Chapter 7

Hire Purchase
Hire purchase is a contract whereby the owner agrees to hire goods to the hirer with an
option for the hirer to purchase the goods. At the completion of the hiring period, the hirer
has the option to return the goods and terminate the contract or elect to buy the goods.
Compare Hire Purchase with leasing.
Leasing is when a lessor gives the rights to the lessee the right to use and to occupy the
property in consideration of payment of rent. At the end of the rental period, the lessee has
the option to buy the property at a fixed price (nominal sum) or return the property to the
owner. Usually in business transactions, we use leasing to rent property which is not under
First Schedule of the HPA.
Compare Hire purchase and sale of goods
Hire purchase is different from sale of goods. The test is to check at what point the
ownership transferred to the buyer. In order for an agreement to qualify as valid hirepurchase agreement, the owner must own the goods at the time of the execution of the hire
purchase agreement. The owner includes a person who has a rightful claim or title to a
good.
See BSNC Leasing Sdn Bhd v Sabah Shipyard Sdn Bhd.
It is pertinent to look behind the agreement to determine whether the Hire-Purchase
agreement is a mere cloak of a loan. We look at the substance and not the terms assigned to
the agreement.
Hire-Purchase Act (HPA) only applies to the goods listed in the first schedule to the HPA.
List of goods
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 ( where the maximum permissible laden weight does not exceed
2540 kilograms);
(e) Buses, including stage buses.
Section 2(1) HPA define consumer goods as goods purchased for personal, family or
household purposes, which also includes replacements and renewals by the hirer of any part
or parts and any accessories added by the hirer during the hiring period.

Nature of Hire-purchase agreement

See section 4(1) ,(2), 4A, 4B, and 4C of the HPA
Owner

Hirer
Part 1 of the Second Schedule

Section 4A HPA goods specified in the First Schedule must be in national language or
English language.
Section 4B hirer must not sign an empty hire-purchase agreement.
Section 4C HPA specify how the contents of the hire purchase agreement.
Rights of the Hirer under the HPA
1. Hirer has the right to be supplied with documents under section 9 HPA; to request for the
following information:
a.
b.
c.
d.

amount paid to the owner.

amount due under the agreement.
amount payable under the agreement.
amount due to interest on overdue instalments.

The hirer can exercise these rights not more than one time in every 3 months. Failure to
comply with this request within 14 days of receipt of this request, the owner cannot enforce
the agreement against the hirer or repossess the goods from the hirer. If the failure to
comply continues for one month, the owner had committed an offence and upon conviction
liable to a fine not exceeding RM200.
2. Rights to require owner to appropriate payments made under the HP agreement.
See section 10 HPA.
This arises in the circumstances where there is tow or more HP agreement with the same
owner.
For example
Danish want to buy a motorcycle and home theater set from Courts Sabre Sdn Bhd using
two sets of HP agreements. The instalments period for the motorcycle is 18 months with
RM200 a month instalment payment. The instalments period for home theatre is 24 months
with RM250 a month instalment payment.
After the 17th month, Danish is unable to pay for his motocycle instalment. He can request
Courts Sabre Sdn Bhd to use the money paid for the home theatre to be used as payment
for the motorcycle.

3. To apply to the magistrate for an order to remove the goods to another place
See section 11 HPA.
For example
Ranee works in Kuala Lumpur all this while. She bought a car by way of HP from Embeng
Bhd. In December 2013, she was transferred to Kuching office. She needs to ship her car to
Kuching for her mode of transportation in Kuching. Embeng Bhd refused to allow the
shipment. Ranee then can apply to the court for an order to remove the car to Kuching.
4. To assign his rights, title and interest under the HP agreement.
see section 12 HPA.
The right is to assign but not to dispose/sell to another. The hirer cannot dispose/sell to
another party because a hirer is not the owner of the goods.
5. To pass the right, title and interest by operation of law.
See section 13 HPA.
In the event of the death of the hirer, the rights shall pass to the personal representative. If
a hirer is a company and has been wound up, the rights will pass to the liquidator.
6. To complete the purchase of the goods earlier than due date.
See section 14 HPA.
The hirer can give a notice to the owner for early settlement of the HP agreement. The net
balance shall be amount payable minus the amount paid and minus the statutory rebate.
7. To terminate the hiring
See section 15 HPA.
The hirer returns the goods to the owner. The owner will sell the car to a third party. If the
proceeds exceed the balance outstanding in the HP agreement, the owner will return the
amount. In the event the proceeds of the sale less than the balance outstanding under the
HP agreement, the hirer have to top up the shortfall.

The rights of the owner

In the event the hirer breaches his obligation under the HP agreement, the owner can
repossess the goods from the hirer.
2 successive defaults
notice (4th Schedule)
section 16

21 days

Hirer

Repossess
Section 17A written permit from controller to repossess
Section 17 owner not to sell the goods in 21 days

Give notice under 5th schedule within 21 days

Section 16 HPA
Section 18 Hirer introduce a buyer
Section 19 Hirer pays amount outstanding

Implied guarantee
See lecture notes on sale of goods act.
Implied guarantee as to title section 31
Implied guarantee as to acceptable quality section 32
Implied guarantee as to fitness for particular purpose section 33
Implied guarantee that goods comply with description section 34
Implied guarantee that goods comply with sample section 35
Implied guarantee as to price section 36
Implied guarantee as to repairs and spare parts section 37