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Question

Difficulty: MediumHire Purchase, Deferred Payment, and Credit Sale Schemes

A commercial transport company purchases five haulage trucks under a deferred payment credit agreement. After paying two installments, the company defaults on the third payment. Which of the following correctly describes the legal right of the vendor regarding the trucks?

  1. The vendor can sue the buyer for the unpaid balance of the purchase price but cannot legally repossess the trucks.Answer
  2. B
    The vendor has the unconditional right to repossess the trucks because legal ownership remains with the seller until all installments are fully paid.
  3. C
    The vendor may repossess the trucks without court action provided less than half of the total contract price has been settled.
  4. D
    The vendor can terminate the contract immediately and claim a full refund of all previous installments as penalty fees.

Answer

The vendor can sue the buyer for the unpaid balance of the purchase price but cannot legally repossess the trucks.
Under a deferred payment (credit sale) scheme, legal title and ownership of the goods pass to the buyer immediately upon contract execution or delivery. Consequently, if the buyer defaults on subsequent installment payments, the vendor cannot legally repossess the goods because ownership already belongs to the buyer; the vendor's sole remedy is to sue the buyer in court for the unpaid debt.

Step-by-Step Solution

1
Identify the specific type of credit arrangement entered into by the parties.
The transaction is structured as a deferred payment (credit sale) scheme.
The legal rights and remedies of buyers and sellers depend on whether the arrangement is a hire purchase contract or a deferred payment sale.
2
Determine when legal title (ownership) transfers under a deferred payment contract.
Ownership of the goods passes immediately to the buyer upon contract signing or delivery of the goods.
Deferred payment constitutes an immediate, outright sale with extended credit terms.
3
Evaluate the seller's legal remedies upon buyer default.
Because the buyer is the legal owner of the trucks, the vendor cannot repossess them and can only file a court action to recover the unpaid debt balance.
Repossession rights exist only when the vendor retains title to the property, as is the case in hire purchase.

Key Concept

Ownership Transfer in Deferred Payment vs. Hire Purchase
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Topics

Hire Purchase, Deferred Payment, and Credit Sale Schemes

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