A COMPARATIVE REVIEW Ole THE LAWS REGULATING HIRE PURCHASE AGREEMENTS IN UGANDA AND KENYA

BY

AMUGE CAROLINE

LLB/36758/121/DU

SUPERVISOR

MR. ABDULKAREEM AZEEZ

A RESEARCH PAPER SUBMITTED IN PARTIAL FULFILLMENT OF TilE REQUIREMENTS FOR THE A WARD OF BACHELOR OF LAWS DEGREI•: OF

KAMPALA INTERNATIONAL UNIVERSITY

APRIL, 2016

DECLARATION

I solemnly declare that this dissertation is original work, both in substance and style of AMUGE

CAROLINE, LLB/367581121/DU alone, except where due acknowledgement is made in the text.

It does not include any materials for which any other university degree or diploma has been

awarded.

~ a . Signatme .. ~I. :-:-:-.......... . ,..,

Date .. -~~~}.~!.\./.~ -~!. .6 .. · ....

APPROVAL

I certify that, I have supervised and read this study and that in my opinion: it conforms to

acceptable standards of scholarly presentation and is fully adequate in scope and quality as a

dissertation in partial fulfillment for the award of Degree of Bachelor of Laws of Kampala

International University.

Name of Supervisor: MR. ABDULKAREEM AZEEZ

. rJI}p/wVV'N' S1gnature ......................... .

Date .... ~~-®..0;. do!~

ii

ACKNOLEDGEMENT

I am very thankful to God Almighty for the life, wisdom and providence. I am also grateful to all

those who contributed to my success.

I mostly appreciate my supervisor Mr. Abdulkareem Azeez for the tireless efforts in correcting

and directing me in this research, without his efforts, I would not have accomplished this work.

I am very grateful to my lecturers and entire staff at the school of law for their assistance,

guidance and impartation of professionalism. My Almighty God bless you.

1 also appreciate all my classmates of LLB 4/2 2015/2016 both day and evening. Thank you very

much for being tolerant and cooperative.

Finally, any errors, mistakes or shortcomings found in this research are entirely mine, for which I

assume all responsibility.

iii

DEDICATION

This work is dedicated to my entire family especially my lovely nephew and nieces Mark Jude,

Shantal Jordan and Hadassah Esther whom I expect to do the same course. it will be of great help

to them. I thank my brothers and sisters JB, Emma, Simon, Cathy. Mary and Martha who

encouraged me through the tough times I was facing when writing this work. I do dedicate to all

my friends especially my God sent friend Consolatha Patrick who stood by me and helped me do \

part of the typing. Lastly to my precious parents Mr. Okwakol Joseph and Mrs. Okwakol Judith

Martha who persevered, encouraged, supported me financially and sacrificed their valuable time

to see to it that this work is type set and printed out.

iv

ACRONYM

AC Appeal Case

AllER All England Report

cs Civil Suit

CA Civil Appeal

EA East Africa Law Report

EACA East African Court of Appeal

l-ICB High Court Bulleting

HPA Hire Purchase Act

KB Kings Bench

KHPA Kenya Hire Purchase Act

KLR Kenya Law Report

SOGA Sales of Goods Act

UCLR Uganda Commercial Law Report

UHPA Uganda Hire Purchase Act

UK United Kingdom

v

LIST OF STATUTES

Consumer Credit Act 1974 of United Kingdom

Contract Act 2010 Laws of Uganda

Factors Act 1889 Laws of England

Hire Purchase Act 1938, 1954 and 1965 Laws ofEngland

Hire Purchase Act Cap 507 Laws of Kenya

Hire Purchase Act 2009 Laws of Uganda

Hire Purchase Regulations no 6 of2012

Sale of Goods Act 1893 oflndia

Sale of Goods Act Cap 83 Laws ofUganda

Sale of Goods (Implied terms) Act 1973 of the United Kingdom

The Judicature Act Cap 13 Laws of Uganda

vi

LIST OF CASES

Amicabre Travel Services Ltd Vs Alios Kenya Finance Ltd (2015) KLR

Associate Distributors Ltd Vs Hall (1938) 2 KB 83

Credit Finance Corporation Ltd V s Ali Mwakasanga (1959) EA 79

Delux Enterprises Vs Uganda Leasing Co. Ltd HCT-00-CC-CS-00294 of2004 (2006) UGCOMMC9

Doola Singh & Sons Vs The Uganda Foundry & Machinery Works (1945) 12 EACA 83

Financing V s Baldwin ( 1963) 1 AllER 445

Helby Vs Mathews (1895) AC 471

John Nsaga Vs Hajji Juma Kayongo (1979) HCB 138

Magezi and Anor Vs Ruparelia (2005)2 EA !56

National Industrial Credit Uganda Ltd Vs P. M Nsibirwa (1974) HCB 133

Nyangira Karumu& 2 Ors Vs DFCU Leasing Co. Ltd CS No 106,150,788/2008(2013) UCLR 89

Otaok Charles Vs Equity (U) Ltd HCT-00-CC-CS-0335-2010

Sundaran Finance Ltd Vs State ofKerala AIR 1906 SC 1175

Visit African Ltd Vs Management Committee Shimon Demonstration School CS No. 483/2005 (2013) UCLR 120

West Minister Commercial Traders Cooperative Bank of Kenya Vs Mathew Ouma Oseko Civil Appeal No. 24/2014

vii

TABLE OF CONTENTS

DECLARATION ............................................................................................................................... i

APPROVAL ..................................................................................................................................... ii

ACKNOLEDGEMENT ................................................................................................................... iii

DEDICATION ................................................................................................................................. iv

ACRONYM ...................................................................................................................................... v

LIST OF STATUTES ...................................................................................................................... vi

LIST OF CASES ............................................................................................................................ vii

TABLE OF CONTENTS ............................................................................................................... viii

CHAPTER ONE ............................................................................................................................... 1

1.0 Introduction ............................................................................................................................................. 1

I . I Background ............................................................................................................................................. 1

1.2 Statement of the Problem ........................................................................................................................ 3

1.3 Objectives of the Study ........................................................................................................................... 3

1.3.1 General Objectives ............................................................................................................................... 3

1.3 .2 Specific Objectives ............................................................................................................................... 4

I .4 Research Questions ................................................................................................................................. 4

I .5 Scope of the Study .................................................................................................................................. 4

1.6 Significance of the Study ........................................................................................................................ 4

I. 7 Methodology ........................................................................................................................................... 5

1.8 Literature Review .................................................................................................................................... 5

I . 9Chapterization ........................................................................................................................................ 10

1.10 Conclusion .......................................................................................................................................... 11

viii

CHAPTER TW0 ............................................................................................................................ 12

2.0 General Concept of Hire Purchase Agreement ..................................................................................... 12

2. I Introduction ........................................................................................................................................... 12

2.2 Definition and features of hire purchase agreement .............................................................................. 13

2.3 Essential Features /Characteristics of the Hire Purchase Agreement.. .................................................. 13

2.4Formation of Hire Purchase Agreement.. ............................................................................................... l7

2.5 Hire Purchase Distinguished From other Contracts .............................................................................. 23

2.5.0 The Differences between the Hire Purchase Agreement and other Transactions ............................. 23

2.5.!. A Credit Sale ..................................................................................................................................... 23

2.5.2. A Contract ofSale ............................................................................................................................. 25

2.5.3 Abill ofsale ....................................................................................................................................... 26

2.5.4 A Lay-by Sale .................................................................................................................................... 27

2.5.5 Installment purchase/ time payment.. ................................................................................................. 27

2.6 Conclusion ............................................................................................................................................ 37

CHAPTER THREE ........................................................................................................................ 38

3.0 A comparative Analysis of the Law Regulating Hire Purchase Agreement in Uganda and Kenya ...... 38

3 .l l ntroduction ........................................................................................................................................... 38 .

3.2 The legal fi·amework of the hire purchase agreements in Uganda ........................................................ 38

3.3 The legal fi·ame work of hire purchase agreements in Kenya ............................................................... 39

3.4 Similarities ............................................................................................................................................ 40

3.5 Difference between Uganda hire purchase Act and Kenya hire purchase Act... ................................... 43

CHAPTER I<OUR .......................................................................................................................... 48

4.0 lntroduction ........................................................................................................................................... 48

4.1 Challenges Facing Hire Purchase Transaction in Uganda .................................................................... 48

ix

4.2 Challenges Facing Hire Purchase Transaction in Kenya ...................................................................... 51

4.3 Challenges in the Hire Purchase Acts .............................. , .................................................................... 52

CHAPTER FIVE ............................................................................................................................ 55

5.0 Recommendation and Conclusion ........................................................................................................ 55

5.1 Summary of the Major Findings ...................................................... , .................................................... 55

5.2 Recommendation ................................................................................................................................... 56

5.2.1 Other Recommendations .................................................................................................................... 58

BIBLIOGRAPHY .......................................................................................................................... 60

X

CHAPTER ONE

1.0 Int1·oduction

Hire purchase is a legal term for a contract in which persons usually agrees to pay for goods in

parts or a percentage at a time 1.At common law, the contract of hire purchase is one by which the

owner lets goods out on hire and agrees that the hirer may either return the goods or elect to buy

the goods when the hire-rent payments have equaled the purchase price stated in the agreement.

or when a stated sum has been paid. The important thing to note here is that ownership of goods

remains in the owner's possession and the hirer cannot therefore pass a good title to a third party

while the contract remains in force2.

It is usual for everyone who wish to possess a particular thing and to be able to buy it. It may

also be impossible or difficult to save enough money to buy such particular thing. Therefore. a

prospective buyer of goods may agree with the owner that they shall be paid for by installments

over a period of time instead of paying the full cash price immediateli. It was through this that

hire purchase transaction developed; and so, one of the common methods by which traders,

dealers and manufacturers grant extended credit to their customers is by hire purchase

agreement'1• Hire purchase helps sustain growth by making it possible for a client to resist the

downward adjustment of their consumption during a fall of their income5

1.1 Background

Hire purchase contracts were developed in England in the later half of the J9'h centur/'. They

came about as a result of demand for a method of payment for goods on credit which would

permit some security for the supplier's credit.

1/\dera, A, the Hire purchase business, it is a win-win situation, 1995, <http://www.1hssnet.com accessed on 20th

Nov. 2015. 7 Anne Dixon, 'An introduction to mercantile and commercial law', William Heinemann Ltd, London pg 205

3Audo Echoro, nature, scope and content of hire purchase contract, currentjos. Law journal

2008<http://www.researchgate.net/publication/40 ... ) accessed on 20th Nov. 2015. 4 lbid "The hire purchase business-it is a win-win situation, <http:www.1jhassnet.com>/ . ./29pdf> accessed on 20'" Nov. 2015. "Cecil McCathy, 'every day law'. History behind hire purchase nations news http:/lwww.nationnews accessed on 17/11/2016

1

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 installment sale was treated as a purchase or an

agreement to purchase goods, then a seller would have no protection against a buyer 111

possession of the goods who might dispose of theme to a third party.

The issue arose in the English case ofHelby Vs Mathews7 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

installments. 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 installments, the piano

would become his sole and absolute prope1iy and that until such full payment, the piano would

continue to be the sole property of the owner. The hirer recovered the piano. paid a few

installments and then pledged it to a pawn broker (Mathews) as security of 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 count held not become bound to buy and therefore had "not agreed to buy goods"

within the meaning of the factors Act and the owner was entitled to recover the piano from the

piano broker. This case establishes that at common law the essence of a hire purchase agreement

is that it's a contract of hiring which could terminate at the will of hirer, who had the option of

purchase the goods by making full payment8.

Therefore, the wider use of hire purchase spread up to Africa including Kenya and Uganda,

hence leading to the enactment of hire purchase laws, however much. common law was the law

before (for example Uganda has been using common law and other legislations until) 2009 when

the hire purchase Act (HP A) was enacted9.

7 (1895)AC 471 8Cecil McCathy, every day law: History behind hire purchase-nation news <http.//www.newton news/news> accessed on l?'h/11/2015 at 6:30pm 9Hire purchase Act No. 3/2009, laws of Uganda

2

1.2 Statement of the Problem

Considering the fact that laws were adopted and created to enable parties to adhere to and

embrace hire purchase business, it is a rule of law and general practice that parties are obliged to

follow what the agreement says, given that the law provides for rights and duties to be followed.

Hire purchase is a branch of commercial law which accompanies rules meant to protect hirers

and owners in hire purchase agreement. It is quite clear that the study majorly focuses on the

comparative review of the hire purchase laws in Uganda and Kenya.

Uganda enacted its Act (Hire Purchase Act) in 2009 later than the Kenyan HPA of !970 which

has also gone through a number of amendments, but going deep into the law, the Ugandan Act is

still lagging behind or even not substantial enough to sustain the people's demand in the hire

purchase business hence affecting hire purchase business. This calls for the reason why Kenya is

much better than Uganda in business since it has gone an extra mile to explain some clauses

clearly, it seems to me that the Ugandan Act is too vague and needs clarification on some

clauses. However the writer wants to look at the insufficiency or the inadequacy of hire purchase

Act of Uganda compared to that of Kenya especially viewing at the clauses provided for, the

challenges faced in this area of hire purchase and if possible what can be done to solve, to

streamline proper management of the hire purchase business in Uganda.

This dissertation highlights, discusses and debates upon the nature of hire purchase. majorly

focusing on the comparative review where the researcher will look at the different clauses that

need to be addressed. The 2009 Ugandan HPA came in to regulate the conduct of commercial

transactions in the country given the fact that the Act was not in force at that time. However a

quick study shows that prior to the coming into force of the Act, it has left many clauses

uncertain and unclear hence leaving room for amendments.

1.3 Objectives of the Study

1.3.1 Gene1·al Objectives

The general objective of this study is to examine the comparison of the laws regulating hire

purchase agreements in Uganda and Kenya. How are these laws similar or different from each

other?

3

1.3.2 Specific Objectives

a) To study general concept of hire purchase agreement

b) To critically evaluate the legal frame work of hire purchase agreement in Uganda and

Kenya

c) To compare the laws regulating hire purchase transaction in Uganda and Kenya.

d) To look at the challenges faced by in a hire purchase transaction

e) To identify challenges faced by hirers and owners during a hire purchase transaction

f) To make recommendation for loopholes in the existing laws or the agreements itself.

