TUTORIAL 12 : Topic – Hire-Purchase

1. Natalie is keen to start a business selling electrical sewing machines on hire-

purchase. She is aware of an Act that regulates hire-purchase transactions and she
seeks your advice on the following matters:

a. State the types of goods that are regulated by the Hire-Purchase Act 1967? Does
the Act cover the electrical sewing machines?

Identification of Issues

 The issue is whether the sewing machine is regulated by the Hire-Purchase Act 1967.

Explanation of the law

 Under Section 1(2) HPA, the Act applies to all hire purchase agreements for goods
specified in the First Schedule.
 The First Schedule lists the following goods:
1. Consumer goods - i.e. goods purchased for personal, family or household purposes – S.
2(1)
2. Motor vehicles: includes invalid carriages, motorcycles, automobiles (cars, taxis, hired
cars), goods vehicles, buses and stage buses.

Application of the Law and Concluding Advice

 Here, the electrical sewing machines fall under “consumer goods” within the First
Schedule.
 Nevertheless, for the goods to be regulated by the Act, the sewing machine has to be hired
for personal, family or household purposes.
 The facts show that Natalie plans to sell electrical sewing machines on hire-purchase.
 Her customers must intend to hire the machines for personal usage.
 Only in this situation the goods would fall within the First Schedule and the Act would
apply.

Would your answer differ if the customer is a tailor who would like to purchase
the electrical sewing machine for his business and not for personal usage?

 The answer would be different.

 If the customer is a tailor who is purchasing the machine for his business, then the machine
is purchased for business purposes and NOT for personal usage.
 In such situation, the goods is NOT within the First Schedule.
 If the goods to be hired is not within the First Schedule, the parties are free to contract
outside the provisions of the Hire-Purchase Act 1967, and they are not bound by the Act.
 However, the parties may voluntarily agree to be bound by the HPA 1967.
 If they agree to be bound, then the HPA 1967 will then apply to the agreement.
 Kesang Leasing Sdn Bhd v. Mohd Yusof bin Ismail & Anor. [1990] 1 MLJ 291

 If the electrical sewing machine is used for demonstration – this would fall under the
category of second hand goods.

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 (b) In the event that the electrical sewing machines are second-hand goods, in what
situations can the implied terms of merchantable quality be exempted? (4 marks)

 Under S.7(2) HPA 1967, there is an implied condition that goods under hire-purchase shall
be of merchantable quality.
 The implied condition of merchantable quality can be exempted under S.7(2)(a) or (b).

 Under S.7(2)(a), the implied condition of Merchantable Quality can be exempted where the
Hirer has examined the goods or a sample, as regards defects which the examination ought
to have revealed.
 If that particular examination by a Hirer cannot reveal any defect, the Hirer can still rescind
the Agreement, if the defects are subsequently discovered.
 This is even though a thorough examination would have revealed the defect.

 Under S.7(2)(b), where goods are second-hand, the implied condition of Merchantable
Quality can be exempted if:
- the agreement has a statement to the effect that:
i. the goods are second-hand and
ii. all conditions and warranties as to quality are expressly negatived;
- The owner must prove that the Hirer has acknowledged in writing that the statement was
brought to his notice.

 Merchantable quality means the goods sold are for the particular use for which they are
sold.
 Goods is not of merchantable quality if it is of “no use for any purpose for which it would
normally be used and therefore not saleable under that description”
- Lau Hee Teah v Hargill Engineering Sdn Bhd
- Seng Hin v Arathoon Sons Ltd

 Goods are new and not considered 2nd hand if they have not been used and previously sold
by retail.
 It is considered 2nd hand if it is used for demonstration and regular testing by potential
buyers - John McGrath Motors v Applebee.

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2. Jack wants to start a hire-purchase business in selling the popular “One Kawan”
motorcycles.

a. He wants to know the types of goods that are regulated by the Hire-Purchase Act
1967, and whether his customers may buy the motorcyles on hire-purchase, for
business purposes. Comment [ER1]: For this question, it is
on motorcyles, hired for business purpose.
You can follow tutorial answer approach,
Identification of Issues but insert two sentences shown below.

