HIRER'S OBLIGATIONS TO FINANCIER

©The Star (Used by permission)

Articles of law by BHAG SINGH

as published in The Star on 7 Dec 2010 

A hirer should always be mindful of his obligations to the financier. MANY people do not realise that when a car – or any other item – is to be acquired through hire purchase, the buyer does not become the owner of the vehicle. This is because the organisation providing the finance will actually buy the car from the dealer or the owner and then hire it out to the person who originally intended to buy it. Such a person now becomes the hirer instead. 

The hire purchase agreement will allow the hirer to become the owner once all the payments to the financier have been made. The financier will then transfer the car to the hirer who then becomes the owner. In fact, the financier would not want it to be otherwise.

 

What if, after some time, the hirer cannot afford to pay the instalments or for some other reason does not require the car anymore? He cannot return the car to the financier and forget about the matter. The financier would want its money back with the interest, and not the car. 

An option is to find someone who is willing to take over the car. But before the car is sold, the financier must be paid off. So the intended purchaser must either have the cash or be able to secure financing for the purpose. 

If the market price of the car at that time is more than the outstanding amount due to the financier, the hirer will have the benefit of the difference. If, on the other hand, the outstanding finance facility is more than the market price, he may have to come up with the difference to facilitate the transaction.

Sometimes the person intending to take over the car may not be able to secure finance facilities in his own name. 

The help of the hirer may be sought by allowing the hire purchase agreement to continue in the name of the hirer with the intended purchaser taking possession of the car and agreeing to continue paying the instalments and be responsible for insurance, road tax and related payments.

 In many cases, the hirer who is keen to relieve himself of the obligation to make monthly payments may be quite happy to hand over the car to the intended purchaser and let him make the payments. Convenient as this may appear, there are pitfalls.

One is that the intended purchaser may take the car and use it but not pay the monthly instalments. Or he may commit offences for which the summons issued will be directed to the hirer.

If this happens, the hirer will still be responsible for all the hire purchase payments that are due.

With regard to offences, the liability of the hirer will depend on the offence committed. For some offences, the car may end up detained or forfeited with the hirer’s liability to the financier continuing to exist in its entirety.

 A different problem may surface. A reader reached an agreement with a friend for the car to be taken over at a price equal to the outstanding finance facilities. The car was handed over to the friend who agreed to continue paying the instalments until completion. Thereafter the car would be transferred to the friend, the intended purchaser.

 However, after two years, the friend wants to return the car to the hirer. The problem is that whilst the outstanding loan is RM25,000 the market value of the car is only RM15,000. This is what the hirer will be liable for even though when he handed over the car, it was on the basis that he would no longer have any responsibility.

Our reader is in a quandary because his friend has told him that if he does not take the car back, he is going to abandon the car and not pay the instalments. If this happens, it will be open to the financier to repossess the car. The hirer will also be in breach of his statutory obligations to inform the financier if the car cannot be located.

 If the car cannot be found or is vandalised, the financier has the right to claim from the hirer all the payments due under the hire purchase less any amount recovered from the sale of the car. On all accounts, the hirer has put himself in a difficult position. What should he do? 

My suggestion is that the hirer should meet up with his friend and remind him of his earlier promise. If the friend is determined to maintain his position, the hirer should take back the car under protest. In doing so, he should put on record that the friend is obliged to keep the car and to pay the balance of instalments, of which the friend is now in breach.

 By taking the car back and maintaining it in good condition, the hirer would be in a better position to sell off the car to a genuine buyer at the best possible market price. Of course, he will need to do this with the approval of the financier. He will also have to pay up the difference, if any, at least to start with.

 The next step would be to sue the friend for the loss caused as a result of the breach. This would be the difference between the loan amount as well as the price at which the car is actually sold, which the hirer had to pay. The hirer would also be entitled to claim other losses in the form of interest paid, advertisements placed or any commission paid incidental to the sale as well as other expenses incurred for the purpose.

 This is going to mean costs in terms of effort, expenses and time. However, this is a matter for the hirer to consider in the circumstances. Whether he wants to pursue the matter in this manner is very much a personal decision. Some may pursue the matter on principle. Others may decide to bear the loss and dismiss the episode as an unhappy experience.