1.4 Research Questions

a) What is the nature/concept of hire purchase agreement?

b) What is the legislative frame work for hire purchase in Uganda?

c) What is the comparative review of the hire purchase Acts of Uganda and Kenya~

d) What challenges are faced by hirer when carrying out a hire purchase transaction in both

Kenya and Uganda?

e) What are the recommendations for the challenges faced in a hire purchase transaction~

1.5 Scope of the Study

The study will be approached from different legal perspective. In this regard, it will consider the

extent hire purchase laws govern hire purchase transactions to include challenges faced by the

parties and suggest the best ways in which implementation can be greatly effective.

The study will also cover the general concept of hire purchase which includes the nature,

difference between hire purchase transactions and other transactions the applicability and the

proper measures to be considered to reduce the challenges faced.

And major focus is to compare the law of Uganda and that of Kenya basing on the sufficiency of

the clauses in both Acts.

1.6 Significance of the Study

The study is significant in several ways if completed; it will help in the following ways.

4

i) If completed, the study will be useful as a reference point and open up debate on the

different laws governing the hire purchase transaction.

ii) The study if completed will add on the whole body of knowledge on the subject of

hire purchase agreement.

iii) This study will influence legislation, policy and administration of public affairs by

helping legislators and enforcers come up with the new laws and policies as well as

amendments to build up society in the business world.

iv) The study will help analyze the challenges and find a better way of curbing the

ongoing problems among consumers and those interested in the subject.

1.7 Methodology

The research is basically a theoretical study. This research relies on primary and secondary data.

They include books, articles, Acts of parliament and other materials written in the subject of hire

purchase.

The study will also base on decisions and principles set out by case law to bring out the

applicability of hire purchase agreement, emphasis will be put on what other scholars reached on

in addition analysis through internet, journals, library and my own view basing on

recommendation.

1.8 Literature Review

Generally, hire purchase as a concept has been looked at by many authors, books and

legislations. The available studies conducted on hire purchase made emphasis on the nature, laws

relating to hire purchase and challenges the business (as well as the enacted laws) face in trying

to promote and enforce this business but when it comes to this study of a comparative review of

the laws governing hire purchase agreements in Uganda and Kenya, little has been covered on

the subject therefore opening up a debt on this subject.

First and foremost, when discussing, references shall be made to Acts like Consumer Credit Act

1974 of UK, which protects purchasers or consumers for example section 27 talks of protection

of purchasers of motor vehicles, then the 1938 UK HPA, Sale of Goods Act (SOGA) of India

1893, and finally HPA no. 3 of 2009 (Uganda and HPA Cap 507 (Kenya) which also protects

5

both owners and hirers by providing rights and duties, execution of the agreement, termination in

case of default 10 and repossession'~_

Secondly, authors of different books and articles will be looked at on what their views are about

hire purchase agreements, below are the following as discussed.

Abdulkareem Azeez12 on his work discussed about the HPA of Uganda which is said to respond

to the commercial needs of the people by providing a legal frame work aimed at creating a

regulatory guidelines for the concerned parties in a hire purchase transactions and at the same

time, career for the rights duties and most impotiantly, the procedure for enforcing such rights or

duties when the need arise.

Abdulkareem went further to examine few clauses in Ugandan hire purchase Act with a view of

ascetiaining whether those clauses are in tune with the generally acceptable way of legislative

drafting while at the same time engage in a comparative analysis between the Uganda and Kenya

hire purchase Act. He indicates that the essence of this compru·ison is to bring out a few

provisions in the Kenyan Act which perhaps via legislative omission (those provisions) are not

included in the Ugandan Act.

The literature is very vital to the researcher in a way that it opens up the debate on the loopholes

of clauses contained in the Ugandru1 Act compared to that of Kenya. But the author

(Abdulkareem) only criticizes the Ugandan Act not looking at the faulty clauses in the Kenyan

Act as well, he was too quick to judge, therefore the researcher is looking at the general

compru·ison where similarities and differences will be discussed and the loopholes in each Act.

leaving the reader with an impression of deciding what law is better than the other. He also did

not propose amendments for the gaps left by the law makers. All of this will be discussed as the

study continues.

Robert B 13, gives a brief background that historically, hire purchase was said to have developed

because it offered the supplier protection against a wrongful disposition of the goods under the

10Part Ill of the HPA 2009 law of Uganda 11Part IV of HPA 2009 of laws of Uganda 12Abdulkareem Azeez, the Uganda Hire Purchase Act 2009 Vis-a-vis the Kenyan hire purchase Act. A critique <htpp/ /:www.academia.educator/8261896/the Uganda ... >2016 accessed on 14/01/2016. 13

Robert Bradgate, 'commercial law' 2'd Edition, Butterworths (london) 1995, page 182-183

6

factors Act 14 a person who has bought or agreed to buy goods may, in certain circumstances

depose of them to a third party so as to pass a good title to the third party even though the goods

are still owed by seller. Thus, a person who supplied goods under conditional sale agreement

could find his rights destroyed, if the buyer resold the goods to an innocent third party.

He distinguishes between hire purchase and a conditional sale. That the legal form of hire

purchase agreement is a hiring, or a bailment, of goods by their owner (bailor) to the hirer

(bailee), with the hirer being granted an option to purchase the goods at the end of the hire

period. However, in reality this anangement is almost wholly fictional since hirer is not bound to

exercise the option and complete the purchase of goods but the payments required of a hirer are

normally greatly in excess of the sums which would be required under an ordinary hire or rental

agreement. He gives the objectives of hire purchase as the supply of goods on credit terms

couples with security for the supplier.

In a conditional sale, goods may also be supplied on credit under a conditional sale agreement or

under a simple credit sale, under a conditional sale, parties are committed to buy and sell at the

outset, but the seller retains the property in the goods until the buyers pays the whole of the price.

This literature will be relied on by the researcher to discuss the nature of hire purchase and to

compare hire purchase with other forms of commercial financing thereby pointing out the

benefits accruing fi·om hire purchase system.

Robert has discussed everything by giving the distinction between a conditional sale and a

contract of hire purchase but he did not add on the other types of contracts similar to hire

purchase, giving the researcher a reason to broaden the study by discussing the remaining which

include, bills of sale, lay by, contract of sales and others.

Avtar Sigh15 defines hire purchase agreement as normally one under which an owner hires

goods to another party called the hirer and fmiher agree that the hirer shall have an option to

purchase the chattel when he has paid a ce1iain sum or when the hire rental payment have

reached the hire purchase price stipulated in agreement.

141889, laws of England, S.9 which is contained inS. 25 of SOGA

"Avtar Sing, 'law of sale of goods and hire purchase', 61h edition, Eastern book company, 2005 at pg 227, notes,

Sundaran Finance Ltd Vs State of Kerala, AIR 1966 SC 1178

7

Fmiher the author went as far as stating the nature and legal effect of hire purchase not as same

in all cases and may be different in different circumstances. The court should determine the

correct legal relationship between the parties by going through the document as a whole and

reaching the real intention ofpatiies untrammeled by the choice phraseology in the document16

In case of a lender at1d borrower for the purpose of purchasing a motor vehicle, the hire purchase

agreement between the lender and the customer is in the nature of transaction of loan which the

financier pays direct to dealers or vendor of the vehicle and thereafter recovery from the

customers the stipulated installments. In such a case, the agreement is merely a mechanism for

recovery of money lent, with the advantage of vehicle to the lender. This study will rely on this

literature to find out the meaning of hire purchase as compm·ed to other studies.

Singh was too brief in his book. He only discusses the definition and nature of hire purchase, the

rest has not been tackled like differentiating hire purchase from other contracts, duties and rights

of the pmiies to hire purchase agreement, the right of repossession and termination of the hire

purchase agreement.

P.S Atiyah 17 writes that contract of hire purchase resembles contracts of sale very closely and

indeed, in practice and all cases of hire purchase, the ultimate sale of the goods is the real object

of transaction. But there is a distinction in the legal aspect though its importance has greatly

diminished since the sale of goods (implied terms) Act 1973 up to the UK HPA 1964, and the

consumer credit Act !974 (UK). Atiyah defined a sale as a contract which merely the seller

transfers or agrees to transfer the property in goods to the buyer, that is to say, as soon as the

contract is made, the ultimate destination of goods is determined even though the property is not

pass to some considerable time. For example, until all installments of price have been paid.

A contract of hire purchase, on the other hand is a bailment of the goods coupled with an option

to purchase them which may or may not be exercised18 only if and when the option is exercise

will there be a contract of sale. The author gives the similarity between the two transactions to be

a consideration of three points.

16lbid pg 228

17 P.s Atiyah, John N. Adams; Hector Macqueen, the sale of goods, lOth Edition, Pearson Education Asia, 2001, at

page 13 18

P.S. Atiyah, the sale of goods; 10'h edition ... at page 14 par 1

8

Firstly, real object of contract of hire purchase is almost invariably the ultimate sale of the goods.

Secondly, the amount which the hirer is bound to pay under the contract is usually for in excess

of that which he would have had to pay if he were really hiring the goods. Thirdly, the legal

purchase price for which the hirer has option to buy good is frequently nominal only and, in fact,

is sometimes no exacted in practice. In discussing the nature of hire purchase the literature is

relevant in a way that a sale is distinguished from hire purchase.

Atiyah also attempted to discuss hire purchase in general but left out the subject of distinction.

He only distinguished a contract of sale from a hire purchase agreement and he did not attempt to

discuss other types of contract. Therefore the researcher has come up to widen the subject by

giving different types of contracts that are similar to a hire purchase contract.

Anne D 19 says hire purchase agreement is also a subject of statutory rules for example HPA

1965 (UK), which re-enacts and consolidates previous hire purchase legislation20

Anne discussed the formation of the agreement where she said hire purchase involves in many

cases two people, the owner and the hirer. But where large sums of money are involved, it is

common for a third party to be added for instance finance company.

The normal rules to the formation of hire purchase contract are the same as other types of

contract. Thus, the terms must be ce1iain and there must be an offer and an acceptance. The san1e

rules as to documents mistakenly signed apply. Other things the writer talked about are rights

and duties of parties, position of the dealer, distinction of hire purchase from other transaction

termination and repossession. The researcher agrees with the author that the normal rules of

contract will also apply to hire purchase however much they are different is nature.

Anne's book is interesting and covers everyihing in subject of a hire purchase. However she

based on the English laws which are not the case in the study. The study is reviewing the

comparison between the Uganda HPA and the Kenyan HPA.

Atieno/1 Observes that hire purchase is frequently advantageous to clients because it spreads the

cost of expensive items over an extended time period. If the seller has the resources and the legal

19 Anne Dixon, Ann introduction to mercantile and commercial law, Heinemann Ltd 1969 at page 205 par 9.11 '0Atieno R., 2001, the hire purchase business, it is a win-win situation, 2001 <http://wwwijhssnet-com nov. 2012 at

page 1 accessed on 19 nov/2015 at 8:19pm

9

right to sell the goods on hire purchase which usually depends on a licensing system in most

countries, the sellers are considered to be owners of goods where most sellers prefer to receive a

cash payment immediately. To achieve this, the seller transfer ownership of the goods to finance

company, usually at a discounted price and it is this company that hires and sells the goods to the

buyer. This literature review brings one to the subject of involvement of the third party, however

there are only two parties who are the hirer and owner meaning that there are circumstances

where a third party is always involved and very important to be involved.

She discussed the advantages of hire purchase and focused on how good hire purchase is in the

current trend. However she did not give the general view about hire purchase and how it came

into existence.

Click W22 indicates that introduction of a third party complicates the transaction when the seller

makes false claims as to quality and reliability of the goods that induce the buyer to ''buy". In a

conventional contract of sale, the seller will be liable to the buyer if these representations prove

false. But, in this instance, the seller who makes the representation is not the owner who sells the

goods to the buyer only after all the installments have been paid.

He only discussed about the involvement of a third party as a challenge, but in reality there are

many challenges that complicate hire purchase agreement which are to be discussed in the study.

1.9 Chaptel"ization

The final study will be comprised of five chapters.

Chapter one gives the general outline of the whole research and the development of the topic. an

overview of the topic and what it entails. It further provides for a problem statement,

significance, objectives, scope of the study (which is the general outlook of study), methodology

of the study (methods used) Literature review (what other scholars or authors have said or

researched on.

71Atieno R 2001, the hire purchase business, it is a win-win situation, 200l,<http://wwwijhssnet-com nov 2012 at page 1 accessed on 19 nov. 2015 at 8:19pm. "Crick, W.F. 2001, the hire purchase business, it is a win-win situation htpp://www.ijhssnet.com nov. 2012 accessed on 19'' Nov 2015 at 8:20pm

10

Chapter two brings fmih the nature of hire purchase, which includes definition and elements

(features) of hire purchase agreements, what it entails, the difference between hire purchase

agreements and other transactions like credit sales. Conditional sale lay by, among others. It

fmiher covers the applicability of laws when entering into such agreement by providing for the

format/procedure, rights and duties and the remedies in case of default.

Chapter three introduces the legal fi·ame work of Uganda and Kenya as far as hire purchase law

is concerned then goes fmiher to compare by giving similarities and differences of Hire Purchase

Act of Uganda and Kenya and the loopholes in the Ugandan Hire Purchase Act.

Chapter four is about the challenges faced by pariies transacting hire purchase business as well

as enforcement of the laws.

Chapter five finally entails the recommendations that can be advocated for the challenges faced

by this business and promotes development and smooth running of the business. Finally give the

general conclusion of the whole study.

1.10 Conclusion

Hire purchase contracts were said to develop in England and Wales (United Kingdom) towards

the end of the nineteenth century, and it is impossible to understand when they came into

existence without an appreciation of the legal context which already existed23 As time went by,

laws kept changing from time to time for example the 1964 UK ACT amended the law relating

to hire purchase, credit sale of goods with respect or disposition of vehicles which have been let

or agreed to be sold by way or conditional sale.

