LAW ON HIRE PURCHASE

LECTURE 9

Charles Nicholson
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APPLICABLE LAW

The law on hire purchase in Malaysia is contained in the

Hire Purchase Act 1967 amended by the Hire Purchase
(Amendment) Act 2010.

The Act regulates the form and contents of hire-purchase

agreements, the rights and duties of parties to such
agreements and makes provisions for other matters
connected therewith.

The Act applies throughout Malaysia in respect of hire

purchase agreements relating to the goods specified in the
First Schedule - s. 1(2) HPA

LIST OF GOODS under the First Schedule.

1. All consumer goods
2. Motor vehicles, namely a) Invalid Carriages
b) Motor Cycles
c) Motor Cars including taxi cabs and hire cars
d) Goods Vehicles limit on max. weight - 2540 kg.
e) Buses, including stage buses

Consumer goods means goods purchased for personal,

family or household purposes s. 2(1)

invalid carriages: motor vehicles which are specially

designed and constructed or adapted for the use of a
person suffering from some physical defect or disability
and the unladen weight of which does not exceed 250
kilogrammes s. 5(1)(a) Road Transport Act 1987

The Act would apply to hire purchase agreements in

respect of goods not covered by the Act if the parties
have agreed to be bound by the provisions of the Act.
Kesang Leasing Sdn Bhd v. Mohd Yusof bin Ismail &
Anor. [1990] 1 MLJ 291

In respect of goods not specified under the First Schedule

the parties are free to contract outside the provisions of
the Act if they do not agree to be bound by the Act.

Even though an agreement may not fall within the ambit

of the Hire-Purchase Act (not within the First Schedule)
and is also not a bill of sale, it is a valid hire-purchase
agreement under common law.

A hire-purchase agreement at common law is regarded as

a form of contract whereby the owner lets goods out on
hire and agrees that the hirer may either return the goods
and terminate the contract or elect to buy the goods on
the completion of the required periodic payments.
MBF Finance Bhd. v. Low Ping Ming T/A Low Peng
5
Enterprise [2005] 3 MLJ 208 CA

DEFINITIONS S. 2(1)

A hire-purchase agreement is defined in s. 2(1) HPA to

include:a letting of goods with an option to purchase, and an
agreement for the purchase of goods by instalments.

Property in the goods does not pass at the time of the

agreement or at any time before delivery.

Until the hirer had exercised his option to purchase by

paying the total amount and fulfilling all his obligations
under the hire purchase agreement, property in the goods
do not pass to the hirer. It remains with the owner.

Credit Corporation (M) Sdn Bhd v. the Malaysian

Industrial Finance Corp. & Anor [1976] 1 MLJ 83.

It excludes agreements under which goods are delivered

to a dealer for the purpose of sale of the same goods.

A hirer is a person who takes goods from an owner

under a hire-purchase agreement and includes a person
to whom the hirers rights or liabilities under the
agreement have passed by assignment or by operation of
law.

The owner is a person who lets goods to a hirer under

a hire-purchase agreement and includes a person to
whom the owners rights or liabilities under the
agreement have passed by assignment or by operation of
law.
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FORMATION OF A HIRE PURCHASE AGREEMENT

Before a hire purchase agreement is entered into, the

owner is required to give the prospective hirer a written
statement duly completed and signed in accordance with
the form set out in Part 1 of the Second Schedule.

The document contains a short description of the goods

comprised in the hire purchase agreement and a summary
of the hirers financial obligations under the proposed hire
purchase agreement.
s. 4(1)
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Particulars include:- cash price of the good, deposit,

insurance, term charges, duration of payment of
instalments, number of instalments, amount of each
instalment, etc.

This pre-contractual duty of disclosure is a mandatory

obligation on the part of the owner the noncompliance of which would render a hire-purchase
agreement void s. 4(4)
Affin Credit (Malaysia) Sdn Bhd v. Yap Yuen Fui
[1984] 1 MLJ 169 (Federal Court)

A hire purchase agreement shall be in writing and it shall

be either in the national language or the English
Language - s. 4A(1) & (1A). Otherwise it shall be void
s. 4A(2).
The agreement is deemed not to be in writing:
if the handwriting is not clear and legible; or
where it is printed and the print is of a size smaller than
the type known as ten-point Times;
or that is not printed in black - s. 45(1).
It must be signed by or on behalf of all parties to the
agreement - s. 4B(1)
The hire purchase agreement must be duly completed
before it is signed by the hirer - s. 4B(2). It shall be void
if it contravenes s. 4B(1) &(2).
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s. 4C(1) lists the information that must be contained in

every hire purchase agreement the contents include:-

the date of commencement of the hiring;

the number of instalments;
the amount of instalments, time of payment, to whom and
where they are payable;
the description of the goods sufficient to identify them;
the address where goods are situated;
consideration where consideration is not cash such as
an old car used for trade-in, then there has to be a
description of the trade in;
particulars on the cash, deposit, freight, vehicle
registration fees, insurance, charges and the amount
payable (all this has to be contained in a table);

