SAMPLE ASSIGNMENT ON INTRODUCTION TO MALAYSIAN LAW OF CONTRACT Select a hire purchase contract and compare the contract with

a normal contract. By AhmadRawi The writer can be contacted at scholars.assist@gmail.com

By AhmadRawi The writer can be contacted at scholars.assist@gmail.com

INTRODUCTION A contract is an agreement between two or more persons (individuals, businesses, organizations, or government agencies) to do, or to refrain from doing, a particular thing in exchange for something of value. Contracts can generally be written using formal or informal terms, or they can be entirely verbal. If one side fails to live up to his part of the contract, there will be considered as a breach of contract and certain remedies for solving the differences are available. The terms of the contract, meaning, the who, what, where, when, and how of the agreement, define the binding promises of each party to the contract. Hire Purchase is a type of consumer credit available to consumers. A hire purchase contract is a type of contract that is commonly entered by two parties namely individual or organization (hirer) and the loan facility provider. Hire purchase affairs in Malaysia are regulated by statute i.e. under the Malaysian Hire Purchase Act 1967. The Hire-Purchase Act 1967 is under the jurisdiction of the Ministry of Domestic Trade and Consumer Affairs and regulates the business of hire purchase financing which is normally carried out by Credit Companies licensed under the Moneylenders Act, 1951 (or being granted exemption) and Finance Companies licensed under the Banking and Financial Institutions Act, 1989 (BAFIA) (Lim, 2003,p.1). The Hire Purchase Act 1967 sets out the forms and contents of hire purchase agreements, the legal rights, duties, obligations of both hirer and financier. Basically, hire purchase always deals with the hiring of goods with the option to buy the goods at the end of the hire purchase term. Therefore if a person takes on a hire purchase financing, he is the hirer and financier is the owner. In Malaysia, particularly, goods that be concluded under the Hire Purchase Act are all consumer goods, motor vehicles (including both types private and commercial vehicles) DISCUSSION 2

For the purpose of this paper, a vehicle hire purchase agreement by Name withheld is selected and will be compared with normal contract. There are several differences between the hire purchase contract and normal contract as revealed by the comparison. With regard to differences, the most fundamental difference between the two is the manner prescribed by statutes on how the respective contracts can come into being. Section 3 of the Malaysian Contracts Act 1950 provides that the making of a proposal and the acceptance of a proposal (i.e. a contract) can be made in any manner (verbal or in writing) as long as such proposal or acceptance of proposal can be communicated to the other party. However, for hire purchase contract, Section 4A of the Hire Purchase Act 1967 stipulated that the hire purchase contract must be made in writing and hire purchase contract can only be made in relation to good specified in the First Schedule of the Hire Purchase Act 1967 (i.e. consumer goods and motor vehicles including private and commercial vehicles. Section 4A also stated that hire purchase agreement which is not in writing is void. This paper will now look into the Name withheld hire purchase agreement and compare the same with normal contract. The content of Name withhelds hire purchase Agreement is regulated and basically the same with the content of hire purchase agreement of other bank. The interests of the hirer, as consumers is taken to be safeguarded by the Hire Purchase Act 1967. Regulating the content of hire purchase agreement is a method employed by the Hire Purchase Act to safeguard the hirers interests. The Name withheld hire purchase agreement is statutorily required to follow the conditions prescribed by the Hire Purchase Act 1967. In particular the Section 4C(1) of the Hire Purchase Act 1967 prescribed that every hire-purchase agreement shall : (i) (ii) (iii) specify a date on which the hiring shall be deemed to have commenced; specify the number of instalments to be paid under the agreement by the hirer; specify the amounts of each of these instalments and the person to whom and the place at which the payments of these instalments are to be made; (iv) specify the time for the payment of each of those instalments;

(v) (vi)

contain a description of the goods sufficient to identify them; specify the address where the goods under the hire purchase agreement are;