In Uganda, before coming into force of the 2009 HPA, the Common law system was in

operation. Hire purchase laws purposely came along to protect persons carrying out hire

purchase transactions, therefore the aim of the laws in question are called into play to ensure that

the said goal is reached. It is quite clear that, patiies to a hire purchase business are required to

employ the rights and obligations reasonably and proportionately to another party in considering

transaction and consumption as atl avoidance to cause a wide spread and along term consequence

of the transaction.

" P.S Atiyah, the sale of goods .... 2001 at page 14 11

CHAPTER TWO

2.0 General Concept of Hire Purchase Agreement

2.1 Introduction

At common law, a hire purchase agreement is defined as a contract for the delivery of goods

under which the hirer is granted an option to purchase the goods2"- Under common law. hire

purchase is an agreement to hire coupled with an option (not an obligation) to purchase. The

option to purchase may or may not be exercised when the hirer shows the owner in writing that

he or she is ready to complete the remaining balance or terminate the contract. In the case of

Nsaga Vs Haji Juma Kayongo25, Odoki C.J stated that, a hire purchase agreement is a contract

for hiring goods which the hirer has a non-binding option to purchase the goods and which

property or the goods remain in the owner and hirer remains bailee with no power to dispose.

Hire purchase is a mode of financing where the price of the goods are to be sold on a future

date26. Here the owner lets out goods to a hirer upon terms that the hirer is to hire them at a fixed

periodic rental, and has, in addition given an option of either purchasing the goods at any time by

paying the total amount of the rental/optional purchase price or returning the goods to the owner

before the stipulated period of hire has expired without liability, for the installments of rental

which have not fallen due to the time of their return. The hire purchase agreement gives the

owner the right upon default by the hirer, to repossess the goods. In Uganda, hire purchase is

governed by the hire purchase Act No. 3 of 2009 which provides for the way the agreement is

executed, formed, rights and duties, repossession, termination and remedies as will be discussed

in details ahead.

240diwuor Kelly, Hire purchase law-research presshttp:ljwww.oakadvocates.co.ke/odiwork@oadvactes.co.ke Accessed on 3'' Feb 2016 25 (1979) HCB 138

"Hire purchase-conceptual, legal and regulatory framework www.psnacet.educ.in/--/3-pdf accessed on 3rd February 2016.

12

2.2 Definition and features of hire purchase agreement

Hire purchase has been defined by many books, anthors, dictionaries and legislations. It has

been pointed out that, hire purchase agreement is subject of statutory rules27 The definition is

contained in the hire purchase Act 2009 (section 3), hire purchase agreement has been defined

to mean an agreement for the bailment of goods under which the bailee may buy the goods or

under which the property in the goods will or may pass to the hirer. The same applies to S.l(l)

English hire purchase Act, 1965, where it is an agreement for the bailment of goods under

which the bailee may buy the goods or under which the property in goods will or may pass to the

bailee . An owner agrees the let out and the hirer agrees to hire the goods on terms that although

the hirer is entitled to possession, ownership remains with the owner. However it should be noted

that if the hirer opts to purchase, a good title is passed and cannot be defeated.

2.3 Essential Features /Characteristics of the Hire Purchase Agreement

The common feature of all the hire purchase agreements given is that they involve

supply of goods, only possession rather than ownership is transferred28 This is to the

effect that ownership will still remain with the owner until the last installment is paid;

therefore the hirer remains as one possessing and not owning.

As any transaction has basic characteristics, so is a hire purchase agreement and its

features are derived from the definition given and below are the features;

1. Deposit/installments

A hirer upon terms of hire purchase agreement is entitled to pay a fixed periodic

rent/installments till an option of either purchase the goods upon last installment has

been paid or return the goods to the owner before the stipulated period of hire has

expired without liability for the installments of rental which have not fallen due up to

the time of their returns, S.5(3)(f) HPA 2009, states that, the first installments of the

hire purchase price has to be paid. Further, section 9(1) HPA 2009, gives the hirer the

right to terminate before the agreement falls due by returning the goods to the owner.

"Anne Dixon 'an introduction to mercantile and commercial law', Heinemann Ltd, London 1969, at page 218, para 9-4. ,. Robert Bradgate Commercial law 2"' edition, at Pg 183

13

In the case of John Nsaga Vs Haji Juma Kayongo29, it was held interalia that a hirer in a

hire purchase agreement is under a duty to pay the sums stipulated at the times and in

the manner laid down.

2. Immediate possession and enjoyment of the goods.

Under hire purchase agreement, a hirer has an immediate possessiOn of goods and its

enjoyment without any disturbances. Section 8 of 2009 Act provides for conditions and

warranties, one of which is enjoyment of quiet possession as long as there is no

defau!t30There should be a difference between possession and ownership that is why a

hire purchase agreement is different from a sale, in sales a seller will sell to the buyer

who immediately owns and possesses but for a hire purchase a hirer has no right of

ownership until he/she completes payment, otherwise he/she only enjoys possession.

3. Ownership/title.

Though the goods under hire purchase agreement are at the possession of the hirer, the

hirer does not own the title of the goods, he only has the possession and the enjoyment

of the good but title is still with the owner until payment of the last installment is

exercised. The hirer can own the goods, in case he/she opts to purchase, must notify the

owner in writing of the intention to complete the purchase of the goods by paying or

tendering the owner on a specified day, a net balance due to the owner under the

agreement, and having given the notice may complete the purchase accordingly on the

day specified31 .In the case of Massey Harris & Co (South Africa) Ltd Vs J.H Mullet·32.lt

was held inter alia, the terms of agreement between parties all pointed to an intention to

attain one legal object, namely, to enter into an agreement to hire coupled with an

option to purchase.

79 (1960) EA 540 30Amicabre Travel services Ltd Vs. Alios Kenya Finance Ltd (2015) e KLR, stated that defendant had been levying illegal penalties to harass plaintiff and interfere with quiet possession and use of said vehicles. 31 S. 10(1) of laws of Uganda 32 (1959) EA 431

14

4. Right to terminate and option to purchase.

This right is given to the hirer under section 9(1), which provides for hirer at any time

before the final payment under hire purchase agreement falls due, may terminate the

agreement by returning the goods to the owner and giving the owner a written notice of

the termination of the agreement. In the case of Nyangira Karumu 2 ORS Vs DJICU

Leasing Co Ltd33it was a lease agreement where the plaintiff claimed the defendant

terminated prematurely and liable to pay full market value and it was stated that the

whole relationship between plaintiff and defendant was a hire purchase of a hirer and

the lender. As long as the hirer has not defaulted, he or she can always return back the

goods to the owner on realizing he or she cannot pay anymore hence termination.

5. Repossession

The hire purchase agreement gives the owner the right to repossess the goods in certain

circumstances of default by the hirer. Section 1534, provides for recovery of goods from

hirer by the owner to be by suit where two thirds of the price has been paid, if payment

of two thirds has not been complied with then he/she can recover forcefully. Meaning

that if the two thirds has been paid, the owner might not enforce a right to recover

possession of goods from the hirer except by court order pending the action. The court

can make such orders as it thinks just for the purpose of protecting the goods from

damages or depreciation including orders restricting or prohibiting the further use of

goods.

EXECUTION OF HIRE PURCHASE AGREEMENT

According to the Black's Law Dictionary 8111 Edition, execution means the completion,

fulfillment or perfecting of anything, or carrying it into operation. With respect to contracts, the

performance of all acts necessary to render a contract complete as an instrument, which conveys

the concept that nothing remains to be done to make a complete and effective contract35

Under common law, to execute a hire purchase agreement, there should be capacity to

make a hire purchase contract which commensurate with contractual capacity.

33civil suit No 106 150 788/2008/2013) ug com 89 "HPA 2009 30 Legal Dictionary. The free dictionary

15

Similarly, section 11 36 provides for contractual capacity, that is, a person being of

sound mind, eighteen years and above and not disqualified from contracting by any law

to which he/she is subject and there has to be a consensus ad idem between parties as

held in the case of National Industl"ial Ct·edit Uganda Ltd Vs P.M Nsibinva37 Therefore

in hire purchase agreement the following will be included:-

Parties to the Agt·eement

It shall be between two parties namely the owner and hirer as provided for under section

4(1) HP A of 2009. But where large sums of money are involved, it is common for a third party

to be added: the finance company.

Owner is defined under section 3HP A of 2009to mean the person who hires goods to a

hirer under a hire purchase agreement, and includes, a person to whom the owner's

property in the goods or any of the owner's right or liabilities under the agreement has

passed by assignment or operation of law.

A hit·er is defined as a person who takes goods from an owner under a hire purchase

agreement and includes a person to whom the hirer's rights or liabilities under the

agreement have passed by assignment or operation of law38

A hire purchase transaction is frequently financed by finance company in a variety of

ways for example, from a dealer and then letting it out on hire to the hirer under Hire

purchase agreement.

In such a case, a hirer will make an offer, usually through the dealer to the finance

company to hire goods from the dealer, thereby becoming the owner of the goods.

It is necessary for hire purchase agreement to be in writing. Section 4(1) HP A

2009states that it shall be executed in writing by the owner and hirer: And a contract of

guarantee relating to a hire purchase agreement shall be executed by a guarantor,

36 Contract Act 2010 Laws of Uganda

37(1974) HCB 133

385.3 HPA of 2009

16

therefore a guarantor means a person who agrees to perform the hirer's obligations 111

case the hirer defaults under a hire purchase agreement39.

Section 4(4) HPA 2009 says that, before a hire purchase agreement IS executed, the

owner and the hirer shall make full disclosure of all the information relevant to the

proposed agreement and upon failure the owner or the hirer commits an offense and is

liable on conviction to a fine not exceeding one hundred currency points or

imprisonment not exceeding one year or both40.In the case of Credit Finance

Corporation Ltd Vs Ali Mwakasanga41 one of the issues was whether the contract of Hire

purchase has to be in writing but not signed by owners. It was held, despite the failure

of the appellants to sign it the agreement must on the doctrine of part performance, be

treated as binding on both parties.

2.4 }?ormation of Hire Purchase Agreement In the formation of the agreement, the normal rules as to formation of contracts apply that is. the

terms must be ce1iain and there must be offer and acceptance.

The formalities of a hire purchase agreement are regulated by the Uganda Hire Purchase Act 2009,

(HP A) however, common law can also be used especially where the provision of the statute is not

providing for. The HP A42 provides for two pmiies that is the owner and the hirer'13 and sometimes the

guarantor who acts on behalf of the hirer. Therefore a determinant factor of the hire purchase agreement

are the words used as it was in the case of Magezi and Anothet· Vs Rupm·elia44, it is to be determined

from the words used in the agreement. The law45 has come out with 3 clauses that have to be considered

when forming a hire purchase agreement, they include;

I. Clauses that must be included in the agreement.

2. Clauses that must not be included in the agreement.

3. Clauses that are presumed to be included in the agreement.

39Section 3 HPA 2009

00 5. 4 (S)(b} HPA 2009

41 (1959} EA 79

" No. 3 of 2009 43

3{1} UHPA 2009 44

(2005} 2 EA 156 "HPA 2009

17

I. Clauses that must be included in the ag1·eement

a) These are provided for by the HP A of 2009. First of all, a hire purchase

agreement has to be in writing46 by both parties or even on behalf of the parties,

this is because the law presumes that agreement in writing are easily enforceable

and further, agreements concerning money are very sensitive if not put in writing

for evidential purpose. The owner of the goods has also to put in writing, in a

prescribed form, to the prospective hirer, the cash price of the goods'17 Because

no one purchases what he/she does not know the price, this helps the parties to

bargain in case the hirer feels that the amount is huge, he can also decide

whether to agree on the amount or not.

b) A hire purchase agreement must contain a statement of the hire purchase price

and the cash price of the goods to which the agreement relates48 These two are

different from each other in a way that, a hire purchase price is the total sum

payable by the hirer under the agreement in order to complete the purchase goods

in other wards it's the price paid during the hire and it includes, cash price,

interest, financial charges, deposit or other initial payment while a cash price, is

one by which, a creditor would have sold to the buyer for cash on the date of the

hire purchase49. It is important to indicate both prices because the owner makes it

known to the hirer from the very beginning the particular purpose each price is

required for so that by the time the hirer enters into agreement. it's clear to him

that the law provides for both prices, this avoids un clarity.

c) The amount of each of the installments by which the hire purchase price is to be

paid and the date, or the mode of determining the date upon which each

installments is payable 5°. The date serves as an evidence for purpose of proof and

the commencement. The same applies to the date of commencement under S.S (3)

(c) (v) HPA 2009.

46 5.4(1) 47 5.5(i) "5.5(3)(c)(i) 49 5.3 HPA 50 5.5(3)(c)(ii)

18

d) The late payment charges should be included 51, this takes us to the example of a

bank where a client gets a loan and if not paid on time, there will be a charge on

that person to avoid unnecessary delays and laziness on the clients. Therefore.

the same will apply in a hire purchase agreement, where one fails to pay on time;

charges will be imposed on him/her. This means that, upon failure to pay

instalments on time. It is a rule in the Act that one is penalized and court may

, where the hirer is not prejudiced, dispense the requirements for failure to

comply subject to any conditions imposed by court52

e) The description of the goods sufficient to identify them 53, hirers who wants to

hire a certain kind of good, will have to give a description to avoid mixture and

confusion because people have different tastes and preferences towards goods

they deal with and also the high demand of a certain product calls for a specific

type of product which will need to be described.

The legal implication is that, it makes the agreement unenforceable.

