The Application of the Hire-Purchase System to Commercial Motors.
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By Samuel J. Sewell (Secretary oi the Hire Traders' Protection Association).
It is common knowledge that a large number of horse cabs are the property of the drivers, they having been obtained on the hire-purchase system, and that many motor manufacturers are now considering whether or not this system of credit cannot be adopted in their trade. Beyood doubt, the hire-purchase system has great advantages over other forms of credit, the principal one being that the property does not pass to the customer until the last instalment, called rent, is paid to the manufacturer. Since its introduction into this country, from France, in i838, for the sale of pianos, the hire system has been taken up by some 30 or more trades, and by none more largely than that of engineering, and it is computed that a hundred million pounds are invested in trades that use this system of credit. It is obvious front this that hire-purchase is no experiment, but a tried and proved method of transferring the property in valuable articles from maker to user.
The Highest Legal Views.
Most of the prejudice against the hire system has now been removed, thanks largely to the Judges of the House of Lords who heard the leading case of Helby versus Matthews. Lord Macnaghten, in his judgment, %, hen referring to the form of contract (hire with the option to purchase), said : " That is an agreement not forbidden by law and not, I think, unreasonable." He went on to say : " I do not see why a person fairly solvent and tolerably prudent ehould not make himself the owner of a piano or a carriage or anything else by means of periodical payments on such terms as those in the present case—the advantages are not all on one side." A third remark of Lord Macnagnrcn's was : " If a coveted treasure is becoming a burthen and encumbrance, it is something, surely, to know that the transaction rnay be closed at once," this referring, of course, to the right of the hirer to return the. goods. The Lord Chancellor (Herschell), in the course of his judgment, made the following statement : " A iwrson who is in possession of a piano under such an agreement (hire with option to purchase) is no more its apparent owner than if he had merely hired it, and, in the latter case, anyone taking it as security would have no claim to hold it against the owner."
The Owner Properly Secured.
The principle underlying hire-purchase is that the customer does not pay, periodically, an instalment of the price, but that he pays a rent, as with a house, though %vial this differencethat, when the rent payments equal the agreed value of the article, the rent ceases and the property in the article automatically passes to the user. In the meantime, the hirer is not at liberty to sell the article, or to dispose of it in any way whatever : he is merely entitled to use it, Should the hirer act otherwise, the owner can not only proceed against him in a police court, but he can recover the article from any person holding it, and without compensation. The owner, in a word, can be certain of either having his rent or the return of his property. There is the only exception to this rule—the landlord may seize it for rent; but, if it be a motorcab and used in trade, in most cases it is protected from his grasp. It certainly is not subject to distress if it is the only article of value on the premises of the hirer. The foregoing rights against third parties are, of course, conditional on the hire agreement used being in proper form.
The Proper Form of Agreement.
There are several kinds of hire agreements in use, but the only one which gives the owner the right to recover his goods from third parties, i.e., persons to whom they have been wrongfully transferred by the hirer, is one which gives the hirer the right to return the motor should he so desire. In other words, to get full protection unCrer hire agreement, the owner must not compel the hirer to purchase, but merely to hire. At one time this was otherwise, but the last Factors' Act provides that the purchaser from a hirer who cannot rid himself of the obligation to buy obtains a good title unless the transaction, so far as he is concerned, Is not bond fide. Having regard to the fact that a motor depreciates considerably as a saleable article immediately it is used, the above-cited Act might seem to render the hire-purchase system unsuitable to the motor and other engineering trades. The difficulty, however, is got over by the insertion of a depreciation clause in the hire contract. Here is an abstract of the hire agreement supplied by the Hire Traders' Protection Association, the sixth clause of which will show what is meant by the term " depreciation clause."
The Hirer agrees:
" (I) To pay a first payment of ,4"; : : on signing this agreement in consideration of the option of purchase herein granted for which credit will only be given in the event of the hirer electing to purchase the said article or paying compensation under clause 6 hereof and in addition theteto " (2) To punctually pay to the owner, without previous demand, the rent of for the hire of the said article commencing this date, the first of such payments to be on the day of next, and so on by so long as the hirer sees fit to continue the hire.
" (3) To keep the said article in good order and repair, damage by fire included, but fair wear and tear excepted, subject nevertheless to clause 6 hereof.
" (4) To keep the said article under the hirer's control, and not to remove the same from above address for a longer period than without the previous written consent of the owner, and to allow the owner, his servants or agents to inspect the same at all reasonable times. " (5) To keep. the said article free and exempt from legal process.
" (6) in the event of the hirer returning the said article under clause (a) hereof before the expiration of months from the date of the executicn of this agreement, the hirer shall pay a further sum which with the previous
payments will equal the sum of .4, by way of compensation for depreciation in value of the said article.
