Financial Accounting

Default and Repossession in Hire Purchase

‘Default’ is the failure to act, appear or pay i.e., failure to meet the obligation. Under a hire purchase agreement, the hirer has an obligation to pay up to the last instalment so that the ownership of goods smoothly passes to him. If he fails to meet this obligation, it will be treated as default on his part.

Possession of goods means the physical holding of goods. You know that under hire purchase agreement the vendor transfers the possession of goods. He does not transfer the ownership, and if the hirer fails to pay even the last instalment he has the legal right to recover the possession of the goods. This act of recovery of possession is termed as ‘repossession’.

Rights of the Hire Vendor

Rights of hire vendor to terminate hire purchase agreement: Where the hirer makes more than one default in payment of instalment as provided in the agreement, the hire vendor (the owner) shall be entitled to terminate the agreement by giving the notice of termination in writing.

Rights of the hire vendor on termination: Where a hire purchase agreement is terminated, the hire vendor (the owner) shall-be entitled

(i) to enter the premises of the hirer and seize the goods,

(ii) to retain the hire charges already paid and to recover the arrears of hire charges due, and

(iii) to claim damages for yon-delivery of the goods.

Restrictions on the Owner

The above rights of the owner are, however, subject to the following restrictions :

Rights of the hirer in case of seizure of goods by the owner: where the owner seizes the goods lent under a hire purchase agreement, the hirer may recover from the owner the amount, if any, by which the hire purchase price falls short of the aggregate of two amounts

(a) the amounts paid in respect of the hire purchase price up to the date of seizure) and

(b) the value of the goods on the date of seizure.

Restrictions on owner’s right to repossess: Where goods have been let under a hire purchase agreement, and the statutory amount of the hire purchase price has been paid, the owner shall not enforce any right to recover possession of the goods from the hirer otherwise than by ‘verdict of any competent court

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