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

A business owner acquired industrial baking machinery under an agreement requiring an initial deposit of ₦1,000,000₦1,000,000 and twelve equal monthly installments of ₦300,000₦300,000. After successfully paying eight installments, the buyer defaulted on the remaining payments. If this transaction is legally classified as a deferred payment scheme rather than a hire purchase contract, which of the following statements correctly describes the vendor's legal rights regarding the machinery and the outstanding balance?

  1. The vendor cannot repossess the machinery because title passed immediately to the buyer upon delivery, but the vendor can sue the buyer in court to recover the unpaid debt of ₦1,200,000₦1,200,000.Answer
  2. B
    The vendor has the legal right to repossess the machinery immediately and retain all previous payments totaling ₦3,400,000₦3,400,000 as rental compensation.
  3. C
    Ownership automatically reverts to the vendor upon default, requiring the vendor to refund all previous installments before taking back the machinery.
  4. D
    The vendor may repossess the machinery without a court order, provided the repossessed equipment is sold at an auction to recover only the unpaid balance of ₦1,200,000₦1,200,000.

Answer

The vendor cannot repossess the machinery because title passed immediately to the buyer upon delivery, but the vendor can sue the buyer in court to recover the unpaid debt of ₦1,200,000₦1,200,000.
In a deferred payment agreement, title passes to the buyer at the time of sale/delivery. Consequently, if the buyer defaults, the seller cannot repossess the goods and can only enforce payment of the outstanding debt (4 installments×₦300,000=₦1,200,0004 \text{ installments} \times ₦300,000 = ₦1,200,000) through court action.

Step-by-Step Solution

1
Identify the key legal distinction regarding ownership transfer in a deferred payment scheme compared to a hire purchase scheme.
Under a deferred payment (credit sale) scheme, legal title and ownership transfer to the buyer immediately upon contract signature/delivery. Under hire purchase, ownership remains with the seller until the final installment is paid.
Determines whether the vendor retains a right of repossession or merely holds a right of debt recovery.
2
Determine the vendor's legal remedy upon buyer default under deferred payment.
Because the buyer is the legal owner of the machinery, the vendor cannot legally repossess the property. The vendor's sole remedy is to sue the buyer for the unpaid debt.
Repossession of another person's property constitutes conversion/unlawful seizure.
3
Calculate the outstanding financial liability.
Total installments = 1212. Installments paid = 88. Unpaid installments = 12−8=412 - 8 = 4. Unpaid balance = 4×₦300,000=₦1,200,0004 \times ₦300,000 = ₦1,200,000.
Quantifies the exact debt the seller can claim in court.

Key Concept

Transfer of ownership and legal remedies in Deferred Payment versus Hire Purchase schemes
Estimated Time:2m 0s
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Topics

Hire Purchase, Deferred Payment, and Credit Sale Schemes

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