This is different from normal contract where parties to a normal contract are free to negotiate term of their contract. Basically there are no standard terms and conditions to be put in normal contract as long as the fundamental essences namely offer, acceptance and consideration is presence. The Contract Act 1950 regulates the content of normal contract only in general terms as can be found in Section 25 to Section 31 of the Contract Act 1950. The other difference between the hire purchase contract and normal contract is that before the hire purchase agreement can be signed the financial institution is statutorily required by the Hire Purchase Act to serve on the intending hirer a written statement duly completed and signed by him in accordance with the form set out in Part I of the Second Schedule of the Hire Purchase Act. Any hire purchase agreement which is entered without executing this preliminary step will be void and the financial institution or its agent shall be guilty of an offence under the Hire Purchase Act (Section 4(4) and Section 4(5)). Even after it is signed, it is not automatically in force unless the bank has provided its consent. Item 17.1 of the Name withheld hire purchase agreement provided that the agreement shall not be binding upon the bank until the bank has executed its consent in the form of Part II of the Second Schedule of the Hire Purchase Act and any delivery of the good made pending such consent is merely conditional and can be revoked. Another fundamental difference between a hire purchase contract and normal contract, in particular sale and purchase contract is regarding ownership of the subject matter. In a hirerpurchase agreement, the financial institution (in our case, Name withheld) will always be known as the owner of the subject matter being purchased by the borrower of the loan facilities. The ownership of the goods bought on hire purchase does not pass to the hirer upon signing of the agreement.For as long as the hire purchase agreement is in force, and the loan provided is still not paid in full, ownership of the subject matter of the hire-purchase agreement will be vested in the financial institution concerned and the borrower will be known as the hirer notwithstanding the fact that the subject matter of the higher purchase agreement is within the physical possession of the hirer. 4

Item 6.1 of the Name withheld hire purchase agreement emphasis this matter by listing down what the hirer can and cannot do to the subject matter of the agreement (i.e. the vehicle) for as long as ownership is not transferred to the hirer.The said item 6.1 stated that the hirer shall not sell, transfer, dispose of or encumber the good being hired (Item 6.1.1). This however does not mean that a hirer is not allowed totally to transfer his rights under the hire purchase agreement. Transfer of right and interest is possible under hire purchase agreement provided consent must be obtained from the financier and all parties involved respectively. This is contained in item 6.1.2 of the agreement whereby it is stated that the owner can only assign his rights, title and interest under the agreement with the consent in writing of the bank. It is only after the hirer has fully paid the loan will the ownership be transferred to the hirer. Item 12.1 of the hire purchase agreement stated that if the hirer has duly performed and observed all the stipulations and conditions under the agreement and has paid all the money payable to the owner under the agreement the hire purchase agreement shall come to an end and the good (vehicle) shall become the property of the hirer and the owner (bank) will transfer all the rights benefits and interests under the agreement to the hirer. In a normal contract, where the full purchase price is normally paid in a one-off manner i.e. without installment, right of ownership is transferred immediately to the purchaser. Another fundamental difference is the effect of breach of contract. In a hire purchase contract, where the borrowers defaulted in their monthly payments the financier may repossess the goods. This is stated in item 11.1 of the Name withheld hire purchase agreement whereby it is stated that in the case of any breach of the provisions of the hire purchase agreement relating to the payment of installments, the bank shall be entitled to immediate possession of the good (i.e. vehicle) and may immediately terminate the agreement without notice and resume and take possession of the good (vehicle). Meanwhile, the effect of breach of normal contract is provided by Section 74(1) of the contract Act 1950. The said section stated that When a contract has been broken, the party who suffers by the breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him by the breach. The provision in normal contract regarding death of a party to a contract is also different from 5

