CAVEAT EMPTOR

LCC200, 2011

The doctrine of Caveat Emptor

Its a maxim which means let the buyer beware. Its the duty of the buyer to be careful while purchasing gds of his requirement. In the absence of any enquiry from the buyer, the seller is not bound to disclose every defect in the gds he may be aware of. If a buyer depends upon his own skill & makes a bad purchase, in the absence of any fraud, misrepresentation, or guarantee by the seller he is fully responsible.

Example
A, purchases a horse from B. A needed a horse for riding but did not mention this fact to B. The horse is not suitable for riding but is suitable only for being driven in a carriage. Caveat emptor being the rule, A can neither reject the horse nor can he claim compensation from B.

Exceptions to the general rule

1. Where the seller makes a misrepresentation & the buyer relies on it. Such a contract is voidable @ the option of the innocent party, there4 buyer has a right to rescind contract. 2. Where the seller makes a false representation amounting to fraud & the buyer relies on it, or where the seller actively conceals a defect in the goods so that the same could not be discovered on reasonable examination. Ditto 1. 3.Where gds r purchased by description & they do not correspond with the description.

Exceptions
4. Where the goods r purchased by description from a seller who deals in such class of goods & they r not of merchantable quality. 5. Where the gds r sold by sample, the doctrine does not apply if the bulk does not correspond with the sample, or if the buyer is not given an opportunity 2 compare bulk-sample, or if there is any hidden defect in the gds. 6. Where the gds r bought by sample & description & the bulk does not correspond with the sample & with the description, the buyer is entitled to reject them.

Exceptions
7. Where the buyer makes known 2 the seller the purpose 4 which he requires the goods & relies upon the sellers skill & judgment but the gds supplied r unfit 4 the specified purpose. 8. Where trade usage attaches an implied condition or warranty as 2 quality or fitness &the seller deviates from that, the doctrine will not apply. ***************

HIRE PURCHASE
All hire-purchase transactions r embodied in the Hire Purchase Act Cap 507 L.o.K. Act was transferred in 1968 & adapted in 1970. Sec 2 defines a hire purchase agr. as an agr. 4 the bailment of gds under which the bailee may buy the goods or under which the ppty in the gds will or may pass to the bailee. The bailee/hirer has only an option 2 buy Bailment is derived from the French word bailer which means 2 deliver. Bailment means delivery of gds from one person

HP
to another (person) known as the bailee with specific instructions that the ppty be dealt with by the bailee upon the express or implied condition that the gds shall be returned to the bailor as soon as the purpose 4 which the bailee took possession of the gds is completed. The gds may also be returned 2 some other person designated by the bailor. A bailee is responsible 4 any negligent (but not accidental) damage to the gds.

HP
A buyer under Cap 31 is under obligation 2 buy the gds but the hirer or bailee under Cap 507 only has an option 2 buy the gds. A person who purchases these gds from s/body to whom they have been let does not acquire a better title no matter how innocent he was or how much consideration he had offered i.e. the hirer is not a buyer in possession sec 26(2) Cap 507 & nemo dat quod non habet applies.Helby v. Mathews[1895] AC 471

Types of Hire Purchase Agrs

Type 1-most common The owner of the gds hires the gds 2 the hirer & remains the legal owner until the hirer has satisfied all the conditions of the agr. It does not matter that the hirer is in possession, the owner (still) remains the legal owner until hirer has satisfied all conditions. Type 2 Found in the words of Justice Roche in the case of Modern Light v Seals[1934]1 KB 32 @ 40. A financier or banker who is finding the money & who

Types of HP Agrs
who as a rule is quite a different person from either the dealer or the purchaser of gds such as cars makes himself the owner of the property then hires it out in a h/p agr 2 the person who is going 2 use it & who has the option 2 buy it. Note that the H/P Act applies 2 all h/p agrs under which the h/p price does not exceed Ksh 80k other than a h/p agr in which the hirer is a body corporate (wherever incorporated). Sec 2 of Act defines h/p price as the total sum payable by the hirer under an h/p agr in order 2 complete the purchase of gds 2 which the agr relates, including any sum payable by the hirer by way of deposit or other initial payments or credited or to be credited 2 him.

