HIRE PURCHASE

TOPIC 4

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1)Definition
2)Types of Goods
3)Formation of a HP Contract
4)Statutory Rights of a Hirer
5)Repossession by the Owner

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Definition of Hire Purchase

Section 2(1) of HPA

“ Hire purchase agreement includes a
letting of goods with an option to
purchase and an agreement for the
purchase of goods by installment but
does not include any agreement :
(a) Where the property passes at the
time of agreement or anytime before
delivery of goods or
(b) Where the hirer sell the same goods
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 The definition covers:
1) The letting of goods with an
option to purchase
2) An agreement for the purchase
of goods by installments

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 Definition
 In short, the HPA covers a transaction whereby a
person acquires goods and pays them off by
instalments while the title remains with the owner
though the hirer is in possession of the goods.

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 *The property in the goods does not
pass to the hirer until he completed the
payment. Hirer only has possession of
the goods but not the ownership.
 Thus a hirer cannot sell the goods to
another because he is not the owner.

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Case :Tractors Malaysia Bhd V Kump.
Pembinaan M’sia Sdn Bhd

 Issue : Whether ownership

transfer to hirer
 Held : Agreement between parties
is a HP agreement. Therefore,
ownership does not pass to hirer
until he completed the payment.

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 Definition
 Sec 2(1) of the HPA :
A ‘hirer’ is a person ‘who takes or has taken
goods from an owner under a hire-purchase
agreement

The ‘owner’ is a person ‘who lets or has let

goods to a hirer under owner’s rights or
liabilities under the agreement have passed by
assignment or by operation of law’.

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 Types of Goods
 The HPA is only limited to the goods specified in
the First Schedule of the Act.
LIST OF GOODS
1. All consumer goods;
2. Motor vehicles, namely
(a) Invalid carriages;
(b) Motor Cycles;
(c) Motor Cars including taxi cabs and hire cars;
(d) Good Vehicles (where the maximum permissible
laden weight does not exceed 2540 kilograms);
(e) Buses, including stage buses.
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 Types of Goods
 Sec 2(1) defines ‘consumer goods’ as :
‘goods purchased for personal, family and
household purposes’.

 Thus, goods (other than motor vehicles) which

would be regarded as consumer goods but
purchased for business purpose are excluded
from the Act.

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 Formation Of HPA
 1) Notice by Owner
 2) Written Agreement
 3) Signature of Parties
 4) Contents
 5) Separate Agreement
 6) Service of documents
 7) Deposit
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FORMATION
1) Notice by Owner

The owner must give hirer notice in

Second Schedule before entering in
HP Agreement.
S.4(1)- Before HPA is entered into,
the owner is required to give hirer
written statement in 2nd schedule.
Purpose :to inform hirer whether he
is capable to enter into HPA.

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 S.4(4) : If does not follow S.4(1)
HPA is void.
 S.4(5) & S.4(6) :An owner who
does not follow S.4(1) shall be
guilty of an offence and is
subjected to a fine not exceeding
RM 3,000 or 6 months
imprisonment or both
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2) Written Agreement

 S.4(A) requires a HPA to be in

writing.
 S.46 : The agreement which is not
in writing is an offence and is
subjected to a fine not exceeding
RM3,000 or 6 months
imprisonment or both.
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3) Signature of Parties

 S.4(B) (1) Both parties in HPA

must put the signature.
 S.4(B) (2) : Parties to a HPA must
sign if everything has been
completed
 Effect : Signing blank document is
NOT a good law.

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 Signature of Parties
 Sec 4B(1) : requires all hire-purchase agreement
to be signed by or on behalf of all parties to the
agreement.

 Sec 4B(2) : requires the hire-purchase agreement

to be duly completed before the hirer can sign the
said agreement. i.e. a hirer cannot sign a blank
form.

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4) Contents

 S.4C : A HPA must contain :-

a. Date a hiring starts
b. Number of installment
c. The amounts of installment
d. The time for payment of the
installment
e. Description of the goods

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f. Address where the goods are kept.
 Failure to follow : the HPA is void,
the owner is guilty of an offence.