2. Clauses that must not be included in the agt·eement

These are clauses that the law does not recommend to be included in the agreement they

are provided for under Section 7 HPA 2009.Section 7(1) (a)-(h) HPA 2009 provides

for avoidance of certain provisions in the hire purchase agreement by which:-

i) The right conferred on a hirer under section 9 HPA 2009 to terminate the hire

purchase agreement is excluded or restricted 54. The Act provides for the right

of a hirer to terminate an agreement and return goods to the owner before the

final installment therefore, the owner decides to remove such a right or put

more restriction the law will consider such a clause to be removed in the

agreement because it restrict the hirer's right to terminate the agreement.

ii) Any liability beyond that imposed by Section 9 HPA 2009 is imposed on a

hirer by reason of the termination of the hire purchase agreement by him or

51 s 5(3)(c)(iii) 52 s 5(5)

"' S.5(3)(c)(iv) "s. 7(1 )(a)

19

her under that section 55. Apart from the liability laid under S. 9, the hirer will

be liable to pay amount by which two thirds of hire purchase prices exceeds

the total sum, such lesser amount specified, loss or damage to the goods

therefore an owner of goods cannot impose what is more than that otherwise

it does not amount to clause to be inserted in the agreement.

iii) A hirer after termination of the hire purchase agreement or the bailment m

any manner, is subject to liability which exceeds the liability to which he/she

would have been subject if the agreement had terminated by him or her under

this Act56 Sometimes hirers enter into agreements in and the liability

becomes different from what S. 9 has provided for. due to this, such

stipulation will still not be considered because it will be unfair.

iv) A person acting on behalf of an owner in connection with the formation or,

conclusion of a hire purchase agreement is treated as or taken to be the agent

of the hirer57. The owner cannot put his agent as a hirer's agent, this violates

the right of freedom by choice since everyone has entitled to choose what or

who he/she wants to deal with. The hirer can also choose his own agent and

not the agent of the owner, it will be unfair since the owner's agent works in

favour of his master.

v) An owner is relieved from liability for the acts or defaults of a person acting

on his/her behalf in connection with the formation or conclusion of a hire

purchase agreement58. Owners cannot be relieved off liability merely because

it is the agent acted on their behalf, they are vicariously liable but the agents

will only be liable if they are acting outside the scope of the agreement or if it

is not known or defaulted, the principle of lifting of the veil will be

considered, otherwise an owner can direct an agent to act on their behalf and

upon default, the owner will claim not have defaulted hence relieving himself

which is not the case according to this clause.

;s s. 7 (1) (b) "S. 7 (1) (c) ,,, s. 7 (1) (d) .,, S. 7 (1) (e)

20

vi) The whole of the hirer's wage is assigned as periodic payment for the hired

property59, most hirers depend on wages, if assigned, then he/she will have

nothing to survive on or pay for the debt if he/she defaults.

vii) The owner and agent of the owner is authorized to enter the hirer premises

without the knowledge or express authority of the hirer for the purpose of the

repossession of the hired propertl0. This deprives one's right to privacy,

unless or until allowed no one can just enter a hirer's premises except for

specific persons authorized by law like the police.

viii) A hirer is impeded from completing the purchase of the hired goods under

section I 0 which provides for completion of purchase of goods by hirer61.

Normally hirers enter into agreements with intention of completing and

owning the goods, therefore the owner of goods cannot stop a hirer from

completing the purchase unless the hirer notifies the owner that he/she will

not be interested to complete the purchase.

The legal implication of S.7 is that, the clauses shall be treated as not being

part of the agreement.

3. Clauses that law presume to be included I part of the agreement Section 8 (1) (a)­

( e): provides for implied conditions and warranties.

Implied conditions

a) S.8 (I)( a) provides that, the owner will have a right to sell the goods at the time when

the property is to pass. This is to the effect that, the owner owns the goods and title.

The owner transfers title upon completion of payment of the installments by the

hirer. This goes hand in hand with the contract of sale which requires a seller to sell

the goods at the time when the property is to pass that is when the owner has sold to

the buyer the property and the title to pass, the same applies to the hire purchase

59 S. 7 (1) (f) 60

S. 7 (1) (j) 61 S. 7 (1) (h)

21

agreement where a hirer npon completion the owner will have the right to sell to the

hirer.

b) Section 8(l)(b) provides for goods to be of satisfactory quality, this means the goods

have to be of merchantable quality as explained in the case of Doola Singh & Sons

Vs the Uganda Foundry & Machinery works 62, it stated that merchantability

means that the article is of such quality and in such condition that a reasonable man

acting reasonably would after full examination accept the article in performance of

his offer to buy that article. This works in a way that the hirer makes known to the

owner the particular purpose for which he requires the goods.

c) Section 8(1)(e) provides for a condition that the hirer shall not take the goods out of Uganda

without the consent of the owner. It does not matter whether the clause was included in the

agreement or not, the law is clear that the goods should not be taken outside Uganda; hence

protection of the owner's goods from disappearance and destruction.

The legal implication of a condition is that, upon breach, it gives rise to an aggrieved party a

right to repudiate a contract and maintain an action for damages for the loss suffered due to

nonperformance of the other party's obligation.

Implied warranties

a) S.8 (I)( c)- provides that, the hirer shall have and enjoy quiet possession of goods as long

as there is no default, its only when the hirer defaults that the owner come into the

premises of the hirer to interfere with the quite possession of the goods otherwise

the owner has no right to interfere with the possession and breach of such a warranty

will entitle a party to damages, only once a hirer spends money on a good he hired

or which his possession is disturbed, he may recover those expenses as a result of

that breach.

d) S. 8 (1) (d) - provides that, the goods will be free from any charge or encumbrance In

favourof 3'd party at the time when the property is to pass. This encumbrance must not

be known to the hirer before or at the time of making the contract. If the hirer discovers

61(1945)12 EACA33

22

after wards that the goods are subject to any charge which he has to discharge there

would be breach of an implied warranty and the hirer will be entitled to damages as

well as return of the goods back to the owner.

The legal implication of a warranty is that, upon breach, it gives the aggrieved party a

right to sue for damages only and not to repudiate the contract.

2.5 Hire Purchase Distinguished From other Contracts

The contract of hire purchase has now been regulated by statutes and many such agreements are

governed by the provisions of the English hire purchase Act of !965. The Act does not cover all

hire purchase agreement and so it is still necessary to examine the common law definition of

what constitutes a high pmchase agreement patiicularly since this way assist in understanding

the distinction to be drawn between hire purchase and other agreements63

2.5.0 The Differences between the Hire Purchase Agreement and other Transactions

2.5. I. A Ct·edit Sale

A credit sale agreement may be defined as an unconditional contract for the sale of

goods under which the whole or part of the purchase price is payable by installments. It

arises when there is an agreement for the sale of goods on credit basis. In this case

goods become the property of the buyer with the payment of the first installment. In

case of failure to keep with installment the seller cannot repossess product but may sue

the buyer in court for unpaid amount, sellers may at time request for post -dated

cheques. In the case National Industrial credit Uganda Ltd Vs P.M Nsibinva6•. it was

held that the transaction in this case was a hire purchase agreement and not a credit

state agreement.

This system known as hire purchase also differs from a credit sale in a way that there is

no agreement to buy only an option is given to the hirer to buy, while under credit sale

there is an agreement to buy and no option to return the goods.

The person in a hire purchase (HP) agreement who has hired the goods will give regular

installments or rent to the owner of the goods which will include some portion of

63M.C.Kuchhal, 'Mercantile law', S'h Edition, Vikas Publishing House PVT Ltd, 1978, at page 236-237. 64(1974)HCB 133

23

principal amount and some portion of interest as a great by both the parties. The goods

pay the amount in periodical installments but in a credit sale, goods are either paid in

future or sometimes in installments.

In hire purchase agreement, the owner only transfers possession of goods to the hirer

immediately after the contract for hire purchase is made. Therefore the hirer has a right

to use the goods as a bailer in away he/she wants as long as there is no default.

Property in goods is passed to the hirer on the payment of the last installment and

exercising the option conferred upon him under the agreement. The owner continues to

be the owner of the goods till the payment of the last installment but in a credit sale

property passes on the payment of the first installment and the owner losses his rights

against the goods. This means that purchaser (buyer) can give a good title to a

subsequent purchaser even when he himself has not completed the purchase but for a

hire purchase a hirer cannot transfer the goods to a third party as he or she does not

have the ownership of the goods.

The hirer has a right to terminate the agreement at any time in the capacity of a hire

meaning that the hirer can return the goods to the buyer if he/she does not want to

continue with the agreements. This happens when the hirer cannot continue to pay for

the goods and where a default has not taken place yet, in a credit sale once one is in

ownership of the goods, he /she cannot return the goods back or terminate the contract.

The owner has a right to repossess goods in case of difficulties in obtaining the

payment of installments from the hirer without refunding him but in a credit sale. in

case there is a default with payment of installment, the seller cannot repossess the

goods but may sue the buyer in court for unpaid amount.

24

2.5.2. A Contract of Sale

A contract of sale has been defined under S.265, to mean a contract whereby the seller

transfers or agrees to transfer property in goods to the buyer for a money consideration

called the price. None the less, a sale has to be distinguished from hire purchase as their

legal incidents are quite different.

a) Under hire purchase agreement, the goods are delivered to the hire purchaser for

his use at the time of the agreement but the owner of the goods agrees to transfer

the property in the goods to the hirer only when a certain fixed number of

installments of price are paid by the hirer. Till that time the hirer remains the

bailee and installments paid by him are regarded as hire charges for the use of

the goods. If there is default by the hirer in paying an installment, the owner has

a right to resume the possession of the goods immediately w ithout refunding the

amount received till then, because the ownership still rests with him.

b) In sale, property in the goods is transferred to the buyer immed iate ly at the time

of the contract while in a hire purchase transaction, the property in goods passes

to the hirer upon payment of the last installment. In this circumstance, time is an

essential factor, because, for a sale ownership passes immediately to the buyer

but for hire purchase ownership may only pass upon completion of the sum due.

it does not matter who has the hired product.

c) In a sale, position of the buyer is the owner of goods while in hire purchase

position of hirer is that of a bailee. A buyer in a sale owns the goods there and

then since payment is completed at the transaction place and no one can claim

not even the seller but for the hirer he/she holds goods fo r the owner until

payment was done fully, then property and interest passes to the hirer.

d) In case of a sale , the buyer cannot terminate the contract and is bound to pay the

price of goods while in hire purchase, the hirer may if he so likes, terminate the

65 Sale of goods Act Cap 82, Laws of Uganda

25

contract by returning the goods to its owner without any liability to pay the . . . II 66 remammg msta ments .

e) In the case of a sale, the seller takes the risk of any loss resulting from the

insolvency of the buyer while in hire purchase; the owner takes no such risk for

if the hirer fails to pay an installment the owner has the right to take back the

goods. This is so, because in a hire purchase agreement both hirers and owners

are protected, as long as there is a default the owner can repossess without any

risk unlike in a sales where a seller suffers the risk.

f) In case of a sale, the buyer can pass a good title to a bonafide party from him but

in hire purchase, the hirer cannot pass any title even to a bonafide purchaser. It's

a general rule that no one can pass a better title than what he/she has, so if a

person does not own "a thing", then he/she cannot pass anything. But there are

exceptions and there are; a sale a market overt and with the consent of the owner

of the goods.

g) ln a sale, sales tax is levied at the time of the contract whereas in a hire purchase,

sales tax is not leviable until it eventually ripens into a sa!e67 This is

advantageous to hirers in a way that, a hirer will enjoy the possession of goods

without paying any tax, unlike in the sales where a buyer will have to pay tax the

moment he/she has completed the sale.

2.5.3 A bill of sale

A bill of sale is simply an instrument which transfers personal chattels by assignment from one

person to another. It is also a document empowering one person to take possession of another"s

personal chattels as security for a debt requires registration as a bill of sale and void against

certain persons and in certain circumstances unless registered with appropriate authority''8

Its peculiarity lies in the fact that it is used where possession of the chattels is not given to the

transferee. Bills of sale is regulated under bills of sale Acts 1872 as amended in 1882, which lays

"' 5.9 HPA 2009 61 M.C. Kuchhal, Mercantile law, s'h Edition, Vikas publishing House PVT Ltd, 1978, at page 236-237 68 Anne Dixon, an introduction to mercantile and commercial law, Heinemann Ltd, London 1969, at page 218, para 9·4

26

down cetiain formalities. It follows that a sale does not have to be in writing. nothing prevents a

buyer from buying goods under oral contract and allowing seller to remain in possession69

Hire purchase transactions are often attacked on the ground that they are really bills of sale and

should conform to the statutory requirements70. In deciding whether the hire purchase agreement

is really a concealed bill of sale, regard is hard to the fact whether or not there is a real sale and

purchase complete before the hire purchase agreement and then a hiring back. if there is, the hire

purchase agreement falls outside the bills of sale Acts, but ifthere is not it is caught by them.

2.5.4 A Lay-by Sale

Under Lay-by sale, the buyer contracts to purchase goods and to pay for them by

installments, but possession remains with the seller until the total price is paid. The

disadvantage for the buyer is that, he does not obtain possession until the full price is

paid. Lay-by may, however offer him the advantage that he is not normally called upon

to pay interest on the price. Like any other non-cash purchase. the buyer also has the

advantage of securing goods which might be sold to someone else if he had to wait until

he had the necessary cash.

2.5.5 Installment purchase/ time payment

Under an installment purchase, goods are sold out right, the pnce being payable by

installments. Ownership will normally pass to the buyer. Immediately as will

possession. Time payment has the advantage that he obtains possession immediately (as

under hire purchase) yet he has agreed to pay a certain price by installments and pay

that price.

The seller is not secured under time payment contracts in terms of possession and

ownership and, he has only a personal right against the buyer to sue for each

installments of the price as it falls due.

69 P.S. Atiyah, the sale of goods 10'h Edition, Pearson, 2001 at page 47. 10 ibid

27

Rights and Duties to Parties in Hire Purchase Agreement

Where there is a right there has to be a duty. In certain circumstances a duty of a hirer

is a right to the owner and a duty of the owner is the right to the hirer.

Duties of the Owner

a) A duty to execute the hire purchase agreement into writing71. It is very important

to have any agreement in writing, this helps the innocent party to claim for

damages or return of the goods. Further, the owner has to make a full disclosure

of all information relevant to the proposed agreement. It helps the parties to

know exactly what kind of agreement they have entered into.

b) A duty of the owner is to sell the goods at the time the property is to pass, goods

have to be of satisfactory quality, owner not to disturb the quite enjoyment and

possession of the goods by the hirer72 while the hirer has a duty to take good care

of goods. Once a duty is breached, then the guilty party will suffer the

consequences.

c) A duty of the owner that goods must be free from encumbrances 73. In most cases

owners of goods tend to hire goods which already have been sold or hired to

another party, this disturbs the hirer who is supposed to enjoy quit possession

without any encumbrance.