 The issue is whether the motorcycles are regulated by the Hire-Purchase Act 1967.

Explanation of the law

 Under Section 1(2) HPA, the Act applies to all hire purchase agreements for goods
specified in the First Schedule.
 The First Schedule lists the following goods:
1. Consumer goods - i.e. goods purchased for personal, family or household purposes – S.
2(1)
2. Motor vehicles: includes invalid carriages, motorcycles, automobiles (cars, taxis, hired
cars), goods vehicles, buses and stage buses.

Application of the Law and Concluding Advice

 Here, the motorcyles fall under “motor vehicles” within the First Schedule.
 There is no requirement that the motor vehicles must be hired for personal use.
 Thus, in this situation the goods would fall within the First Schedule and the Act would
apply.

 Even if a particular goods to be hired is not within the First Schedule, the parties may
voluntarily agree to be bound by the HPA 1967.
 If they agree to be bound, then the HPA 1967 will then apply to the agreement.
 Kesang Leasing Sdn Bhd v. Mohd Yusof bin Ismail & Anor. [1990] 1 MLJ 291

b. Jack also wants to know the situations where the implied terms of merchantable
quality can be exempted on second hand motorcycles.

 Under S.7(2) HPA 1967, there is an implied condition that goods under hire-purchase shall
be of merchantable quality.
 The implied condition of merchantable quality can be exempted under S.7(2)(a) or (b).
 Under S.7(2)(a), the implied condition of Merchantable Quality can be exempted where the
Hirer has examined the goods or a sample, as regards defects which the examination ought
to have revealed.
 If that particular examination by a Hirer cannot reveal any defect, the Hirer can still rescind
the Agreement, if the defects are subsequently discovered.
 This is even though a thorough examination would have revealed the defect.
 However, S.7(2)(a) applies only to new goods and not second-hand items. Comment [ER2]: Follow tutorial
answer approach, but insert this sentence.

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 Under S.7(2)(b), where goods are second-hand, the implied condition of Merchantable
Quality can be exempted if:
- the agreement has a statement to the effect that:
i. the goods are second-hand and
ii. all conditions and warranties as to quality are expressly negatived;
- The owner must prove that the Hirer has acknowledged in writing that the statement was
brought to his notice.

 Merchantable quality means the goods sold are for the particular use for which they are
sold.
 Goods is not of merchantable quality if it is of “no use for any purpose for which it would
normally be used and therefore not saleable under that description”
- Lau Hee Teah v Hargill Engineering Sdn Bhd
- Seng Hin v Arathoon Sons Ltd

 Goods are new and not considered 2nd hand if they have not been used and previously sold
by retail.
 It is considered 2nd hand if it is used for demonstration and regular testing by potential
buyers - John McGrath Motors v Applebee.
 Thus, the implied terms of merchantable quality can be exempted on second hand
motorcycles under S.7(2)(b). Comment [ER3]: Follow tutorial
answer approach, but insert this sentence.

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3. Mrs Mong bought a new Shapp AX124 microwave oven from Bakewell Bhd on hire-
purchase. She wanted to bake a chocolate banana walnut cake for her husband to
celebrate their 10th wedding anniversary. Mrs Mong has defaulted in two (2) of her
monthly installments, what steps would be taken by the finance company against
her? (15 marks)

 A primary obligation of the hirer is to pay his instalments regularly.

 The Owner is entitled to recover possession of the goods when the Hirer has committed a
breach of contractual obligations relating to payment of installments under the agreement:

Conditions for repossession:

1. The Hirer has defaulted in 2 successive payments of installments.

2. Where the Hirer is deceased, there has to be 4 successive defaults of payment of
installments before the owner can takes possession of the goods - s.16(1C).
3. Payment of installments by the Hirer must not exceed 75% of the total cash price of the
goods.