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5) Separate Agreement
 S.4(D) : Separate agreement for
every item of goods.
6) Service of documents
 S.5(1) : The owner must serve the
hirer & the guarantors a copy HPA
within 14 days after it is made.
 Failure to follow, the HPA is not
enforceable
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7) Deposit

 S.31(1) : the owner must obtain

from hirer a deposit in cash not
less than 1/10 (10%) of the cash
price of the goods.

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 Statutory Rights of Hirer

 Part IV of the HPA provides 7 statutory rights to a

hirer. They are :-
 1. Right to copy of statement relating to his
financial position (Sec 9).
 2. Right to appropriation of payment (Sec 10).
 3. Right to apply for an order for goods to be
removed (Sec 11).
 4. Right to assign (Sec 12).
 5. Right by operation of law (Sec 13).
 6. Right to early completion of agreement (Sec 14).
 7. Right to terminate agreement (Sec 15). 21
 1. Right of hirer to statement
relating to his financial position.
 A hirer is entitled to request from the owner a written
statement showing the following information :

 (a) the amount paid to the owner by or on behalf of the

hirer;
 (b) the amount which has become due under the
agreement;
 (c) the amount which is to become payable under the
agreement and
 (d) the amount derived from interest on overdue
instalments
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 1. Right of hirer to statement
relating to his financial position.
 The right can only be exercised not more than
once in 3 months. If the hirer makes more than 1
request in 3 months, the owner can refuse such
request.

 If the owner fails to comply with the hirer’s request

without reasonable cause and while the default
continues, the owner is not entitled to enforce :

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 1. Right of hirer to statement
relating to his financial position.
 (i) the agreement against the hirer;
 (ii) any right to recover the goods from the hirer;
 (iii) any contract of guarantee relating to the agreement.

 If the default continues for 1 month, the owner

shall be guilty of an offence and shall, on
conviction be liable to a fine.

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 2. Right to Appropriation of Payment
 A hirer is entitled to appropriate payment to a
particular agreement where he has more than 1
agreement with the same owner and payment is
insufficient to discharge the total amount due.

 The hirer can direct payment to a particular

agreement or payment to any 2 or more
agreements in such proportion as he thinks fit.

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 2. Right to Appropriation of Payment
 In the absence of an instruction by the hirer where
there is more than 1 agreement, payment is to be
appropriated towards satisfaction of the payment
due in the order in which the agreements were
entered into.

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 3. Rights to apply for Order for
Goods to be Removed
 In some hire-purchase agreements, the hirer must
keep the goods in a place stated in the agreement
and the hirer cannot remove the goods to
anywhere else except with consent of the owner.

 Sec 11 allows the hirer to apply to a magistrate

for an order permitting him to move the goods.
Once the order is granted, the new place will be
the place where the goods should be kept.
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 4. Rights to Assigns Hirer’s Rights
 The right, title and interest of a hirer under a
hire-purchase agreement may be assigned with
the consent of the owner but if his consent is
unreasonably withheld, the consent may be
waived.

 If the owner demands any payment or

consideration for consent to assign, the consent
shall be deemed to be unreasonably withheld.

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 4. Rights to Assigns Hirer’s Rights
 Where the owner fails or refuses to give his
consent to an assignment at the request of a
hirer, the hirer may apply to the High Court for
an order declaring that the consent of the owner
has been unreasonably withheld.

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 4. Rights to Assigns Hirer’s Rights
 The owner may also require the hirer and
assignee to execute and deliver an
assignment which makes the assignee
personally liable to pay the balance of the
instalments and observe all conditions of
the hire-purchase agreement, and to pay
reasonable costs, if any, incurred by the
owner in stamping or registering the
assignment agreement.
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 5. Right by Operation of Law
 The right, title and interest of a hirer under a
hire-purchase agreement can pass by operation
of law to the personal representatives of the hirer
and this occurs on the death or bankruptcy of the
hirer.
 If the hirer is a company, if it is being wound-up,
the hirer’s right, title and interest passes on to
the liquidator.
 The personal representative and the liquidator are
bound by provisions of the hire-purchase
agreement.
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 6. Right to early completion of
agreement.
 The hirer has the right to complete the hire-
purchase agreement before the due date by
giving written notice to the owner and on or
before the specified date, pay to the owner the
net balance due under the agreement.