Duties of the Hirer

a) Duty to pay installments 7\ once the hirer takes delivery of goods, he must pay

the installments before they fall due. If the agreement is terminated before option

to purchase is exercised, all installments due up to the date of determination

must be paid75. In John Nsanga Vs Hajji Juma Kayongo (1979) HCB 138, it

was held interaJia that a hirer in a hire purchase agreement is under a duty to pay

11 S.4(1) HPA 2009

72 S.8(1) (a-c)

13 S.8(1)(d)

1~ S.4(4) HPA 2009 1~ S.5(3) (c) (ii), (f)

28

the sum stipulated at the times and in the manner laid down, the breach of which

entitles owner to repossess.

b) A hirer has a duty not to take the goods out of Uganda without the consent of the

owner76. Goods have to be kept within the jurisdiction of the owner, in case a

hirer wants to move outside the jurisdiction of the owner, he/she should inform

the owner of his departure, failure to do so is a breach of agreement hence a

penalty to the hirer is a fine not exceeding one hundred currency points or

imprisonment not exceeding one year or both (S. 35 of HPA 2009).

Rights of a Hirer

a) A hirer has a right to terminate the agreement at any time before the final

payment, it's the duty of the hirer also to notify the owner of the termination of

the agreement by giving the owner a written notice of termination of the

agreement 77 and it is the owner's right to be notified.

b) A hirer has a right to inspect the goods before purchase, regularly and at a

reasonable time, where the hirer does not take possession of the goods at the

execution of the agreement. This gives the hirer an opportunity to know the state

or condition of the goods he/she is hiring and whether the goods are the exact

ones he/she requested to avoid returning of unwanted goods 78.

c) A hirer has a right to quiet enjoyment of the goods free from any interruption by

an owner. This works hand in hand with the feature of hire purchase of

possession, that once the hirer is in possession, the goods become his/hers and

the owner cannot interfere merely because he still owns the goods 79

d) A hirer has a right to complete the purchase of goods before a specified period.

In a hire purchase agreement the hirer is given an option to purchase, this gives

him/her an opportunity to complete that is if he/she has chosen to exercise his

"5.8 (1) (e) II 5. 9 (1) 78

Reg 16 (b), Hire Purchase Regulation No. 6, 2012 19Reg 16 (c)

29

option, the owner cannot stop the hirer from doing so therefore it is a duty of the

owner to see that the hirer has completed the purchase80

e) The hirer also has a right to lodge in a caveat which happens in circumstances

where the owner intends to hire the goods to another person, therefore in hire,

goods cannot be hired to a third party until title has passed upon completion of

payment. This caveat is to stop the owner or any other party from claiming or

taking away the hired goods from the hirer unless permission has been granted

by the hirer81•

f) The hirer has a right to insure goods, it's believed that an owner of goods is

supposed to insure his/her goods but then again a hirer takes and is presumed to

be the owner at that time, hence he/she is to take good care of the goods which

include insuring from dangers like fire, thieves and others. this protects the hirer

from paying damages double or heavy losses since the insurance company will

have covered the costs. Further the owner of the goods will have not lost his/her

property merely because it was destroyed or lost82

Rights of the Owner

a) An owner has a right to take possession of the goods in case of a default in

making payment to the owner by the hirer. The Act (HPA) protects the owner in

a way that a hirer will have a duty not to default by paying all installments and

keeping the goods in a good condition, therefore failure to do so leads to

repossession by the owner either forcefully or by suit83

b) An owner has a right to be paid a hire purchase price which is the duty of hirer

and the owner also has a duty to inform the hirer of the intention to enter and

inspect the goods from the place where they are kept. In any transaction the

80Reg 16 (d)

81Reg 16 (e)

"'Reg 18 (1) 83

Reg 17 (a)

30

consideration has to be money, failure to pay such amount m the agreement

amounts to breach of the agreement84.

There are very many rights and duties of both the hirer and the owner which cannot be

laid down all in this research paper since the research is not all about rights and duties.

Other rights and duties fall under sections 5, 7, 8, 9, I 0 and I 2 of the Act85

The Minimum Payment Clause

It is a clause in the Act which provides that, for the hirer to return the goods to the owner he/she

must have paid two thirds of the hire purchase price. Otherwise the property still remains with

the owner. in Visit African Ltd V Management Committee Shimon Demonstration School

Civil suit No. 483/2005 (2013) UGCOMM 120 says that, the clause provides that the

equipment remains the property of the plaintiff until full payment and the transfer takes place

upon payment of the sell price of9.5% of the contract amount.

The minimum payment clause is provided for under section 9 (2) IIPA 2009 and reads as

follows:-

That the hirer may at any time before the final payment under a hire purchase agreement falls

due, terminate the agreement by returning the goods to the owner and giving the owner written

notice of termination of agreement.

Where the hirer gives notice under subsection (I) the hirer is liable, without prejudice

to any liability which accrues before the termination to pay

a) The amount if any, by which two thirds of the hire purchase price exceeds the

total of the sums paid and the sums due in respect of the hire purchase price

immediately before the termination or

b) Such lesser amount as may be specified in the agreement36

The value of goods let on hire purchase may fall during the course of hiring yet the

owner wishes to pass the risks or depreciation on the hirer. Due to this and many hire

"'Reg 17 (b) 8

' HPA 2009 86

5.9(2) HPA 2009

31

purchase agreements, owners have sought to avoid the general principle by inserting " a

minimum payment clause" which provides that should the hiring be terminated, whether

by the owner or the hirer, the hirer has got to pay at least two thirds of the total hiring

cost87.

The rationale behind inserting this clause was given in the case of Visit African Ltd V

Management Committee Shimon Demonstration School Civil suit No. 483/2005 (2013)

UGCOMM 120 which says that owners by such a clause are seeking an early termination of the

hiring to recover damages for loss of the future rentals, when they have not lost any since they

have no right to future rentals after termination but they are entitled to unpaid installments and

other moneys. Owners could not terminate hire purchase agreement or contract, except if hirer

did not fulfill payment obligation.

The issue is whether it is lawful after repossession keep on charging future rent. In

Otaok Charles Vs Equity (U) Ltd88 it was held that the lessor was not entitled to

recover future rentals on the lease and the court interpreted the clause permi tting

termination with or without notice. The reason is that the landlord can recover damages

for any breach up to the date of termination and there could be no further breaches after

re-entry or agreement89.

However the clause is considered by many cases to be a penalty as it was in the

Nyangira 2 ORS Vs DFCU Leasing Co. Ltd90 it was held that demand for future

rentals was a penalty. Owners have imposed larger sums of money on hirers making the

agreement to be unenforceable. In the case of Visit African Ltd V Management

Committee Shimon Demonstration School Civil suit No. 483/2005 (2013) UGCOMM 120 it

was held that a payment of a penalty of 250000 per week and interest at 120% was

unenforceable. Upon determination of the hire purchase agreement, any provision subjecting the

customer to additional liability would be void. The hirer is liable for any purchase price and

81 S. 9 (1) (a) 88

HCT-00-CC-CS-0335-2010 89

Financing Ltd VsBaldock (1963) 1 ALLER 445 90

Civil Suit No. 106 150 788/2008/2013 ug com 89

32

smns due immediately before determination91. But then again some cases like Delux

Entet·prises Vs Uganda Leasing Co. Ltd have argued that future rentals are not a penalty.

Therefore. if hirers are to pay two thirds of the installments, owners are obliged to

mitigate their losses by immediately taking possession of the equipment upon default,

waiting for accumulation of arrears infinite is not only unconscionable but goes against

the principle in Financings Vs Baldwin, hence unenforceable, in Uganda it is deemed

to be harsh under S. 26(1) C.P.A.

Passing of property

The hire purchase regulation No. 6, 2012provides for passing the property "that an

owner shall immediately transfer the ownership of the hired good to the hirer where the

hirer was completed payment of the hire purchase price and upon failure by the owner

to transfer the ownership the hirer shall make a written complaint to the court"n

8.34 (2) provides for transfer of interest (legal interest) in hired goods. meaning that the

owner shall transfer his/her within a reasonable time upon completion of payment of the

hire purchase price by the hirer hence, title passes upon completion.

S.IO (I) -provides that, the hirer under a hire purchase agreement may give notice 111

writing in the owner of his/her intention to complete the purchase of the goods by

paying or tendering to the owner on a specified day, the net balance due to the owner

under the agreement, and having given notice, may complete the purchase accordingly

on the day specified. yet under Nemo dat principle the hire cannot pass a legal title to

3rd party as a general rule because he/she does not possess one but there are exceptions

to that, this include with consent of owner under S.34 (I) and market overt which refers

to a market recognized for the buying and selling of a particular products,S.22 of English

Sale of Goods Act of 1893, provides that sale to a bonafide purchaser in market ove11

according to usage of the market passes a good title even if the seller had no title. The main

objective HPA is to ensme that no prope11y passes to persons who purport to buy the goods from

the hirer.

91 HPA of England 1938 & 1954

97Reg 19 (1) (2)

33

Repossession

It is the right of the owner to recover possession of the goods from the hirer upon

certain circumstances of default by the hirer. Under common law, upon default of

payment of the hire purchase price by the hirer no matter how much he/she has paid the

owner has a right to repossess the goods. Repossession takes two forms:-

Repossession without use of force: Every hire purchase agreement gives the owner a

right to repossess in certain events (upon default). The events vary from one agreement

to another. In the above case, the owner cannot repossess the goods from a hirer where

the hirer has paid at least two thirds which is up to completion, if he wants to exercise

such a right it will be by suit and not by force. According to S.l5 (1) ; the owner shall

not enforce any right to recover possession of the goods from the hirer when goods have

been hired under the hire purchase agreement and 2/3 of the hire purchase price has

been paid either under the agreement or a judgment or otherwise or has been rendered

by or on behalf of the hirer or a guarantor other than by suit. Where the owner takes

goods in contravention of subsection (1 ), the agreement shall be terminated if not

previously terminated (S.l5(2)), the hirer relieved of liability and a guarantor is entitled

to recover from the owner by suit, all sums paid by him/her under the contract93.

Forceful repossession: this occurs when the hirer has not paid 2/3 of the hire purchase

price, the owner will have a right to repossess forcefully. And this circumstance he/she

shall not dispose off property within 28 working days (S.l0(4)). Where the hire r is still

interested in the goods after the owner forcefully repossessed the goods, the hirer has

the following rights under S. 10(3) (b) for reasonable costs incurred by the owner, any

amount properly expended by the owner on the storage, repair or maintenance of the

goods , and any additional interest which is due under the agreement94.

Under S. 25, where the owner enforces a right to recover possess ion of the goods from

the hirer otherwise by suit, he/she shall sell the goods at the best price reasonably

obtainable as soon as is reasonably practicable (expiration of 28 working days). He/she

(owner) shall account for and pay to the hirer that part of the proceeds of sale which

93 S. 15 (2) (a) 94 S. 10 (3) (b)

34

exceeds the sum of the unpaid balance of the hire purchase price and the expenses

necessarily incurred by the owner in recovering possession of and selling the goods95

Termination.

Termination is coming to an end of an agreement, once an agreement is terminated, then

there is no more agreement or contract, parties are left with the option of renewing the

agreement if they still want to continue. The HPA provides for various ways in which

hire purchase agreement can come to an end, its either by the owner or the hirer,

therefore communication should be passed to other party of the intention to terminate.

Completion/option to pm·chase: S. I 0 HPA, "the hirer may give written notice of

intention to complete the purchase of the goods by paying or tendering to the owner on

a specified day the net balance due and having given such a notice complete payment

accordingly on that day. This right may be exercised at any price during continuance of

the agreement or with agreed time (days) after the owner repossessed the goods by

paying or tendering to the owner the balance due and any additional expenses the owner

may have incurred such as costs of repossession, storage, repair or maintenance and any

additional interest due under the agreement.

Return of Goods: once the hirer returns the goods to the owner, the contract of hire

terminates, S.9(1) HPA 2009 states that the hirer may at any time before the final

payment under hire purchase agreement falls due, terminate the agreement by returning

goods to the owner and giving a written notice.

Breach of a condition: Section S.8(1)(e) HPA 2009 provides for that a breach of

condition by hirer who takes goods out of Uganda without consent of the owner will

terminate the hire purchase Agreement. This happens as a result that a person leaves the

country and does not come back with the hired goods.

Repossession: a repossession by the owner provided for under section 15(2)IIPA 2009.

where an owner retakes possession of goods in contravention of sub-section ( 1 ), the hire

purchase agreement if not previously terminated shall be terminated. An owner of goods

"5. 25 HPA 2009

35

has a right to do what he/she wants with his goods since he/she is the rightful owner

therefore the Act gives him/her a right to repossess upon default by hirer.

Court orders: section 16 HP A 2009 provides for termination under court orders this

gives court power to make an order for the delivery of all goods to the owner. This

comes as a result of the owner instituting a suit, and the court decides that the hirer

should deliver the goods back to the owner, automatically the agreement is terminated.

Remedies

There are many ways in which the owner may be able to claim for remedies, some are

provided for in the Act and others in the agreement itself, where parties are expected to

fulfill an obligation in the agreement but one of them ends up breaching the agreement.

Remedies are both for the hirer and the owner. For the hirer, it is provided that, "'where

the owner retakes possession of goods in contravention of subsection (I), that is where

two thirds have been paid, then hirer is released from all liability and is entitled to

recover from owner all sums paid by hirer96. A guarantor is also entitled to recover from

the owner97 Therefore a hirer can recover damages from the owner by suing on the

basis of a non delivery, it is probable that a hirer is to take possession of the goods from

the owner's premises.

For the owner, he/she has a right to repossess as long as two thirds have not been paid

by the hirer98, the owner will be liable, the owner also is entitled to damages where the

hirer returns damaged goods99, this is because the hirer is supposed to take good care of

the goods as if it was his own.

S. 16 100 provides for delivery of goods to the owner upon institution of a suit by the

hirer on court order. This remedy is available to the owner after the owner has taken the

matter to court and court decides that the hirer will deliver the goods back to the owner.