Types of h/p agrs

Under the agr any such deposit or payment whether that sum is to be or has been paid 2 the owner or 2 any other person or is to be discharged by a payment of money or by the transfer or delivery of gds or by any other means BUT excludes any sum, payable as penalty compensation, or damages 4 breach of agr.

Difference btn h/p agr & certain other agrs

h/p & Credit Sale Agreement (CSA) A CSA is an agr 4 the sale of gds under which the purchase price is payable by 5 or more installments not being a conditional sale. A CSA is an agr for an ordinary purchase of gds i.e. there is a seller & a buyer & all exceptions of the nemo dat principle apply. Coz its an ordinary sale of gds the ppty in the gds passes 2 the buyer immediately he completes 1st installment, unless the seller reserves the passing of ppty until the buyer pays the last installment.

Difference btn h/p & CSA agrs

Whereas in a h/p agr the property in the gds vests in the owner of the gds until the hirer pays the last installment & exercises his option 2 purchase the gds. Whereas a buyer under the CSA can pass a valid title 2 a bona fide purchaser 4 a valuable consideration w/o notice; the hirer under h/p cant pass a valid title 2 any subsequent purchaser however innocent he may be. In a h/p agr there is only an option 2 buy the gds & no agr to buy the gds. In CSA, however, there is an agr 2 buy and no option 2 return the gds.

Difference bth h/p agr & conditional sale agr

A conditional sale agr is an agr for the sale of gds which the purchase price (or part of it) is payable by installments & the ppty in the gds is 2 remain in the seller notwithstanding that the buyer is in possession of the gds until such condition(s) as 2 payment of installaments or otherwise as may be specified in the agr r fulfilled. Unlike a h/p agr, a conditional sale agr is not a contract of bailment coupled with a contract of sale by an option 2 purchase. Difference btn credit sale agr & conditional sale agrunder the former the ppty in the gds passes on the payment of the 1st installment; whereas in the latter, the ppty passes on the payment of the final installment

Requirements of a h/p agr

1. Sec 6(1)-before a h/p agr is entered into in respect of any gds, the owner shall state in writing in the prescribed form to the prospective hirer, otherwise than in the agr, a price at which the gds may be purchased by him for cash. The purchaser can elect to buy at the cash price, at which point it will no longer be an h/p agr but an ordinary sale of gds. The owner will be deemed 2 have performed that duty if under sec 6(1)(i) the hirer has inspected the gds or similar gds & @ the time of his inspection tickets or labels were attached to or displayed with gds clearly stating the c/price, either as a whole or of all the different articles or sets of articles comprised therein.

Requirements of h/p agr

Sec 6(1)(ii)-if the hirer has selected the gds by ref to a catalogue, price list or advertisement which clearly stated the cash price; either of the gds as a whole or of all the different articles or sets of articles therein. Where the owner does not comply with this obligation he can not enforce any h/p agr or any contract of guarantee relating to it or any right 2 recover the gds from the hirer. A contract of guarantee may be implied or express, and is made btn the owner of gds & a 3rd party, in which the 3rd party guarantees that the hirer will pay. Guarantor should be construed accordingly. The hirer who contracts with the 3rd party is called the principal debtor.

Requirements of the h/p agr

2. there must be a written memorandum which must be signed by the hirer himself & shall bind all the parties thereto. That memo must contain: i) The h/p price & the cash price of the gds 2 which the agr relates; ii) The amount of each installment by which the h/p price is to be paid & the date (or mode of determining the date) upon which each installment is payable; iii) the rights of the hirer under the agr must clearly be stated. iv) must give a description of the gds sufficient 2 identify them v) within 21 days of making of this agreement the law requires the owner to send a copy of the agr 2 the hirer by registered mail. Apart from the requirements of a written memo signed by the hirer & other parties, courts may, as long as the hirer is not prejudiced not take into consideration the other requirements.