" (7) In case any of the said rent shall be in arrear, or in case the hirer commit any breach of this agreement or suffer any such breach to he committed, or in the event of the said article being seized or taken under colour of or in pursuance of any process of law, the owner shall thereupon without formal demand be entitled to take and resume possession of the said article (without prejudice to the owner's right to recover rent and damages for breach of this agreement up to the date of such re-taking), and for that purpose full power and liberty are hereby given to the owner, his servants, agents, assigns or their agents, to enter into any house, buildings, or premises, of which the hirer may be, or appear to be, tenant, occupier, or owner, and there to search for and retake the said article.
" (8) Any relaxation or indulgence which the owner may show to the hirer shall not in any way prejudice his strict rights under this agreement."
The Owner agrees that : " (a) The hirer may terminate the hiring at any time by returning the said article, but without prejudice to the owner's right to recover rent up to the date of such return, and damages (if any), for any breach of this agreement and compensation (if any) under clause 6 hereof.
" (b) The hirer may at any time during the hire become the purchaser of the said article by paying the sum of and in that event credit will be given for all previous payments.
" (c) The hirer may become the purchaser of the said article by punctually paying the rent as aforesaid, t ut the hirer shall be and remain merely a bailee, unless and
until the full sum of ;6 has been paid at the times and in manner aforesaid.
" (d) Should the owner retake the said article by virtue of the terms of this agreement, the hirer shall have the right either (1) to buy the said article within days provided the hirer pay a sum which together with The previous payments equal the sum of L, and in addition pay the expenes .of, and incidental to, such re-possession, such payments to be made within days after such re-possession as aforesaid, or (2) to resume the hiring provided the hirer pay arrears of hire up to the date of re-possession and present a guarantor to the satisfaction of the owner, and pay the expenses of, and incidental to, the re-taking and removal
of the said article within days after such repossession."
The above form of contract has been considered by the Courts to be thoroughly equitable and, as will be observed, its last clause provides, should the motor be re-possessed by the owner, for the hirer's having the motor returned to him on his paying the amount necessary in order to complete the purchase. Thus, temporary inability to pay an instalment need not mean permanent loss to the hirer.
The Period of Hire-purchase.
In entering into an agreement for the supply of a motor on the hire system, it is, of course, necessary that the rent be much higher than in the case of articles which have a longer life than, say, a motorcab. It would seem that the payments should not extend beyond a peried of one year, and certainly not beyond r8 months, and the first payment should be a substantial one. The agreement requires a sixpenny stamp, which can either be adhesive or embossed. If the former, it must be cancelled by the person first signing the agreement, or, if embossed, it must be presented to the Inland Revenue within 14 days of signature. A witness is necessary to testify to the signature of the hirer, and only for that purpose.
Re-possession.
Provided the hirer pay his instalments refv'ularly, the hire agreement should present no difficulty; but, if he make default, the owner may, under the agreement, re-possess the motor, In doing this, it should be understood that, speaking generally, he can take his property wherever he find it, but may not trespass on premises not awned by the hirer, in winch event he may lay himself open to an action for damages. Even should the motor be on the hirer's premises, he is not allowed, even if the hire agreement gives him the power, to force an outer doer, nor may he act with violence, such as forcing the hirer from the motor. Lord Russell of Killowen, when Lord Chief Justice, in an action by a hirer against ■-1 trader, said that the trader was " entitled to use a reasonable measure of force " in recovering his goods. In spite of this pronouncement, it is better where opposition is offered, to obtain from the Court an order for the hirer to deliver up the article on which he refuses to pay the hire rent. The re-possessing of hired goods can take place at any time, and not merely between sunrise and sunset, as in the case of a distress for rent. It is always advisable to have two or more persons present, in case of disputes. In the event of the death of the hirer, the hiring ceases, and the trader is entitled to the return of the article hired, but the usual practice is for the trader to permit the deceased hirer's family Or friends to continue the contract. Should the hirer want to exercise his right under the contract to return an article, he must return it at his own expense, and until this is done the hire rent runs on. In the case of motors it is highly desirable that the trader compel the hirer to insure against fire and burglary, as we31 as against third-party risks.
Guarantees.
Not a few firms using the hire system insist upon a guarantor, and the following is the form used by members of the Hire Traders' Protection Association : GUARANTEE FORM.
To of of in consideration of your entering at my request into the Hire
Agreement dated 190 with Mr. hereby undertake to guarantee the due performance and observance of all the terms and conditions in the said agreement on the part of the hirer agreed to be performed and observed, and to pay all the expenses you may he put to in enforcing the said agreement, and I agree that no relaxation or indulgence on your part in respect of the said terms and conditions shall prejudice your rights under this guarantee, and if the hirer be an infant, I further agree to be considered as a principal debtor, and to be jointly and severally liable with the hirer to you in accordance with the terms and conditions of the said agreement.
To prevent a landlord from seizing their property, some firms insist upon their hirers getting the following form signed :
In consideration of your paying me one penny or delivering such article, or articles, on the hire system, as per schedule at the back hereof, to Mr. at my request, I hereby agree not to distrain on the said goods so long as you have any property or interest therein, unless I first tender to you such sum as will, together with previous payments, equal the agreed value of the goods. This undertaking shall hold good, notwithstanding any change of or addition to the hire agreement.
Dated this day of 190