96 5.15 (2) (a) 97 5.15 (2) (b) 98

5. 9 (2) 99 5.9 (3) 100

HPA 2009

36

Section 35 HPA 2009 provides for a penalty of taking goods out of Uganda by hirer

without owner's consent to be a conviction to a fine not exceeding one hundred

currency points or imprisonment not exceeding I year or both. The hirer is the one who

always is likely to take goods outside the country since he/she is in possession; a

penalty has been laid down for him/her by the Act. This is as a result of instituting a

suit by owner. On hearing the suit, court may, without prejudice to any other power

make an order for delivery of all the goods to the owner or payment of unpaid

balance 101•

2.6 Conclusion

As we have seen, the legal form of a hire purchase agreement is of a hiring, or bailment

of goods by the owner to the hirer with hirer being granted an option to purchase at the

end of hire period. However, in reality, this arrangement is fictional certainly because

the hirer is bound to exercise the option and complete the purchase of the goods. but the

payments required of the hirer are normally greatly in excess of the sums which would

be required under an ordinary hire or rental agreement.

The truth is that the objective of owner is the supply of goods on credit terms to the

hirer. Since the goods do not become the hirer's property until the entire installment, are

paid. if the hirer defaults the seller can repossess the goods (although the right to

reposes may be restricted by statute) 102.

101 S. 16(4) HPA 2009

101 Robert Bradgate Commercial law 2"d Edition, at pg 182

37

CHAPTER THREE

3.0 A comparative Analysis of the Law Regulating Hire Purchase Agt·eement in Uganda

and Kenya

3.1 Intt·oduction

Hire purchase is governed by the provisions of the law which covers the common day finance

agreement like purchase of consumer durables, motor vehicles, computers. household appliance

like televisions, refrigerators and others 103. Uganda and Kenya have laws governing hire

purchase. Therefore the issue must be looked at in the concept in which the law of a particular

country was enacted.

3.2 The legal framework of the hire pm·chase agt·eements in Uganda.

Prior to the inception of the HPA 104, common law and doctrines of equity were applicable in

Uganda105 Therefore being under the common law system, Uganda borrowed most of its laws

from England and it is very clear that these laws are still applicable as long as they are not in

contravention or inconsistent with the domestic laws. In Nyangire Kanimu& 2 ors Vs DFCU

Leasing Co106, it was stated that consequently legal doctrine based on the hire purchase Act of

England I 938 is in applicable. This follows therefore that common law and doctrines of equity

will be applicable in line with the home made laws for example the Constitution of the Republic

of Uganda I 995 107.

The law regulating hire purchase in Uganda is the hire purchase Act 2009 which came into force

on 12'11 June 2009 aimed at regulation and registration of hire purchase agreements and the

licensing of person's carrying on hire purchase business and for related purposes.

103 2009, Jaws of Uganda

104 Judicature Act Cap 13, Jaws of Uganda

1" Uganda Law Reform Commission, Chattel relation body AS 2000khttp://.ULRC.go.ug/ .. 147>at pag 3 accessed on

12/1/2016 105 Jbid

38

Hire purchase system was and is important in Uganda in a way that it allowed the owner of

goods to protect himself against loss of his/her good through a wrongfi.I! sale by the hirer to an

innocent third party and also allow credit to people who are unable to pay cash for goods they

want by paying deposits and pay balance in installments hence encouraging those with low

income to economically sustain themselves leading to economic development108

The government of Uganda has implemented policies and programmes targeting private sector

developing, competitiveness and investment109• The report shows that the government has taken

initiatives to improve business environment enforcing contracts and resolving insolvency and the

nature of hire purchase agreement.

3.3 The legal f1·ame work of hiJ·e purchase agreements in Kenya.

Before the passing of the Kenyan hire purchase Act in 1968, the prevailing law was the English

common law vide the Indian law of contract, the Kenyan Act commenced operation on 2nd

November 1970 which is said to have gone through several amendments and 2010 being the

current one; the Act aims at regulating certain hire purchase agreements, licensing of hire

purchase agreements and for purposes connected there with 110

Hire purchase transaction in Kenya is governed by the hire purchase Act 1 1 1• As far as formalities

are concerned, S.3 stipulates that the Act applies to all hire purchase agreements for goods

whose hire purchase price does not exceed the sum of 800,000/=. This is via an amendment to

the Act which was made in 1991 and at the time of the enactment the financial ceiling was only

80,000/= 1 12• The Act is said to apply to bodies corporate who are hirers and also the established

the element of registration which is very vital in every business or transaction to simplify

enforceability of the Iaw1 13• In Kenya, availability of hire purchase facilities and other forms of

hirer purchase is changing purchase and individual's behavior, as individuals' purchase and

consumption of goods and services are no longer constrained, at least in the short run by current

108 Uganda Law Reform Commission, Chattel relation body A52000khtpp://ULRC.go.ug/ ... 147>at page 3 Accessed

on 12/1/2016 109 Ibid 110 Hire purchase-Sharia hub ... <htpp://www.shariahub.com/download-attachment/4721>accesson 14/1/2016 111 Cap 507 laws of Kenya 112 Sharia hub.com/download-attachment/472 113 HPA of 1970 Laws of Kenya

39

income, individuals may also indulge themselves by buying what they ordinary could not

afford 114•

3.4 Similarities

Uganda and Kenya are neighboring each other and therefore ideas are borrowed from each other

in different aspects of life. The Kenyan Act Hire Purchase Act (K.H.P.A) is no difference from

the Ugandan Hire Purchase Act (U.H.P.A) giving the researcher a reason to point out a few

similar clauses, however much clauses in both Acts seem to be similar to each other.

a) Adoption; Both Acts came as a result of the English (common) law system. It does not

matter when each came into force but what matters is where they came from looking at

the historical background, Kenya and Uganda fall under the common wealth countries

and there is no doubt that the laws are borrowed from the United Kingdom. That is why

the Judicature Act Cap 13 115allows the applicability of common law and doctrines of

equity as long as they do not contravene the home made laws.

b) Objective; When a law comes into force, there has to be a reason why it came. Looking

at the objectives, both Acts aimed at regulating certain hire purchase agreements and

addressing hire purchase concerns and to purposes connected there with116 The Acts

aimed at promoting business and protecting those dealing in hire purchase business, they

include hirers and owners. Basing on the Ugandan Act, it states that "the Act provides for

the regulation and registration of hire purchase agreement and the licensing of persons

carrying on hire purchase business and for related purposes", makes no difference with

the K.H.P.A.

c) Requirements; Always in any transaction or contract there are certain requirements that

are to be fulfilled, so is a hire purchase agreement. The two Acts provide for the

requirements that are to be fulfilled in relation to a hire purchase agreement. S.5 U.H.P.A

and S.6 K.H.P.A provide that a hire purchase agreement has to be in writing. in the

prescribed form, to the prospective hirer, the cash price of the goods. inspection of goods

114Aryeete, the hire purchase business, it is a win-win situation -<htpp://www./jhsinet.com>1997, accessed on

14/1/2016 115 5.14 laws of Uganda 116 Kenyan Hire Purchas Act Cap 570 as amended

40

by hirer, state cash price, first installment, late payment charges. S.4 U.H.P.A also

provides that a hirer purchase agreement shall be executed in writing by the owner and

hirer. This gives a uniform way in which an agreement is to executed, without this

provision hirers and owners can decide to do what both want bringing in disorganizations

and confusions hence making the transaction unenforceable.

d) Conditions and warranties; S.8 of both Acts provides for conditions and warranties for

example U.H.P.A 117 provides that "in every hire purchase agreement. there shall be

implied a condition that the owner will have a right to sell the goods at the time when the

property is to pass, a condition that goods will be of satisfactory quality, a warranty that

the hirer shall have and enjoy quite possession, a warranty that goods will be free from

any charge or encumbrance, among them is a condition of not taking goods outside

Uganda, this is also applicable in Kenya118. There are terms in a contract that parties are

obligated to indicate, these are conditions and warranties which upon breach the

agreement is terminated.

e) Completion; The question is when is a hire purchase agreement said to have been

complete? S. I 0 of U.H.P.A and S. 13 K.H.P.A provides that "the hirer under a hire

purchase agreement may give notice in writing to the owner of his or her intention to

complete the purchase of the goods by paying or tendering to the owner on a specified

day. the net balance due to the owner under the agreement, and having given the notice.

may complete the purchase accordingly on the day specified". Therefore hire purchase

agreement is completed on the payment of the last installment hence transfer of property

is done in favour of the hirer who becomes the new owner.

It's hard in many circumstances to know whether a hirer wants to complete the

agreement, therefore the Acts come in to clarify that a hirer should do so in writing that is

when the agreement is said to come into an end. This prevents the owner from denying

the hirer a right to take possession of goods if he has exercised an option to purchase.

f) Repossession; Although common law gives the owner a right to repossess, upon default

both Act provide for this right not to be forcefully but by suit where payment of two

117 5. 8 of 2009

118 5.10 K.H.P.A Cap 507

41

thirds of hire purchase price has been made. S. 15 (1) ofU.H.P.A 119 provides that where

goods have been hired under a hire purchase agreement and two thirds of the hire

purchase price has been paid, the owner shall not enforce any right to recover possession

of the goods from the hirer otherwise than by suit". The Acts protect both parties in a

way that, the owner will have a right for his property but also cannot just take away or

repossess his property if he or she has not instituted a suit, the same applies to the hi rer

who hires property which cannot be taken away unless by suit and if has paid two thirds

which is to the completion of the agreement. With payment of two thirds, a person is

believed to have shown interest in completion which if given time he/she is likely to

complete but upon failure an owner has a right to institute a suit to recover.

g) Termination; Both Acts provide for termination of the agreement and S. 9 (1) UHPA120

provides that, "a hirer may at any time before the final payment under a hire purchase

agreement falls due, terminate the agreement by returning the goods to the owner and

giving the owner a written notice of termination of the agreement". There are many

reasons why a hire purchase agreement can come to an end includingS.9 (1) UHPA,

therefore, the law governing hire purchase will not leave one to continue with the

agreement even in circumstances where one is no longer interested. The law protects the

hirer who cannot continue to pay for the goods he/she has hired hence prevention of

unnecessary debts.

h) Licensing; For any business to operate, there an acknowledgement of a license

permitting the operation of a particular business. S. 18 of both Acts provide that "a

person shall not, after the coming into force of this Act, carry on a hire purchase business,

except under and in accordance with the terms of a license issued under this Act 121. This

helps the business people especially hirers to know the genuineness and authenticity of a

particular kind of business, therefore it will be easy for a particular person to know how a

company operates, preventing criminal cases like fraud. Before coming into fo rce of

these Acts businesses could operate without licenses given opportunity to those who

could not operate such businesses.

119 5. 15 KPHA Cap 507

120 5. 12 KHPA 171

5. 18 UHPA 2009

42

3.5 Difference between Uganda hire purchase Act and Kenya hh-e purchase Act

Despite the fact that laws are similar in nature, and borrowed from each other, still it will depend

on the intention of the law makers, this calls for the reason why the laws still have slight

differences and gaps in the clauses contained in them. Between the Uganda Hire Purchase Act

(U.H.P.A) of 2009 and the Kenyan Hire Purchase Act (K.H.P.A) Cap 507, there is still unclarity

in the clauses of the Ugandan Act as compared to that of Kenya. The researcher tried to point out

some clauses which make a difference in the two Acts basing on the Article written by

Abdulkareem122

a) Commencement; The Acts came into force in different eras, the K.H.P.A 123 came into

force on the 2"d November 1970 and it also went through several amendments with 20 I 0

being the recent one later than the Ugandan Act, with this kind of arrangement, the

K.H.P.A has been able to rectify many of the loopholes it left behind unlike Uganda

whose Act124 came into force on 12'11 June 2009 which is recent compared to the

K.H .P .A, but the U .H .P .A has not gone through any kind of amendment leaving certain

clauses unclear to understand. The researcher believes that if the Ugandan legislators

borrowed some ideas from the K.H.P.A, the U.H.P.A would not have such defects, hence

it would become good law. Time in this instance is a major factor, old laws have room to

amend wrongs that need to be right and yet new do not have this kind of time.

b) Short Title; There are certain requirements a law needs to have like a short title. The

provision of a short title to show that indeed it is a hire Purchase Act but the UHP A does

not have this provision, may the legislators thought the cover title is enough for anyone

who is interested in reading the U.H.P.A. fmiher there are certain definitions of words

given in the KHP A like Purchase Act, hire business and hire purchase agreement, hire

purchase business and hire purchase price are more complex in nature that it gives a very

clear definition of a word. As compared to the U.H.P.A, the definitions are limited and

does not bring out the essential elements in the definition except a few.

"'Abdulkareem (Ibid) "'Cap 507 laws of Kenya as amended '" HPA 2009

43

c) Minimum threshold; S. 3 (!) KHPA provides for a minimum value for all hire purchase

agreement which is 4 million Kenyan shillings (about 1 I 7 million Ugandan shillings), it

states that "this Act applies to and in respect of all hire purchase agreements entered into

after the commencement of this Act under which the hire purchase prices does not exceed

the sum of four million shillings or such other higher or lower sum as the minister may,

after taking into account market forces from time to time". This is not provided for in the

U.H.P.A, the rationale behind this is that prospective hirers and owners are not left to

decide on their own of what amount to be considered protecting the hirer who will suffer

the consequence hence avoiding uncertainty in the price to be paid of the goods.

Abdulkareem125 commented that the setting of a threshold in the K.H.P.A is a way of

setting a standard in the commercial industry so that both the prospective hirer and the

owner will understand the minimum value of the goods which in law qualifies as hire

purchase good; therefore such a clause will improve the standard of hire purchase

transaction and at the same time set a benchmark on items that qualify in law as hire

purchase good.

d) Second hand goods; KHPA gives a provision for second hand goods which states that.