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There must be a separate HP agreement in respect of

every item of goods purchased under the Act - s. 4D(1)
Otherwise, the agreement is void - s. 4D(2) and the
owner is guilty of an offence - s. 4D(3)

Arab-Malaysian Finance Bhd v. Borneo Wood (Sabah)

Sdn Bhd & Ors. [2008] 7 MLJ 834 where an agreement
which listed three goods cumulatively instead of item by
item was held by the High Court to be void.

Where the good is a motor vehicle, the hirer may request

in writing to the owner to keep the registration certificate
of the motor vehicle and the owner shall furnish the
same to the hirer. Failing which, the owner commits an
offence under the Act s. 4E
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A hire-purchase agreement relating to a motor vehicle

shall be void if the motor vehicle has been altered or
modified in its construction and structure - s. 4F.

Where the good is a second-hand motor vehicle, the

owner/dealer shall declare in writing any defects of the
second-hand motor vehicle in accordance with the
inspection report by the relevant authority determined by
the Controller of Hire-Purchase - s. 4G

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If there is any alteration or addition in the hirepurchase agreement, the hirer must sign or initial the
margin opposite to the alteration or addition to show
his consent thereto. If not, the alteration or addition
will have no effect - s. 39

The owner is required to serve on the hirer and the

guarantors a copy of the hire purchase agreement
within 21 days after it has been made s. 5(1).

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IMPLIED CONDITIONS AND WARRANTIES

The law implies certain conditions and warranties in every

hire purchase agreement - s. 7(1).
These are:-

(a) an implied warranty that the hirer shall have and enjoy
quiet possession of the goods - s. 7(1)(a).
(b) an implied warranty that the goods shall be free from any
charge or encumbrance when the property in the goods is
to pass- s. 7(1)(c).
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(c) an implied condition that the owner has the right to sell
the goods at the time when the property is to pass s. 7(1)(b).

See: Krishnasamy a/l Supramany v. Arab-Malaysian

Finance Bhd [2009] 7 MLJ 455 where the issue before
the court was whether the defendant had a good title to
the said car when the hire purchase agreement was
entered into and whether they could give a good title to
the plaintiff.

S. 7(2) provides that there shall be an implied condition

that the goods shall be of merchantable quality.
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Merchantable quality means that goods sold are

reasonably fit for the purpose for which they are required
the hirer has made known to the owner or dealer the
particular purpose for which the goods are required.

Such condition shall not be implied :-

where the hirer has examined the goods or a sample

thereof, as regards defects which the examination ought
to have revealed.
if the goods are second-hand goods and the agreement
contains a statement to the effect that
the goods are second-hand;
all conditions and warranties as to quality are negatived;
the hirer has acknowledged in writing that he had been
notified - s. 7(2)(b).

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LIABILITY OF OWNER AND DEALER FOR

MISREPRESENTATION

If the owner made a misrepresentation in the course of

negotiations leading to the hire purchase agreement, the
hirer has the right to rescind the agreement and sue
for damages s. 8(1)(a).

Where the dealer has made a misrepresentation, the hirer

cannot repudiate the agreement. He can only sue for
damages s. 8(1)(b)

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RIGHTS OF HIRERS Sections 9-15

Right of hirer to a statement relating to his financial

position.
Right to appropriation of payments.
Right to apply to court for an Order for the goods to be
removed to some other place.
Right of hirer to assign rights with consent of owner.
Right to have title and interest passed by operation of the
law to PR of hirer or liquidator, if a co..
Right to complete the purchase of the goods earlier than
the due date.
Right to terminate the Agreement by returning the
goods.
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DUTIES OF HIRERS
The main duties of the hirer are as follows:

Goods must be stored in the place specified in the hire

purchase agreement.

To pay his instalments regularly.

Given that the hirer has no title to the goods comprised

in the hire purchase agreement, he may not remove,
sell or dispose of any of the goods so as to defraud the
owner.

