The Hirer’s Right to Terminate the Agreement
Under the common law, the hirer’s right to determine a hire a purchase agreement was unqualified. No formality was required in order to enable the hirer to terminate the agreement. In the case of Helby vs. Mathews Lord Macnaughten stated:
If the object of desire loses its attraction on closer acquaintance – if faults are developed or defects discovered – if a coveted treasure is becoming a burden and an encumbrance, it is something, surely to know that the transaction may be closed at once…
Under the Hire Purchase Act this right of the hirer is elaborated upon. According to the provision of S. 2 (2) (c) of the Act, the memorandum of agreement must contain a notice advising the hirer inter alia of his unfettered right to terminate the agreement. Also, according to the provision of S. 3(b) of the Hire Purchase Act, any term which excludes the hirer’s right to terminate the agreement would be inapplicable.
The procedure for terminating a hire purchase agreement by the hirer is specified under S. 8 of the Hire Purchase Act. Specifically, according to S. 8 (1), in order for a hirer to terminate the agreement, he has to send a notice in writing to the person entitled or authorised to receive any sums payable under the agreement.
The Minimum Payment Clause
In all hire purchase agreements, there is a clause which states the minimum amount that the hirer is liable to pay upon his exercise of his right to terminate the agreement. This clause is called the minimum payment clause. The purpose of the minimum payment clause is to ensure that the owner does not suffer loss as a result of the hirer exercising his right to terminate the agreement.
Under the Common Law
Under the common law, the owner of a could make use of the minimum payment clause when the hirer terminated the transaction or he breaches the agreement.
In the case of Associated Distributors Ltd vs. Hall the hirer returned the bicycle he hired after paying just one instalment. There was a minimum payment clause stating that upon termination of the agreement, the hirer would pay half of the total hire purchase sum. The court held that since this was the agreement of the parties and it didn’t amount to a penalty, the hirer has to pay this sum of money.
In the case of Cooden Engineering Co Ltd vs. Stanford, after the hirer defaulted on the payment of instalments, the owner seized the goods and sued under the minimum payment clause. The clause provided that in the case of termination, the hirer would pay a hundred percent compensation. The court held that this was an instance of a penalty and thus, the minimum payment clause could not be applicable.
Under the Hire Purchase Act
According to the provision of S. 8 (1) of the Hire purchase Act, the maximum liability that can be incurred by the hirer under the minimum payment clause is one half of the total hire purchase price. If on the termination of the agreement, the hirer has paid less than one half, he has to complete the payment until it gets to one half. If he owes arrears of instalments, he has to pay such arrears and subsequently pay the amount that would make the total payments equal to one half.
For example, X took a car on hire purchase and the with a total hire purchase price of 2,000 naira. The deposits an initial sum of 500 naira, pays 200 naira in instalments and he owes 100 naira in arrears. From the above, if he terminates the agreement, the highest liability he can incur under the minimum payment clause of 1000 naira (half of 2000 naira). Presently, he has paid 700 naira (500 + 200). He owes 100 naira in arrears. Thus, the amount he is left to pay is the 100 naira arrears + 200 naira (the amount needed to make the total sum equal to 1000 naira). He thus owes 300 naira.
It should be noted that if the hirer has already paid a sum which is more than one half of the hire purchase agreement, he would incur no further liability.
It should also be noted that according to the provisions of S. 3 (b) of the hire purchase act, if a term increases a hirer’s liability to more than the amount stipulated under S. 8 (1), such term would be inapplicable.
 1938 2 K.B 83
 1953 1 QB 86