"except where the goods are second hand goods and the agreement contains a statement

to that effect, a condition is that the goods will of merchantable quality" 126 This happens

so because in Uganda most business people deal with second hand goods compared to

new ones which are expensive. The Act provided for this so that majority who deal with

second hand goods are protected and given an opportunity to enforce their rights. This

has promoted the Kenyan business industry including the Hire Purchase Sector. As for

the UHPA nothing of this kind has been provided for. In case there is a breach the party

who suffers can easily maintain an action in court.

e) Registration of Hire Purchase Agreement; S. 4 of KHPA provides for establishment of

registry, meaning there shall be a registry of a hire purchase agreements appointed by a

minister, and also a public officer to be a deputy Registrar. S. 5 of KHPA provides that

the agreement has to be registered and done within 30 days 127 after execution. This

125Abdulkareem (ibid) 126 5. 8(1)(d) KHPA 117 s. 5(1)

44

requirement is very impmiant, in many or all businesses especially those dealing with

large sums of money to avoid fi·aud and it is easier for clients to claim for their money

f) The premises where the goods are kept, the land lord shall not have a right of distress

over the goods for rent". In this circumstance, the clause protects the owner's right and

further back. Non registration of the agreement is a bar to any right of action in the event

of dispute between the parties to the agreement128. The essence is to be able to keep tab

and monitor all hire purchase transactions in Kenya on one hand and for the parties to be

able to access court in case of dispute129. The U.H.P.A does not completely have this

requirement which needs to be revised and be amended.

g) Taking goods in lieu of rent; The Act states that "if the owner of goods under a hire

purchase agreement has given written notice of his ownership thereof to the landlord of

the hired goods cmmot become subject to distress since the hirer will be left to suffer the

consequences. According to Abdulkm·eem 130, the logic here cannot take the hired goods

in lieu of payment of rent and also the interest of the owner is protected. He further gives

a scenario in contemplation where the hirer lives in a rented apartment with the hired

goods and he is in default of rent due to his land lord, the land lord may take the hired in

lieu of his rent which will certainly constitute a barrier to the hire purchase agreement

and a big owner's interest, the K.H.P.A has to put a clause which requires the owner in

writing to inform the hirer's land lord. The U.H.P.A lacks such a provision which would

be very necessary to be included in the Act

h) Removal of goods from premises; S. 9 (I) provides that where the hirer is changing

address or moving from his original address to another place, the owner should notify by

being given address of the new place as well as landlord at least ninety six hours before

such and violation of this section leads to punishment of two thousand shillings 131• This

provision makes it easier for the owner to know what is happening with his/her goods

hence protection of prope1iy, and one can easily be traced from wherever he/she relocated

too, while the U.H.P.A only provide for a hirer who takes goods outside Uganda S. 35

"'Abdulkareem (Ibid) 129 Ibid 130

Ibid 131

5. 9 (2) KHPA Cap 507

45

imposes a penalty of 100 cun·ency points (2 million Ugandan shillings) or imprisonment

not exceeding one year or both for one who violates this provisions, this according to

Abdul Kareem132 is said to be double punishment which is unfair in law. This is because

in law a person cannot be punished twice.

i) Passing of property in the goods; S. 10 of U.H.P.A provides that ·'a hirer may give

notice in writing of his intention to complete the purchase of goods ... ". yet S.34(2) of

U .H.P .A gives the owner a right to transfer his/her interest within reasonable time upon

completion of the payment of the hire purchase price by the hirer. This means that if the

hirer has shown interest and completed payment, automatically the owner has to transfer

his/her interest, it becomes confusing when the Act puts within a reasonable time.

reasonable time is a question of fact, Kareem133 said that U.H.P.A should have defined

what amounts to reasonable time. This is not the case with the K.I-LP.A which is very

direct that upon payment of the final installment, interest and property in goods

automatically passes.

j) Interest 1·ates; S. 6134provides "interest rates in relation to hire purchase of goods under a

hire purchase agreement shall be determined by the Central Bank of Uganda". The Act

gives the central bank authority other than the Act itself to determine or the parties

themselves, which is disturbing to the researcher. Unlike inS. 32A ofKHPA which gives

the minister in consultation with the Central Bank of Kenya to determine the rate. the

Kenyan Act is quite clear and systematic since the bank is not left alone to make such a

decision. In every business, the government is involved for example granting of a license,

it's the minister who does so, therefore, it will be prudent enough to pass through the

minister.

However, the K.H.P.A has proved to be exceptional as compared to the U.H.P.A but the

Ugandan Act has also included some clauses which include certain important definitions

like bailment, cash price, currency points, goods, guarantor and interest in the

"'S. 8 (1) (e) UHPA 2009 133 S. 8 (1) (e) UHPA 2009 13

' UHPA 2009

46

interpretation section 135 which are commonly used in hire purchase agreement and are not

included in the K.H.P.A.

Conclusion

Generally, looking at the laws, the provisions are similar and there is no need to compare but

then looking deep into the two Acts, the UHPA is much disorganized in its arrangements which

have called for concerns from various readers. In trying to compare the two Acts, the KHP A

came into existence before the UHP A and even went through several amendments. This has

made the legislators of KHP A more organized in their laws by making amendments where there

is need. Therefore the KHP A should have been a basis for the UHPA legislators who enacted

their Act later after the Kenyan Act. The UHPA has left out gaps which need to be revised and

amended hence calling upon the legislators to do so making the UHP A a good law just as the

KHP A promoting a good standard in the commercial sector of Uganda and Kenya at large.

1"' S. 3 UHPA 2009

47

CHAPTER FOUR

4.0 Introduction

The process of hire purchase financing has become an alternative option for consumers who

want to buy large and expensive items which otherwise would be difficult to afford. The

transactions allow the hirer to pay for items withont cashing in investments or savings. and to

spread the cost of expensive items over an extended period. In such transactions, ownership of

goods is transferred to a finance company at a discounted price, and the company hires out and

then sells those goods to the buyer136 Although the process has been beneficial to parties

interested in acquiring goods, many of the requirements of such agreements have proven

cumbersome as will be discussed later on 137•

4.1 Challenges Facing Hire Pm·chase Transaction in Uganda

Uganda like other society is in a constant state of change caused by political, social and

economic factors yet there has been a few changes in the law since the inception of the English

law in Uganda in 1902 138 In addition, there are emerging cultural patterns and gender relations.

new government policies such as decentralization, privatization, economic liberalization, poverty

eradication, private sector development and the plan for modernization of agriculture 139

Before 2009, the hire purchase Act was a bill in 2007 which had been welcomed to address the

regulatory vaccum of the poorly packaged, inappropriately priced and badly delivered hire

purchase products offered by Uganda's financial institutions. However in reviewing the bill, one

wonders whether there is a policy shift from financial liberalization to financial repressi01/10

Prior to the inception of HPA, (Hire Purchase Act), Uganda consumers had problems with hire

purchase transactions for instance, some owners exploited the ignorance of the hirers to enforce

oppressive terms of the agreements, other challenges include;

130 Dan Barong "problems with hire purchase transactions, February, 2009, <htpp://www.internationallawoffice.com/news>accessed on 16/01/2016 131 Ibid 138 Uganda law reform commission, 'chattel relation body', 2004 http:Uwww.ulrc.go.ug/../47 accessed on 14/1/2016 139 Ibid 140Arinaitwe Patson, 'leasing litigation in Uganda', 28 Sept 2009, patsonarinaitweblogspot.com/2009/accessed on 14/1/2016.

48

a) Finance Lease; It is a form of hire purchase whose provisions of statute have no legal force in

Uganda1'11

• With a finance lease, the lessee has the benefits and risks of economic ownership of

the asset for example risk of obsolescence, paying for maintenance, claiming capital

allowances/depreciation hence no specific legislation and regulars business and practice of

leasing 142 Certain provisions of the finance Acts, Income Tax Act, principles of the law of

contract and legal precedents are said to be applicable 143• Recovery of some items like vehicles,

tractors, combine harvesters, medical and hotel equipment has been a big problem 1'1'1. When there

is no provision regulating a form of transaction, business in that sector becomes complicated and

very challenging.

b) Thii·d Party; Normally most owners prefer to receive a cash payment immediately. To

achieve this, the owner transfer ownership of the goods to a finance company, usually at a

discounted price, and it is these company that hires and sells the goods to the hirer1'15 Crick 146

indicates that the introduction of a third party complicates the transaction which the owner makes

false claims as to the quality and reliability of the goods that the hirer is to "hire" therefore in a

conventional contract of a sale, the owner will be liable to the hirer if these representations prove

false.

c) Second Hand Cars; It has been stated that used or second hand cars have caused low

business in Uganda. Rita Kavashe 147, on a business summit in Munyonyo has blamed low

demand for new cars in Uganda on second hand flooding the market. This, she said makes it hard

for owners of new vehicles to pmchase their vehicles, tmlike in Tanzania and Kenya who are

based on new vehicles. Further, heavy taxes is being imposed on cars for example import duty,

registration, bad roads, stamp duty etc has made it hard for purchasers of new cars to purchase

141Arinaitwe Patson, 'leasing litigation in Uganda', 28 Sept 2009, patsonarinaitweblogspot.com/2009/ Accessed on 14/1/2016. 142 Uganda, 'fill the many gaps in the hire purchase bill, 2007, all africa.com/ .. /20080720363htm. Accessed on 14/1/2016 1113 Jbid 1114 Ibid 145 Crick F.W, the Hire purchase business, it is a win-win situation,1995,http://www.1hssnet.com Accessed on 14'h Jan.2016 145 Ibid 147 The Managing Director of General motors East Africa car (GMGA) 9/9/2015,<htpp://www.observer.ug/business/38business>accessed on 16/1/2016.

49

and sell them as well. However, people have argued that still with vehicle/property financing,

one is able through monthly installments payments to purchase or lease vehicles 1'18 Second hand

cars are cheap and affordable in a way that, an individual can decide to buy other than hire as

compared to new cars which are very expensive, given the fact that majority of Ugandans are

1 . 149 ow mcome earners .

d) Default; This is another big challenge, always when there is a default in a hire purchase

agreement; it results to the end of the agreement as well as the institution collapsing and also

failure in a hire purchase sector150• Most financial institutions have failed in Uganda leading to

their collapse due to failure of payment by clients who are supposed to pay at a given time 151.

e) Litigation; Hire purchase transactions which have been operated outside the scope of Uganda

have caused litigation process to become difficult especially in terms of geographical

jurisdiction, courts lack that power to enforce such cases, in West Minister Commenial

Trade1·s Cooperative Bank of Kenya Vs Mathew Ouma Oselw152, the respondent obtained six

motor vehicles, on a hire purchase agreement for the financier, the cooperative bank of Kenya.

Respondent defaulted in the remittance of hire purchase agreement applicant received

instructions from Cooperative Bank of Kenya to repossess the said vehicles from the respondent.

It was stated that the said vehicles have been moved outside Kenya and are now operating in

Uganda. In this case, Kenyan courts lacked jurisdiction however much, the act took place in

Kenya. the same can apply to Uganda which is a challenge.

f) Uganda's low capacity of transport services likes motor cycles are not regarded by banks as

suitable for hire purchase, this makes it hard for most Ugandans who are low income earners and

leaving in conditions of poverty to start this kind of business or even afford to buy such property.

Instead of hiring a motorcycle which is affordable and commonly used by many, an individual is

expected to buy making it a challenge for many who want to do the business of motor cycle

riding.

'"Ibid 149 1bid '"Aryeet, Et al1997, the Hire Purchase business -it's a win- win situation <http:/ /www:,jhssnet.com>accessd on 19/10/2015. "'Ibid "'Civil Appeal No. 24/2014

so

Other factors such as, lack of central registration of leases, general deficiency in knowledge on

financing leasing/hire purchases, repossession clue to lack of proper maintenance, no market for

equipment which are imported only for Jesse's or purchasers use, poor administration system and

many others have caused hire purchase business to deteriorate in U gancla.

4.2 Challenges Facing Hire Purchase Transaction in Kenya.

In Kenya, availability of hire purchase facilities is changing purchase as well as individual's

behavior as hirer's. Purchase and consumption of goods and services are no longer constrained.

at least in the sh01i run by current income, hirers may also indulge themselves by buying what

they ordinarily could not afforcl153• Kenya has also faced challenges not different from Uganda

when transacting hire purchase business and they include:-

(a)Weak hire purchase system is the primary cause of process failures. Einzig 154 carried out a

study of hire purchase institution that failed in the mid 1980s in the USA and found out that the

consistent element in there has led to relaxed extension of hire purchase repayment period. These

include inadequacy of hire purchase management for controlling the facility quality. This has

been a case in Kenya in a way that, increased access to hire purchase services especially personal

hire purchase facility from either hire purchase institutions or savings and hire purchase

cooperative societies especially teachers who formed the bulk of hire purchase clients. found it

easier to take hire purchase facility whose proceeds they could then use to purchase the items

they needed made system slower. This makes the clients work easier and the hire purchase

institution having no work to do hence a challenge to the institution.

(b) Lack of independence in the system by involvement of guarantors. which hire purchase

institutions and SACCOS offer, saw a majority of the customers fall out with the former 155 Like

in the government system, every ministry works separately, so in a hire purchase agreement,

each party has its own duty to perform, in Kenya its felt that guarantors are doing everything

which means other parties cannot perform their duties making most customers fallout with the

business.

"'Aryeete, 'the hire purchase business', it is a win-win situation-<htpp:f/www.ljhssnet.com>1997,accessed on 16/01/2016. 154 Ibid 1~s

" Aryeet (Ibid) 51

(c) Relaxing hire purchase standards; In Kenya, new clients are said to be attracted to this

standard because of relaxed hire purchase standards, collecting from these customers is likely to

be slower than collecting from existing customers 156. In addition a more relaxed extension of hire

purchase repayment period may cause certain existing customers to be less conscious in paying

their payment on time.

Other challenges affecting both Kenya and Uganda are low income of the people. high cost of

insurance, taxes, competition with other countries, transport issues and many others.

