Business/commercial law revision question and answer

  • Explain how a hire purchase agreement differs from:
    • A credit sale agreement; (6 marks)
    • A conditional sale (4 marks)


• Quiet possession: Under section 8(1) of the Act there is implied warranty that the hirer shall have and enjoy quiet possession of the foods.

• Free from charge of encumbrance: under section 8 (1) of the Act, there is an implied warranty that the goods will be free from any charge of encumbrance in favour of third party when property is to pass.

 Credit sale
This is a sale on credit. This is a contract of sale of goods wherethe purchase price is payable five or more installments. The property in this case passes on the payment of the first installment and the owner losses his rights against the goods. This means the purchase can give a good title to a subsequent purchaser even when he himself has not completed the purchase. In Lee V. Butler (1893) Y bought furniture under a credit sale agreement and resold them to D before he had paid all the instllments. The original seller sued D for recovery and it was held that D had obtained a good tile as under a credit sale agreement property in the goods passes with the payment of the first installment.

The distinction between a hire-purchase agreement and a credit sale is that whereas the latter is a contract of sale with an obligation to purchase the former is a hiring contract. The hire purchase agreement is a contract letter between the owner of goods and the hirer while in credit sale, the parties are seller and buyer.

A conditional sale agreement
A conditional sale is a contract of sale of goods wherepart of the purchase price is payable installments. Property in the goods pass to the buyer when the condition(s) prescribed the seller is fulfilled. It differs from a hire purchase agreement as in that it is a contract of sale whether a hire purchase agreement is a contract of hiring.

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