERYDAY LAW: History behind hire purchase

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TODAY MARKS the start of the 15th year of publishing this column. 

It is an appropriate time to reflect on the goals set when it first appeared on March 7, 2001.

In that introductory article I wrote: “This column is the first in a series aimed at providing answers to legal problems that confront persons as they go about their daily business, or may arise from the various relationships that are formed within a society.

“It will seek to cover issues relating to divorce and custody, contracts, wills, property, sale of goods and hire purchase, among others. It will attempt to provide this information by examining hypothetical situations that give rise to legal issues and will suggest appropriate answers given the set of circumstances. It will also respond to issues raised by readers.”  

I have been faithful to the promises made in that article except that in over 700 articles, I have omitted to discuss the topic of hire purchase which is shall address today.

Security

Hire purchase contracts were developed in England in the latter half of the 19th century. They came about as a result of a demand for a method of payment for goods on credit which would permit some security for the suppliers of credit.

At that time a person who had “bought or agreed to buy goods” could under relevant laws at the time pass a good title to a third party.

If an instalment sale was treated as a purchase or an agreement to purchase goods, then a seller would have no protection against a buyer in possession of the goods who might dispose of them to a third party.

This issue arose in the English case of Helby vs Matthews (1895) where the owner of a piano agreed to let it on hire, on terms that the hirer (a man called Brewster) would pay rent by 36 monthly instalments. The agreement permitted the hirer to terminate the hiring by delivering up the piano to the owner, the hirer remaining liable for all arrears of hire. 

The agreement provided that if the hirer punctually paid over the monthly instalments, the piano would become his sole and absolute property, and that until such full payment, the piano would continue to be the sole property of the owner. The hirer received the piano, paid a few instalments and then pledged it to a pawnbroker (Matthews) as security for an advance.

The House of Lords held that upon the true construction of the agreement, the hirer was under no obligation to buy, but had an option either to return the piano or become its owner by payment in full. The court held further that by putting it out of his power to return the piano, he had not become bound to buy and therefore had “not agreed to buy goods” within the meaning of the Factors Act and that the owner was entitled to recover the piano from the pawnbroker.

Commenting on the provisions of the contract, Lord Watson in his judgment in the House of Lords made the following observations:

Contract of hiring

“These stipulations, in my opinion, constitute neither more nor less than a contract of hiring, terminable at the will of the hirer, coupled with this condition in his favour, that, if he shall elect to retain it until he has made 36 monthly payments as they fall due, the piano is then to become his property. 

“The only obligation which is laid upon him is to pay the stipulated monthly hire so long as he chooses to keep the piano. In other words, he is at liberty to determine the contract in the usual way, by returning the thing hired to its owner. He is under no obligation to purchase the thing, or to pay price for it. There is no purchase and no agreement for purchase, until the hirer actually exercises the option given him . . . .

“Apart from the arrangement for hire of the piano, the only right given to Brewster by the agreement in question was the option to become a purchaser. It is true that whilst he was under no obligation to buy, the appellant was legally bound to give him that option . . . .

“In order to constitute an agreement for sale and purchase, there must be two parties who are mutually bound by it. From a legal point of view, the appellant was in exactly the same position as if he had made an offer to sell on certain terms, and had undertaken to keep it open for a definite period. Until acceptance by the person to whom the offer is made, there can be no contract to buy.  So long as the agreement stood unaltered there could, in this case, be no contract to purchase by Brewster until he had complied with the terms of the option given him, and had duly made the 36 monthly payments which it prescribes as a condition of his becoming owner of the piano.”

This case established at common law what was the essence of a hire purchase agreement. It defined it as a contract of hiring which could be terminated at the will of the hirer, who had the option to purchase the goods by making full payment.

Subsequently, hire purchase legislation was passed which, among other things, set out the obligations of the parties to the agreement

• Cecil McCarthy is a Queen’s Counsel. Send your letters to Everyday Law, Nation House, Fontabelle, 

St Michael. Send your email to [email protected].

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