4.3 Challenges in the Hire Purchase Acts.

The Acts (both Kenya and Uganda) regulate hire purchase agreement; however it is widely felt

that the Acts give more protection to the owners of goods than the hirers through the

incorporation of "a minimum payment clause".

a) Minimum Payment Clause; Section 9 HPA 2009 provides that, "the hirer may, at any time

before the final payment under a Hire Purchase Agreement falls due, terminate the agreement by

returning the goods to the owner and giving the owner a written notice of termination of the

agreement and where hirer gives notice under (1 ), he/she is liable, without prejudice to any

liability which accrues before the termination to pay the amount if any, by which two thirds of

the hire purchase prices exceeds the total of the sums paid and the sums due in respect of the hire

purchase price immediately before the termination". It's true the Act gives the hirer a right to

terminate the agreement but the Act has set conditions which are not favorable to the hirer like

the hirer automatically is penalized by payment of the sum indicated, yet the reason why the

hirer is terminating is because he/she could not continue with the payment any more. However

much the clause is protective to the owner, it becomes offending when the hirer is given an

opportunity to return the goods and he/she does so with an intention to terminate the contract

this becomes unfair to the owner hence a challenge.

S.S(2) of Kenyan Act Cap 507, provides for agreement to be in English language especially in

terms of payment of a prescribed fee by hirer to the registrar unless agreement liable to stamp

'"BrownS. Gamothe hire purchase business', it is a win-win situation-<htpp://www.ljhssnet.com>1997, accessed on 16/01/2016.

52

duty or not duly stamped. The challenge here is that however much English is a wide spoken

language, not everyone can speak or write it (illiterate), so other hirer's won't be able to

understand what is contained in the agreement or even put in writing unless translated for. What

matters is that the two pmiies have come to an agreement whether in English or not. Therefore

the Act would not be strict to indicate a specific language and if it was to do so it would give a

number of lm1guages for example Swahili and English which is spoken mostly in Kenya. Then

also where parties agree to use a certain type oflanguage which is not English, courts will find it

hard to enforce.

c) Repossession; S. 15 of 2009 Act, reads, "where goods have been hired under a hire purchase

agreement and two thirds of the hire purchase price has been paid, under the agreement or a

judgment or otherwise or tendered by or on behalf of the hirer or a guarm1tor, the owner shall not

enforce any right to recover possession of goods from the hirer otherwise than by suit. An owner

is challenged in a way that he/she should have recovered his/her goods without permission from

court as long as the amount is not fully paid. Then the smne section 15(2) goes fmiher to release

the hirer from liability, and recover from the owner as well as terminating the contract. Yet under

the same Act, the hirer is also not allowed to terminate the contract unless he/she has paid two

thirds of the hire purchase price without any default. In actual sense both parties are faced with

challenges, one wonders whether the clause was protecting the hirer from the owner of goods or

the owner himself.

d) Disclosure; Under 8.4( 4) of 2009 Act, pmiies are supposed to make full discloser of all

information relevant to the proposed agreement which failure without reasonable cause or giving

information which is false or not believing to be true commits an offence. The challenge is that

one's right to privacy is violated, although in contracts there is an element of trust, sometimes

information can be leaked out leading to lack of confidentiality. For example where parties enter

into an illegal contract like dealing in cocaine, due to some disagreements, .one can easily bring

out the issue to the public.

e) Registration; In the HPA 2009, the main objective of the Act is to provide for registration and

licensing of persons carrying on hire purchase business and tolerated purpose. In Uganda, most

businesses have to be registered, yet the law is not regulating registration of hire purchase

business, could it be that the makers of the law had made an error not completed the making.

53

f) Inte1·est Rates; 8.6 of HP A 2009 provides interest rate to be determined by Central Bank of

Uganda, the question that arises will be, is the bank party to the agreement and if noL who is

party? Generally parties who enter into an agreement are supposed to decide on what they want,

and the law governs them as well, meaning the hire purchase Act is supposed to provide for

interest rates, being the one regulating hire purchase agreement instead of the bank which 1s a

different institution dealing in money issues and not regulating hire purchase business

g)The Act provides for processes like registration and licensing, where by a minister is given

power to grant licenses under S. 18 and 19 HPA 2009, provisions for procedures are not

provided for, this has result to one going to the ministry to acquire a license 157• hence

government interference in the hire purchase agreement or business. At least there should be a

specific place where hirers can get their licenses and not from the minister.

Conclusion

In conclusion, hire purchase business has been a very fundamental aspect of business life, but

due to certain circumstances which are making it hard to adopt the business earlier has created a

big challenge to the owners of the goods and hirers. With all that is happening one still finds out

that hire purchase is the best option to acquire an item, all society needs is for the individuals to

fight these challenges to promote and develop hire purchase business.

157 Section 19 HPA 2009

54

CHAPTER FIVE

5.0 Recommendation and Conclusion

5.1 Summa1-y of the Major Findings

Basing on the topic of the Comparative Review of the Laws Regulating Hire Purchase

Agreements in Kenya and Uganda, the researcher can1e up with the following findings.

> The researcher found out that, in the UHP A there was no clause for registration yet there

is no business that operates without undergoing the process of registration. This is

because registration proves the authenticity of a business.

> The UHPA left out the issue of a minimum value. The researcher felt that it is important

to include the minimum value clause in the Act because it helps parties know the exact

amount they are dealing with.

'r The researcher also found about the issue of the second hand goods not included in the

UHP A. Therefore the provision for second hand goods should be included in the Act, this

is because Ugandans deal mostly on second hand products compared to first class

products.

:r The UHPA did not include description of goods which the researcher believed it should

be included. When dealing with goods, a hirer should be aware of the type of product

he/she is hiring.

> The UHP A also left out the issue of bankruptcy of either the hirer or the owner instead it

provides for insolvency. Bankruptcy and insolvency work in different perspectives.

Insolvency is for companies while bankruptcy is for individuals.

;.... The researcher found out notice of service was not discussed in the UHP A which should

have been included. It's an important element for a hirer or owner to be served a notice

either personally or at place of work.

55

);> After discussing everything about Hire Purchase Agreement, the researcher found out

that there was nothing like a place of transaction included in the law. It seems the law left

out the owners and the hirers to decide a suitable place for transaction.

);> Further it was found out that the law did not protect the interest of both parties because a

third pmiy is included in the agreement who are said to complicate trm1saction.

In conclusion therefore with all this findings the researcher came up with this recommendations

as will be discussed in the next stage.

5.2 Recommendation

);> From the above, it is observed that hire purchase serves a very useful purpose especially

in preservation of value of business to hirers m1d owners creating social, and economic

stability. Therefore there is need to balance the different interests of the Acts and takes

care of the above concerns, either through law or its implementation. Looking at the

comparative review of the laws regulating Hire Purchase Agreement in Uganda and

Kenya, it is possible that new rules should be developed.

);> The rationale behind the researcher proposed amendments made in the Ugandan Act 158 is

to prevent uncertainty and promote legal, economic and social development of the

country, below are the proposed amendment.

);> The UHP A should include the specific amount of product or goods during the hire

purchase transaction. The clause indicating a minimum sum should be included in the Act

like the KHP A which has a minimum sum of Kshs 3 million. 159 The Ugandan Hire

Purchase Act160 lays down the manner and form in which hire purchase agreement is

enforced, to solve problems of uncertainty among the parties like price of hired goods is

stated, but then the Act does not give a specific figure or value of any purchase

agreement, instead the Act requires the price to be stated in the hire purchase agreement

8.5(1) 161 an owner to inform the hirer in writing of cash price of the purchase. Therefore

158 HPA 2009 1~9 Section 3 of the KHPA Cap 507 160 Ibid 161

HPA of 2009

56

the Uganda Act should specify the amount like the way the Kenyan Act did by providing

Kshs 3 million as a minimum value.

,. The hire purchase Act should indicate the amount of installments by which hire purchase

price is to be paid and the date or the mode of determining the date upon which each

installment is payable (S.5(3)(ii)), hence protecting hirers upon default against

unnecessary charges include a statement of late payment charges (S.5(3)(i)-(iii)) and

description of goods sufficient to be identified (S.5(3)(a)(iv)) other than leaving

everything for the parties to decide.

"r The UHPA does not provide for the registration of the Hire Purchase Agreement. It is a

requirement that the registration to be included for a reason that in any transaction or

business, registration is mandatory for purposes of monitoring and knowledge of one's

assets like land and enforcement in courts of law in case of breach, the U.H.P.A should

include this as a clause.

,- Goods must be given a description and put in a prescribed form as provided for by the

law apart fi'om S.5(4)(iv)162 which talks of goods to be described; the law should indicate

a format on which a specific type of good is described, if it is a car, a form should be

given for which type of car should be included in the agreement. Therefore the law

should be clear on the subject of description for easy enforceability.

"r There should be a provision dealing with goods of different types. In Africa generally.

people deal with second hand goods which include clothes, vehicles and others. For this

reason like the K.H.P.A Cap SOi 63, there should be a specific provision on second hand

products for parties to know exactly what kind of goods they are dealing with and they

should be of a mercantile quality.

"r The UHP A should indicate a specified time when a hirer is to take legal ownership of the

goods from the owner after payment of the last installment. The Act should indicate

ownership to be immediately after payment than giving a reasonable time to the hirer.

161 UHPA of 2009

153 Kenyan HPA Cap 507 as amended

57

).- Section 30 and 31 of the Act164 provides for insolvency of both owner and hirer, "that

once the owner is adjudicated insolvents or is in liquidation, the hire purchase agreement

shall remain in force and effect shall be binding on the liquidator and for the hirer, his

rights and duties will be vested in his/her trustee. In the K.H.P.A, both insolvency and

bankrupt has been provided for. Meaning those dealing as individuals can be bankrupt

whereas Insolvency refers to inability of a company to pay debts. The U.H.P.A provides

only for companies and not individuals who are supposed to be declared bankrupt in case

they fail to pay their debts. Therefore the U.H.P.A should include the provision of

bankruptcy as well.

:.- Section 32 of the KHPA Cap 507, provides for "any notice or document required or

authorized to be served on or given to an owner or hirer under this Act may be so served

or given by delivering it when personally, or by leaving it at his place of a bode or

business ... , or by posting it addressed which at his last known place of abode ... ". Such

requirement should also be included in the U.H.P.A

5.2.1 Othe1· Recommendations

r Other recommendations include; place of hire purchase transaction. The law (Act) 165 does

not provide for a place of transaction. It is clear that the owner and the hirer should know

exactly where transaction should be operated for example, buying and selling of products

is in the market, and so should hire purchase transaction state a place of transaction.

>" The law must be reviewed to ensure that contracts are enforced in a manner that protects

the interests of both parties to hire purchase agreements.

r The minimum payment clause should be reviewed to protect hirers from unscrupulous

owners. The law should be clear in the issue of a minimum payment clause166 where the

hirer should either opt to purchase or return the goods.

1" HPA 2009

1" UHPA of 2009

166 Section 9 HPA 2009

58

Conclusion

In conclusion, the Ugandan Hire Purchase Act of2009 is a good law but with mistakes compared

to the Kenyan Hire Purchase Act Cap 507. The researcher came up with recommendations to

help the people whom this law applies to, in order to meet their needs in day to day Hire

Purchase Agreements. It is the expectation of this researcher that where all the recommendations

suggested are implemented, some of the identified challenges in the Act will be resolved.

59

BIBLIOGRAPHY

BOOKS

Anne Dixon, 'An introduction to mercantile and commercial law', William Heinemann Ltd. London

Avtar Sing, 'law of sale of goods and hire purchase', 6111 edition, Eastern book company, 2005

M.C.Kuchhal, 'Mercantile law', 5th Edition, Vikas Publishing House PVT Ltd, 1978 Bryan A. Garner, Black's Law Dictionary,(8111Ed)

P.s Atiyah, John N. Adams; Hector Macqueen, the sale of goods, I 0'11 Edition, Pearson Education Asia, 2001

Robert Bradgate, 'commercial law' 2"d Edition, Butterworths (London) 1995

ARTICLES

AbdulkareemAzeez, the Uganda Hire Purchase Act 2009 Vis-a-vis the Kenyan hire purchase Act. A critique <htpp//:www.academia.educator/8261896/the Uganda ... >2016 accessed on 14/0112016.

WEBSITE VISITED

Adera, A, the Hire purchase business, it is a win-win situation, 1995, <http://www.1 hssnet.com accessed on 20th Nov. 2015.

Arinaitwe Patson, 'leasing litigation in Uganda·, 28 Sept 2009, patsonarinaitweblogspot.com/2009/accessed on 14/1/2016.

Aryeete, the hire purchase business, it is a win-win situation -<htpp://www.ljhsinet.com> 1997. accessed on 14/1/2016

Atieno R 2001, the hire purchase business, it is a win-win situation, 200l,<http://wwwijhssnet­com nov 2012 at page 1 accessed on 19 nov. 2015

AudoEchoro, nature, scope and content of hire purchase contract, current jos. Law journal 2008<http://www.researchgate.net/publication/40 ... ]. Accessed on 20th Nov. 2015.

Brown S. Gamothe hire purchase business', it IS a wm-wm situation-<htpp://www.Ijhssnet.com> 1997 ,accessed on 16/0 112016.

Cecil McCathy, 'every day law'. History behind hire purchase nations news http://www.nationnews, accessed on 17/1112016

60

Crick F.W, the Hire purchase business, it is a win-win situation, 1995, ht!p://www.1hssnet.com Accessed on 14111 Jan.2016

Dan Barong "problems with hire purchase transactions, February, 2009, <htpp://www.internationallawoffice.com/news>accessed on I 6/01/20 I 6

Hire . purchase-conceptual, legal and regulatory framework www.psnacet.educ.in/--/3-pdf accessed on 3rd February 20 I 6.

!-lire purchase-Sharia hub ... <htpp://www.shariahub.com/download-attachment/4 72 I >accesson 14/I/201 6

Odiwuor Kelly, Hire purchase law-research presshttp://www.oakadvocates.co.ke/odiwork@oadvactes.co.ke Accessed on 3'd Feb 2016

The hire purchase business-it is a <http:www. Ijhassnet.com>/ .. /29pdf>accessed on 20111 Nov. 20 I 5.

wm-wm situation,

The Managing Director of General motors East Africa car (GMGA) 919120 15, <htpp :/ /www. observer. ug/business/3 8business>accessed on I 6/ I /2 0 I 6.

Uganda, 'fill the many gaps in the hire purchase bill, 2007, all africa.com/ .. /20080720363htm. Accessed on 14/112016

Uganda law reform commiSSIOn, 'chattel relation body', 2004 http://www.ulrc.go.ug/ . ./47accessed on 14/1/2016

61