Requirements of a h/p
3. within 30 days of execution of the h.p agr, it must be registered by the Registrar of h/p agrs. The time limit may be extended by the Registrar of h/p agrs for any sufficient cause including accident or inadvertence. The onus of making sure sure that the registrar enters the h/p in the register is on the owner. The consequences 4 failure to register a h/p agr r as follows: The owner can not even recover the gds from the hirer; If there is any contract of guarantee in relation 2 that particular h/p agr it can similarly not be enforced. If the hirer has given any security, the owner of the goods can not act upon it; same applies 2 security by guarantor.

Conditions & warranties in h/p agreements

There r 3 conditions & 2 warranties Conditions: 1) that the owner has the right to sell the gds at the time the property is 2 pass. 2) that the gds r of merchantable quality: unless the gds r let to s/one and they r 2ndhand the written memo has a notice 2 such effect; Will also not apply if there r defects in the gds & the owner of the gds could not have reasonably been aware of such defects. Where the hirer has examined the gds & such exam should have revealed the defects, the hirer can not rely on this implied condition.

Conditions & warranties in hp agrs

3). If the hirer impliedly or expressly makes known to the owner the particular purpose 4 which the gds r required, then the law implies that the gds will be reasonably fit 4 that purpose. However, an owner can escape this condition 2 requirements r fulfilled: (i) if the owner can show that before the h/p agr was made, the relevant provision was bought to the notice of the hirer; (ii) the effect of the provision was also made clear to the hirer. Note that under Cap 31 sec 16(a) no such exclusion.

Conditions & warranties in hp agrs

Sec 8(3)-there is no other agr that can modify or exclude the 1st two conditions, which is so much unlike Cap 31 where under sec 55, the freedom of contract allows the parties 2 exclude conditions from their contract. Note: under Cap 31-if there is any agr that defeats the object of a sale, the courts shall reject it. Warranties (i) the hirer shall have & enjoy quiet possession of the gds. (ii) that the gds r free from any charge or encumbrance in favour of any 3rd party at the time when the property is to pass.

Change of Address & removal of gds

Sec 9-a hirer shall state his residential, business & postal address i.e. the owner has the right 2 state in the agr that b4 the ppty in the gds passes 2 the hirer, the hirer is under obligation 2 notify the owner of gds of any change of address: residential, biz & postal. Notice shall also be given of the premises 2 which the gds r 2 be removed. However, no stipulation shall require the hirer to notify the owner more than 96 hrs b4 time of change or removal. Where the hirer fails to comply, he shall be guilty & fined Ksh 2k under sec 9(2). An accd can defend himself (sec 9(3) if he satisfies the court that his failure 2 comply was due 2 circumstances he had no control over.

Removal of gds from Kenya

Sec 10-The owner of gds under a h/p agr may stipulate in the agr that the hirer shall not remove or permit the removal of the gds from Kenya w/o his written consent. If the hirer in breach of the above stipulation and i) with intent 2 deprive the owner of his ownership; or ii) defeat the rights of the owner 2 obtain any payment due 2 him; iii) removes or permits the removal of the gds from Kenya; he will be guilty of offence & liable 2 a fine of not more than Ksh 10k or 2 imprisonment 4 a term of not more than 1 year or both.

Termination & completion of Agr

Sec 12 At any time b4 the final payment under a h/p agr falls due, the hirer may terminate the agr by i) returning the gds 2 the owner & giving him written notice of termination of the agr; but he must do so: (a) without prejudice to any liabilityto pay the amount if any, by which one-half of the h/p price exceeds the total sums paid; (b) pay sums which were due in respect of the h/p price immediately b4 termination; or (c) pay such lesser amount as may be specified in agr

Termination & completion of h/p agr

Where a h/p agr has been terminated under sec 12(2), the hirer shall, if he has failed 2 take reasonable care of the gds be liable to pay damages for that failure or for negligent handling. The owner of the gds cannot under the circumstances, by agr, say that the hirer shall pay a higher sum on the termination of the h/p agr. The hirer returning the gds under subsec (i) shall return them @ his own expense to the premises from which they were originally supplied to him or to such other places as the owner may direct. Provided that the owner shall reimburse the hirer for any additional expenses incurred in returning the gds 2 the premises other than those from which they were originally supplied.

