The following can only be a brief introduction of the legal subject concerned. Before you take any action which may have legal consequence, you should first seek advice from your own lawyer or make an appointment at any District Office to see a volunteer lawyer of the Free Legal Advice Scheme.




(508) HIRE PURCHASE

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A hire purchase transaction involves two steps:- First, the seller sells goods to a finance company. Then, the finance company enters into a contract with the consumer to hire the goods to the consumer for a certain period, and, give the consumer an option to purchase the goods, usually for a nominal sum, at the end of that period.

Therefore, when goods are obtained on hire purchase, ownership of then does not pass to the consumer until the option to purchase is exercised.

A hire purchase agreement imposes various obligations on the consumer, such as to pay hire instalments punctually, keep the goods in proper working order, and not to sell or otherwise deal with them.

Hire purchase agreements usually contain "Accelerated Payment" or "Minimum Payment" clauses, which take effect if the consumer terminates the agreement and return the goods to the finance company before the stipulated period of hire is over.

An Accelerated Payment Clause provides for immediate payment, upon termination of the balance due for the unused period of hire. Consequently, a consumer who terminates a hire purchase agreement soon after entering into it may find himself under an immediate obligation to pay the finance company a lump sum representing all outstanding instalments.

Similarly, a Minimum Payment Clause allows the Consumer to terminate a hire purchase agreement before the period of hire is over, upon payment of a lump sum. The lump sum may be stated to represent instalments due for the balance of the period of hire and other amounts, such as depreciation.

Failure to pay instalments may constitute a breach of contract, enabling the finance company to treat the agreement as terminated, repossess the goods and claim damages from the consumer.

Damages due to the finance company upon breach will normally be calculated as the cash price of the goods plus interest up to termination, less instalments already paid and less the price at which the repossessed goods may be resold.

Hire purchase agreements may contain clauses which set out how damages are to be calculated in the event of breach by the consumer. The Courts will examine such clauses closely. Where they do not constitute a genuine attempt at pre-estimating the loss actually suffered by the finance company, the clauses will be unenforceable.

The consumer is entitled to expect that goods provided by the finance company are of merchantable quality and fit for the purpose for which they are hired. Where exemption clauses seek to exclude or limit the finance company's liability for failure to meet its obligations, such exemption clauses may also be examined closely by the Court under the Control of Exemption Clauses Ordinance.

Date of amendment: 3rd November 1992