Procedure for repossession

1. Owner must serve on the Hirer a notice in writing i.e. the 4th Schedule Notice, of its
intention to retake possession.

2. The period fixed by the notice must not be less than 21 days after service of the notice -
S. 16(1).

3. The 21-day period fixed by the notice must have expired. Pang Bros. Motor Sdn Bhd v.
Lee Aik Seng[1978]1MLJ 179

4. 14 days after sending out the 4th Schedule notice and before repossession, the Owner
must send another notice by registered post to the Hirer, to inform him of its intention to
take possession of the goods – Regulation 15, Hire-Purchase (Recovery of Possession
And Maintenance of Records By Owners) Regulations 2011.

5. The person who undertakes repossession of the goods must obtain a written permit issued
by the Controller of Hire-Purchase – s. 17A & B.

6. When the goods has been repossessed, the owner must personally deliver to the hirer a
document acknowledging receipt of the goods – s. 16(4) & (5).
The document must contain a description of the goods and the date, time and place of
repossession.

7. S. 16(3): Within twenty-one (21) days after the Owner has taken possession of the goods,
it must serve on the hirer and guarantors (if any) a notice in writing, the Fifth Schedule
notice.

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S.17: Owner cannot sell or dispose of the goods for 21 days

8. Under S.17, for 21 days after 5th Schedule Notice has been served, the Owner cannot sell
or dispose of the goods.
9. The Owner must get the Hirer’s written consent if it wants to sell the goods before the
expiration of the 21 days.

Hirer’s Rights and Immunities when Goods are Repossessed – s. 18(1)(a)

10. Under S.18(1)(a), within twenty-one (21) days after receiving the 5th Schedule notice, the
Hirer may give notice to the Owner requiring the Owner to:
- redeliver the goods that have been repossessed, after Hirer complies with S.19; OR
- sell the goods to any person introduced by the Hirer, if that person is prepared to buy
for cash at a price not less than the estimated value of the goods set out in the 5th
Schedule notice.

Hirer can regain possession of the goods – s. 19

11. S.19(1) - Within 21 days after giving the notice under S.18(1)(a), Hirer is to:

(a) pay to the Owner any amount due in respect of the period of hiring up to the date of
the payment or
(b) remedy any breach of the agreement or
(c) where he is unable to remedy the breach because the goods has been repossessed,
pays to the Owner the reasonable costs and expenses incurred by the Owner in taking
possession of the goods.

12. The owner shall return the goods to the Hirer.

Where payment of installments by Hirer exceed 75%

• If the payment has exceeded 75% of the total cash price of the goods the Owner must
comply with these 4 requirements before starting the process of repossessing the goods:
 There must have been 2 successive defaults of payment
 Owner must first obtain an order of the court– s. 16(1A).
 After that, Owner may serve on the Hirer the 4th Schedule Notice.
 After the expiry of 21 days from the date of service of the 4th Schedule notice, then only
Owner may exercise the power of taking possession of goods - s. 16(1B)

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4. Discuss the effect under the Hire Purchase Act 1967 if a hire-purchase agreement is:

i. Of a print size smaller than the type known as ten-point Times; and

 S. 4A(1) & (1A): A hire purchase agreement shall be in writing and in either the national
language or English Language.
 S. 4A(2) & (3): If not, the agreement is void and the Owner is guilty of an offence.
 S.45(1): The agreement is deemed not to be in writing:
- if the handwriting is not clear and legible; or
- if it is printed, the print is of a size smaller than the type known as ten-point Times.

ii. Signed in blank form by the hirer.

 S. 4B(1) & (2): It must be signed by or on behalf of all parties and duly-completed before it
is signed by Hirer.
 S.4B(2A): Owner shall not deliver to any dealer or agent a Hire-Purchase Agreement which
has not been duly-completed.
 S.4B(3) & (4): Hire-Purchase Agreement is void if it contravenes any of the above and the
Owner, dealer or agent is guilty of an offence.
 Thus, the signing of blank forms by a hirer, a common practice in the past is now outlawed.