Minimum Payment Clause Under Hire Purchase

The Hire Purchase Act 1965, Laws of the Federation of Nigeria stipulates the amount required as percentage for the initial payment of the hire purchase agreement. The process of calculating the amount payable by the hirer is also one of the areas of concern in this article along with how much is payable by the hirer as installments payment for that purpose. The Act also regulates the amount required for payment. The effect of the minimum payment clause (MPC) is the right of the hirer to be able to terminate the agreement.

To this effect, the hirer cannot terminate the agreement without paying a calculated sum for wear and tear of his use of the goods. The exercise of the right of the hirer to terminate does not take into account the depreciation of the goods (even if it is just ordinary wear and tear) and the owner’s anticipation of profit which could occur from the termination by the hirer prematurely. The minimum payment clause is usually for the protection of the hirer. It could also assume all forms. There are cases of stipulation for the payments of the fixed percentage of the hire purchase.

In my opinion, I would define Minimum Payment Clause (MPC) as thus;

‘an amount payable legally by the hirer to the owner in event of termination of hire purchase agreement (where deposit has been made, alongside subsequent payment of installments), it is not a penalty or compensation for depreciation but a compensation for the loss accrued by virtue of the owner’s anticipation of profit and payment of other installments.’

In the case where the owner is the one who terminates, the payable amount ( MPC) is regarded as a penalty. This provision in the Hire Purchase Act creates a liability of the hirer accruing his bona fide right to terminate.

Process of Assessing the Hirer’s Payable Amount

Section 8( 1 ) of the Hire Purchase Act states thus:

“A hirer shall, at any time before the final payment under a hire-purchase agreement falls due, be entitled to determine the agreement by giving notice of termination in writing to any person entitled or authorised to receive any sums payable under the agreement and shall, on determining the agreement under this section, be liable, without prejudice to any liability which has accrued before the termination, to pay the amount, if any, by which one-half of the hire-purchase price exceeds the total of the sums paid and the sums due in respect of the hire-purchase price immediately before the termination, or such less amount as may be specified in the agreement.”

This gives the hirer a right to terminate the agreement, on grounds of termination of the agreement, the hirer is liable to effect a fifty percent (50%) 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 if his terminating the agreement, except such installments which have accrued are arrears.

In this regard, suppose Collins hires a billion van of which the hire purchase price is two thousand naira (N2,000). Collins made an initial deposit of four hundred naira (N400), and the balance is payable monthly equal installments of one hundred naira (N100). Where Collins pays three (3) installments and two (2) installments are in arrears (are unpaid). Find out what Collins liability in the event of him terminating the hire purchase agreement.

Solution

Bullion van Hire Purchase Price= N2,000

Initial deposit= N400

Installment paid=N300 

Installment unpaid=N200

      + —————————————— 

Total sum paid and due=N900

Half H. P. P.=N1,000

•N1,000-N900=N100

The amount which was due but unpaid is N200 is not prejudiced, being a liability was accrued before the termination.

:- Minimum payment clause payable by

Collins=N100+N200=N300

Therefore, the assessment of the Hirer’s liability under section 8( 1 ) of the Hire Purchase Act 1965 contemplates that any stipulation regards to a minimum payment clause in an hire purchase agreement will be valid. If the amount specified therein is less than the amount payable under the actual application of section 8( 1 ) of the Hire Purchase Act 1965.

However, it is only after a practical application of section 8( 1 ) of the Hire Purchase Act that one can determine which will be advantageous to the owner or the hirer.

Likely Liabilities on Hirer Following Termination

Whence the hirer exercises his right to termination of the hire purchase agreement, the a statutory duty to take reasonable care of the goods is imposed on him. This is provided for in section 8( 2 ) of the Hire Purchase Act 1965. However, if the goods are either damaged or destroyed the owner has a remedy in damages.

In an instance where the hirer has terminated the agreement but wrongfully retains the goods, according to section 8( 3 ) of the Hire Purchase Act, he shall be compelled to deliver the goods to the owner without being given the opportunity to pay for the value of the goods.

Effect of Minimum Payment Clause Stipulation Agreement as provided in the Act

Section 8( 1 ) of the Hire Purchase Act recognizes statutorily the hirer’s right to terminate the agreement. In such an event of termination the combined effect of section 8( 1 ) and section 3( b ) and ( c ) is that any sun stipulated by way of MPC will be void.

Note that the hirer may sometimes, for some reasons, elect to cancel the old agreement and substitute it with a new one for the payment of the balance of the hire purchase price.

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About Author

Emunotor Efetobore hails from Ethiope East Local Government of Delta State and is currently undergoing her undergraduate studies at the Faculty of law oleh campus. She published her first hardcopy book titled ‘So Far, So Good’ 2025. She loves music and enjoys alone time. You can follow her up on instagram her official page at genz.girlie.in.silk – and other social networks. She is open to networking and collaboration.