The Hirer's Right of Termination and the Minimum Payment Clause

Under the Common Law

Under the common law, the hirer’s right to determine a hire a purchase agreement was unqualified. No formality was required in order to enable the hirer to terminate the agreement. If the object of desire loses its attraction on closer acquaintance – if faults are developed or defects discovered – if a coveted treasure is becoming a burden and an encumbrance, it is something, surely to know that the transaction may be closed at once…

Under the common law, the owner could make use of the minimum payment clause when the hirer terminated the transaction or he breaches the agreement.

In the case of Associated Distributors Ltd vs. Hall 1938 2 K.B 83, the hirer returned the bicycle he hired after paying just one instalment. There was a minimum payment clause stating that upon termination of the agreement, the hirer would pay half of the total hire purchase sum. The court held that since this was the agreement of the parties and it didn’t amount to a penalty, the hirer has to pay this sum of money.

In the case of Cooden Engineering Co Ltd vs. Stanford 1953 1 QB 86, after the hirer defaulted on the payment of instalments, the owner seized the goods and sued under the minimum payment clause. The clause provided that in the case of termination, the hirer would pay a hundred percent compensation. The court held that this was an instance of a penalty and thus, the minimum payment clause could not be applicable.

Under the Hire Purchase Act

The minimum payment clause is usually for the protection of the hirer. It could assume all sorts of forms. There are also cases of stipulation for payments of a fixed percentage of the hire purchase price or an amount payable by way of agreed depreciation of the goods.

Mode of Assessment of Amount Payable by the Hirer: Section 8 (1) of the Act gives the hirer a right to terminate the agreement. However, the event of termination of the agreement, the hirer is liable to effect a fifty percent minimum payment. If the hirer has paid more than half of the hire purchase, he will not be expected   to bear further financial burden by reason of his terminating the agreement, except such instalments which have accrued as arrears. The assessment of the hired liability under section 8 (1) contemplates that any stipulation with regard to minimum payment clause in the hire-purchase agreement by the parties will be valid, if the amount specified therein is less than the amount payable.

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