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Difficulty: Very hardHire Purchase, Deferred Payment, and Credit Sale Schemes

A logistics firm enters into an agreement to acquire a delivery van with a cash price of ₦8,000,000₦8,000,000. The contract requires an initial deposit of ₦2,000,000₦2,000,000 followed by 10 monthly installments of ₦700,000₦700,000 each, stipulating that legal title remains with the vendor until the final installment is paid. After paying the deposit and 6 monthly installments, the firm defaults. Under commercial law governing credit transactions, which of the following accurately describes the vendor's legal enforcement rights?

  1. The vendor cannot repossess the van extra-judicially and must institute an action in court because the hirer has paid more than three-fifths of the total hire purchase price.Answer
  2. B
    The vendor retains the right to extra-judicially repossess the van without court intervention because legal title remains with the vendor until final payment.
  3. C
    The vendor cannot repossess the van under any circumstance and can only sue for the debt balance of ₦2,800,000₦2,800,000 because possession implies ownership transfer.
  4. D
    The vendor can immediately repossess the van without court intervention because default automatically converts the contract into an unconditional credit sale.

Answer

The vendor cannot repossess the van extra-judicially and must institute an action in court because the hirer has paid more than three-fifths of the total hire purchase price.
Under the law governing Hire Purchase transactions, legal ownership remains with the vendor until all installments are fully paid. However, to prevent abusive practices, statutory regulations dictate that once a hirer has paid three-fifths (60%60\%) or more of the Total Hire Purchase Price, the owner's right to extra-judicial (direct) repossession is restricted. Here, the total contract price is ₦9,000,000₦9,000,000, and the hirer paid ₦6,200,000₦6,200,000 (over 68.89%68.89\%). Consequently, the vendor cannot repossess the vehicle directly and must seek an order of court.

Step-by-Step Solution

1
Calculate the Total Hire Purchase Price (HPP).
HPP=Deposit+(Installment Amount×Total Installments)=₦2,000,000+(₦700,000×10)=₦9,000,000\text{HPP} = \text{Deposit} + (\text{Installment Amount} \times \text{Total Installments}) = ₦2,000,000 + (₦700,000 \times 10) = ₦9,000,000
Determining the total contract value under Hire Purchase is necessary to calculate the statutory percentage paid.
2
Calculate the total amount paid by the hirer prior to default.
Amount Paid=Deposit+(Installment Amount×Paid Installments)=₦2,000,000+(₦700,000×6)=₦6,200,000\text{Amount Paid} = \text{Deposit} + (\text{Installment Amount} \times \text{Paid Installments}) = ₦2,000,000 + (₦700,000 \times 6) = ₦6,200,000
This establishes the cumulative sum paid by the hirer up to the point of default.
3
Determine the proportion of the Total Hire Purchase Price paid.
Proportion Paid=₦6,200,000₦9,000,000≈68.89%\text{Proportion Paid} = \frac{₦6,200,000}{₦9,000,000} \approx 68.89\%
Under statutory Hire Purchase law (e.g., the Hire Purchase Act), if the hirer has paid three-fifths (60%60\%) or more of the hire purchase price, the owner cannot enforce repossession without a court order.
4
Apply the statutory rule to determine the vendor's legal enforcement rights.
Since 68.89%>60%68.89\% > 60\%, the vendor loses the legal right to extra-judicial (self-help) repossession and must apply to a court of competent jurisdiction to recover the vehicle or balance.
Protection of hirers against harsh self-help repossession when substantial equity has been built up.

Key Concept

Statutory Repossession Restrictions under Hire Purchase Agreements
Estimated Time:2m 30s
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Topics

Hire Purchase, Deferred Payment, and Credit Sale Schemes

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