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 7. Right to terminate the Agreement
 The hirer has the right to terminate the hire-
purchase agreement at any time by returning the
goods to the owner during the ordinary business
hours at the place which the owner ordinarily
carries on business or to the place specified for
that purpose in the agreement.

 If the place of return is not practical, the parties

may mutually agree on another place.

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 7. Right to terminate the Agreement
 Where the parties have failed to agree, the hirer
may apply to the Magistrate for an order fixing
the place to which the goods may be returned.
 Sec 15(5) of HPA :
(a) the hirer may require the owner to sell the goods to
any person introduced by the hirer who is prepared to
buy the goods for cash at a price agreeable to the
owner.

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 7. Right to terminate the Agreement
(b) Where the value of the goods at the time
when it is returned to the owner is more than
the balance outstanding under the hire-
purchase agreement, the hirer is entitled to the
difference which is recoverable as a debt due.
Where the value of the goods at the time when it is
returned to him is less than the balance
outstanding under the hire-purchase agreement,
the owner is entitled to the difference which is
recoverable as a debt due.

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REPOSSESSION BY
OWNER
A) Before Repossession
S.16(1) : An owner may repossess
the goods provided :
i) Hirer has defaulted 2 successive
payments or he is defaulted the
final payments
ii) Owner must serve on hirer notice
in writing the 4th schedule
notice.(intention to retake)
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PP V Mohamed Nor
 The hirer did not pay installment
under HPA. KUBB(owner) sent an
agent to repossess the goods
without serving 4th schedule
notice.
 Held: Repossession was invalid

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Pang Brothers Motors Sdn Bhd v
Lee Aik Seng
 The appellant issued a notice to
repossess the car, which was 2 days
short of statutory minimum 21 days.
The court held that the notice has no
effect under the law.

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iii) The period fixed by notice must
have expired (21 days).
Repossession can only be made
after 21 days from the date of
serving notice in 4th schedule.
S.16(1A): If hirer dies, owner may
repossess if there has been 4
successive defaults of payments.
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B) AFTER REPOSSESSION
1) The hirer after 21 days of
repossession by the owner may
give notice in writing to the
owner to re-deliver the goods.
2) The hirer may also require the
owner to sell the goods to any
person introduced by the hirer :
S.18(1)(a) who is prepared to
buy the goods by cash.
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AITAB (AL-IJARAH THUMMA AL-
BAI)
 The term Al-ijarah means ‘hire, lease or
rent whereas Al-bai’ means purchase.
AITAB refers to 2 contracts undertaken
separately which are Al-ijarah contract
(hiring) and Al-bai’ contract (purchase.

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 Under Al-ijarah contract, the hirer
(customers) hirers the goods from the
owner (bank) at an agreed rental over a
specified period.
 Upon expiry of the hiring period, the
hirer sign Al-Bai’ contract to purchase
the goods from owner at an agreed
price. During the period of the
agreement, bank owns the vehicle.
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 Mechanism of AITAB
 Bank will purchase a vehicle/goods required
by a customer from a dealer / third party and
subsequently lease it out to the customer for
a certain period agreed by both the bank and
the customer subject to terms and
conditions. Upon completion of the lease
period, the Bank will sell the vehicle to the
customer at an agreed price.

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 Characteristics of AITAB
 1.AITaB follows syariah principle as well as spirit of
Hire Purchase Act.
 2. The financing for AITAB is sourced from Halal
funds
 3. Two agreement involved under AITAB ie Al-ijarah
contract and Al-Bai’ contract.

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Characteristics of AITAB
 4. Minimal late payment fee of 1% per annum of the
installment due will be imposed for customer who did
not pay promptly. However, some finance companies
do not impose this condition. They charged an
administrative charges for all the fees incurred to
normalize from accounts in arrears
 5. In AITAB, customer has to sign Aqad letter
(acceptance letter) to denote the offer and
acceptance of transactions.

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 Example of Bank offered
AITAB
 Bank Muamalat
 Maybank Islamic

 Public Islamic Bank

 Affin Bank

 Bank Rakyat

 Kuwait Finance

House (M) Berhad

 RHB Islamic Bank
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