Sales of Goods Act : Hire Purchase Agreement and difference with Contract of Sale

Hire Purchase Agreement

There is separate act which deals with hire purchase which is Hire Purchase Act, 1972. 

To give a lay idea, I want to drive a car, but I don't have enough money. What I do is I go to "Mallya Car Showroom" wherein I agree to pay showroom some monthly sum say 10000 Rs and I will drive a car. I agree to pay that installment for 24 months, after last installment I will become rightful owner of a Car, in case of default of payment, Showroom can take back their good. This is nothing but the hire purchase agreement in a crude sense.

To define it more technically, it is an agreement  under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the agreement and include under which
  1. Possession of goods is delivered by owner to hirer on condition that hirer will pay the requisite sum 
  2. Property or ownership will pass after the last installment
  3. Hirer has right to terminate the agreement at any time before the last installment

Essentially hire purchase agreement has two elements, one that of bailment, and other that of sale.

Two elements again should be present to testify validity of hire purchase agreement, first whether bailee or hirer can terminate the agreement before last installment, and second whether own can confiscate his property in default of payment.

Difference between Hire purchase agreement and Contract of sale

Ownership : In contract of sale, ownership is passes to buyer as soon as contract is executed. In hire purchase agreement ownership passes to hirer when last installment is paid

Return of Goods : No right in contract of sale to return the goods, unless in is specifically agreed in contract. In Hire purchase agreement, hirer or a person who takes a good can terminate the agreement.

Tax application : Since contract of sale is executory in nature, tax could be levied. Sales tax is not applied in hire purchase agreement till last installment.

The Law : The obvious difference is of course, Contract of Sales is guided by Sales of Goods act 1930, whereas Hire Purchase agreement is regulated by Hire Purchase Act, 1972




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