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REPOSSESSION

The owner is entitled to recover possession of the goods

when the hirer has committed a breach of his contractual
obligations relating to the payment of instalments under
the hire purchase agreement:Provided:
the payment of instalments by the hirer must not exceed
75% of the total cash price of the goods;
the hirer has defaulted in 2 successive payment of
instalments;
the owner has served on the hirer a notice in writing in
the form set out in the Fourth Schedule of his intention
to retake possession (Fourth Schedule notice); and
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the period fixed by the notice must have expired and this
must not be less than 21 days after service of the notice S. 16(1)
Pang Bros. Motor Sdn Bhd v. Lee Aik Seng [1978] 1
MLJ 179
In addition to sending out the Fourth Schedule notice
and before repossession, the owner must send another
notice by registered post to the hirer not earlier than 14
days after the service of the FSN to inform the hirer that
the owner intends to take possession of the goods
Regulation 3, Hire-Purchase (Recovery of Possession
And Maintenance of Records By Owners) Regulations
1976.
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If the payment of instalments by the hirer amounts to

more than 75% of the total cash price of the goods and
there has been 2 successive defaults of payment, the
owner is required to obtain an order of the court before
taking possession of the goods s. 16(1A)

Where the owner has obtained an order of the court and

he has served on the hirer the Fourth Schedule Notice
and after the expiry of twenty-one days from the service
of the notice, the owner may exercise the power of
taking possession of goods - s. 16(1B)

Where the hirer is deceased, there has to be 4 successive

defaults of payment of instalments before the owner
takes possession of the goods - s.16(1C)
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The person who undertakes repossession of the goods

must obtain a written permit issued by the Controller of
Hire-Purchase s. 17A & B

After taking possession of the goods, the owner must

then personally deliver to the hirer a document
acknowledging receipt of the goods after having taken
possession of the goods s. 16(4) & (5).

Within 21 days after the owner had taken possession of

the goods, he must serve on the hirer and guarantors a
notice in writing in the form set out in the Fifth
Schedule of the Act - s. 16(3).
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Owner to retain goods for 21 days s. 17

Where the owner has taken possession of the goods

under s. 16, he cannot sell or dispose of the goods
before the expiration of 21 days after the date of
service on the hirer of the Fifth Schedule Notice
under s. 16(3) s. 17(1)

The owner must get the written consent of the hirer if

he wants to sell the goods before the expiration of the
21 days.
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Hirers Rights and Immunities when Goods are

Repossessed s. 18
Upon receipt of the Fifth Schedule Notice under s. 16 (3),
the hirer may within 21 days give notice to the owner
requiring the owner to:(a) Redeliver to him the goods that have been
repossessed (subject to compliance by the hirer of
the provisions of s. 19); or
(b) Sell the goods to any person introduced by the
hirer who is prepared to buy for cash at a price not less
than the estimated value of the goods set out in the
notice - s. 18(1)(a)

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Hirer to Regain Possession of the Goods s. 19

The owner shall return the goods to the hirer if within 21

days after the hirer gives notice to the owner under s.
18(1)(a), the hirer :-

pays to the owner any amount due in respect of the period

of hiring up to the date of the payment- s. 19(1)(a);

remedies any breach of the agreement - s. 19(1)(b); or

where the owner has taken possession of the goods, pays

to the owner reasonable costs and expenses incurred by
the owner in taking possession and of returning them to
the hirer
s. 19(1)(c).
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INSURANCE
An owner is responsible to take insurance against any
risks he thinks fit in the name of the hirer :
for motor vehicles for the first year only, and
for all other goods for the duration of the hire-purchase
agreement s. 26(1)
For motor vehicles, the hirer is responsible to insure the
vehicle for the subsequent years s. 26(2)
An owner cannot force the hirer to buy insurance from
one particular insurer s. 26(3)
The hirer shall inform the owner at least 14 days before
the expiry of the insurance policy that he had renewed
the said policy s. 26(5). If he fails to do it, the owner is
at liberty to insure the vehicle and the costs incurred
shall be borne by the hirer s. 26(6)
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SPECIFIC TERMS & CONDITIONS

Term charges - shall not exceed the rate fixed by the

Act. The maximum limit for term charges at a fixed
rate is currently 10% per annum and for term charges
at a variable rate is 17% p.a. (Hire-Purchase (Terms
Charges) Regulations 2005)

The hirer shall have an option for the term charges to

be at a fixed rate or at a variable rate where the
charges will be quoted at a margin percentage above
the base lending rate - S. 6A
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Booking Fee S. 30A

No owner or dealer shall collect a booking fee from

an intending hirer before receipt of the duly
completed form set out in Form II of the Second
Schedule by the hirer.

The booking fee shall not exceed 1% of the cash

price of the goods and it shall form part of the deposit
in respect of the goods.

Upon withdrawal of the booking, the owner shall

refund 95% of the booking fee to the intending hirer.

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Minimum deposits - The minimum deposit in cash

and/or in goods shall not be less than 10% of the cash
price of the goods. The maximum financing under hirepurchase is therefore 90% of the cash price of the goods
- s. 31

Interest on overdue loan instalments currently interest

is charged at a rate of 8% per annum for term charges at
a fixed rate or 2 % above the prevailing rate for term
charges at a variable rate at simple interest calculated on
a daily basis s. 34(c)

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