hire purchase contract. Section 38(2) of the Contracts Acts 1950 provides that where no contrary intention can be deduced from the contract, the death of a party to a contract does not discharge him from the performance of the contract, instead his representatives is bound to fulfill his obligation on his behalf under the contract. Nothing can be found about the effect of death of hirer in the Name withhelds hire purchase agreement. However, according to Bank Negara website, if the personal representative has obtained a Letter of Administration or Grant of Probate, the rights, title and interest will be transferred to the personal representative who will take over the responsibilities of the hirer. Otherwise, the banking institution will repossess the motor vehicle after defaults in four successive monthly instalments (Bank Negara, 2011). Another unsatisfactory difference of a hire purchase agreement is regarding its termination. In practice there is no way a hirer can terminate the agreement unless he pay the loan sum in full.Item 10.1 of the Name withheld hire purchase agreement purportedly gives the owner the right to terminate the agreement by returning the goods (vehicle) to the bank and by paying to the owner the balance outstanding under the hire purchase agreement. In practice, however, item 10.1 is an eye candy provision since there is no way a hirer can terminate the agreement unless he pays the loan sum in full. This is because item 11.4 of the hire purchase agreement stated that if the bank is unwilling to take possession of the returned good (vehicle), the bank is entitled, instead of taking possession of the vehicle, to recover on demand from the hirer the balance outstanding of his loan under the agreement. CONCLUSION The Hire Purchase Act 1967 is the governing law for hire-purchase transaction in Malaysia. Its main objective is to protect the hirers and guarantors against unscrupulous dealers who directly handle the transaction. Such protection constitutes a major strength of the Hire Purchase Act 1967. Apart from this protection, Hire Purchase Act 1967 maintains its strength by providing clear procedure and formalities of a hire-purchase transaction, spelling out rights and liabilities of the owner, hirer and guarantor and, prescribing legal remedy as well as penalty for the claimant and offender respectively. Despite possessing some advantageous features, HPA, like any other law, is not completely perfect and does contain certain loopholes, for instance, unclear documentation, limited application to certain goods only (Abdullah and Dusuki,2006,p.11).

Amongst complain directed at hire purchase framework in this country is the rate of interest charged is the annual effective rate of interest. It is very much higher for example in the case of a hire purchase loan, if an interest rate of 8.5% per annum is charged for a loan taken out for five years then the actual annual effective rate of interest is actually about 16.5% per annum (Lim, 2003,p.7). Another area where complaints are common regarding hire purchase is that of repossession fees and storage fees. When the borrower defaults in repayment, the hirer will use agents to repossess the hired goods (in most instances motor vehicles) and then charges repossession fees and storage fees (if the borrower takes time to settle the repayment due and collects his goods late). The fee varies from hirer to hirer and from circumstance to circumstance and totally beyond control of the borrower. The Act or the regulations under it does not have a schedule of fees which the borrower may refer to so as to ensure the fees charged are reasonable and allowable under the law (Lim,2003,p.7). There are many problem areas in the field of consumer credit in this country. The interests of consumers are not protected. Even in area where laws exist (e.g. hire purchase transaction), the laws have weaknesses that work to the detriment of consumers (Lim, 2003,p.8). As such this paper submits that measure must be taken by the government in relation to hire purchase contract to effectively safeguard the interest of consumers.

REFERENCE : The Contracts Act 1950 The Hire Purchase Act 1967 Abdullah, N.I and Dusuki, A. W. (2006). A Critical Appraisal of Al-Ijarah Thumma al-Bay (AITAB) operation: Issues and Prospects. 4th International Islamic Banking and Finance Conference. Monash University of Malaysia. Kuala Lumpur, November 13th-14th. Bank Negara Malaysia(2011) Frequently Asked Questions:Hire Purchase.[Online] available at http://www.bankinginfo.com.my/04_help_and_advice/0407_faqs/faq_hire_purchase.php? intPrefLangID=1& Lim, K.L. (2003) Consumer Credit Regulations in Malaysia: A Country Report. Asian Conference on Consumer Protection, Competition Policy and Law 28 February - 1 March 2003 Kuala Lumpur, Malaysia available at http://www.ciroap.org/apcl/asian_conference.htm