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

An electronics retailer sells a refrigerator to a buyer who pays an initial deposit and agrees to settle the remaining balance in monthly installments. Under the terms of the agreement, legal ownership of the refrigerator passes to the buyer immediately upon delivery, and the seller retains only the right to sue for any unpaid debt in the event of default. Which credit transaction scheme is illustrated in this scenario?

  1. A
    Hire purchase scheme
  2. Deferred payment schemeAnswer
  3. C
    Equipment leasing scheme
  4. D
    Factor credit arrangement

Answer

The correct transaction scheme is the deferred payment scheme.
Under a deferred payment (or credit sale) scheme, legal title and ownership of the goods pass to the buyer immediately upon contract execution or delivery. If the buyer defaults on subsequent installment payments, the seller cannot repossess the goods because ownership has transferred; the seller's sole legal remedy is to sue the buyer for the unpaid debt balance.

Step-by-Step Solution

1
Identify the timing of legal ownership (title) transfer described in the scenario.
Ownership transfers to the buyer immediately upon delivery.
This key distinction separates deferred payment/credit sales from hire purchase agreements.
2
Identify the seller's legal remedy in case of buyer default.
The seller can only sue to recover the unpaid balance and cannot repossess the goods.
Because title has already passed to the buyer, the seller no longer owns the property and therefore lacks repossession rights.
3
Match these characteristics to the correct commercial credit scheme.
Deferred payment scheme.
Immediate transfer of title combined with debt recovery rights defines a deferred payment transaction.

Key Concept

Distinction between Hire Purchase and Deferred Payment Schemes
Estimated Time:1m 0s
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Topics

Hire Purchase, Deferred Payment, and Credit Sale Schemes

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