Rights of the owner

Sec 15-17 i) the right of recovery of possession-sec 15 Where the hirer has paid two-thirds or more of the price, the owner has no right 2 recover possession of gds unless he does so by institution of an action in court or the hirer himself terminates the agr by return of the gds. Where the owner contravenes sec 15(1), if agr was not previously terminated, the hirer shall have certain rights against the owner. The hirer shall be released from all liabilities. Can recover all the installments he has paid under agr Recover any sums paid as security thereof If there was any contract of guarantee, the guarantor shall i) recover from the owner by suit all sums paid by him under the contract of guarantee or under any security.

Rights of the owner

The same effect shall arise, where (even) the owner takes only part of the gds in possession of the hirerthose consequences shall follow. Carr v Jones Brodrick [1945]2 KB 275 @ 278 When the owner goes to court 2 recover possession, the court can give an order that the gds in Q r preserved so as not 2 perish. The court can give any one of 3 orders: i) specific delivery of gds 2 the owner by hirer; ii) an order suspending specific delivery until either the hirer or guarantor pays the remaining installment/balance.

Rights of the owner

iii) The court can make an order 4 specific delivery of part of the gds 2 the owner & transfer of the title in the remainder of the gds 2 the hirer. Such an order can only be given where the gds r divisible. The order will be given where the court is satisfied that the amount paid towards the h/p price exceeds the price of that part by at least 1/3 of the unpaid balance of the h/p price. Where w/o any court order, the owner takes the gds from the hirer, 4 the sole purpose of protecting them from damage or depreciation (of the gds) 2 a place of his biz; and if at such time at least 2 installments r due but have not been paid by the hirer such owner will not be deemed to have recovered the gds w/o court action. Sec 26-if, while the enforcement by an owner of a right 2 recover possession of gds from a hirer is restricted by this Act, the hirer refuses 2 give up possession of the gds 2 the owner, the owner shall have no right 2 sue for conversion. Such refusal shall not make hirer liable.

Rights of owner
Under sec 25 the owner has the right to sell the gds at the best price reasonably obtainable, where he has exercised his right to recover possession and to pay the hirer the sum which exceeds the amount paid plus expenses incurred by owner in selling.

Hirers right to ask for info

Sec 27 The hirer can hand in or send y registered post 2 the owner a written request therefor & tenders to the owner Ksh 10. The owner shall within 14 days after the request & tender, hand or send by registered post to the hirer a statement by or on behalf of the owner showing: Total payments under the agr & date of each; The total amount due under agr & unpaid; The amount of each unpaid installment & date when due; The total amount which is 2 become due under agr

Tail end
Where the owner fails without reasonable cause to comply while the default continues (a) no person shall enforce agr Secs 30-31; the bankruptcy of either the owner or the hirer The mere fact that either the owner or hirer is bankrupt does not lead to the termination of a h/p agr. Where the owner is adjudged bankrupt or the owner is a company & goes into liquidation, the hp agr shall continue in full force & the effect shall be binding on the trustee in bankruptcy or the liquidator (as case may be) Provided that the trustee on behalf of the hirer shall pay the owner; the procedure of continuation of agr is subject 2 court powers to set aside any disposition of ppty. Sec 34-if any person knowingly gives false info in any proposal form or other document completed 4 the purpose of entering into a h/p agr such person will be guilty of an offence & liable to a fine not exceeding Ksh 5k or a term of imprisonment not exceeding 6 moths or both.