A hire purchase agreement which included an option to buy was not an agreement to buy for the purposes of contract law.
A company entered into an agreement to hire machinery to another company. Under the agreement, the hirer paid £2.5 million for the hire over seven years. At the end of this period, the hirer could buy the equipment for £50. During this period, the hirer sold the machinery. The issue was whether it was entitled to do so.
The hirer argued that it had lawful possession of the machinery and therefore were able to pass good title in the machinery to a third party under Sale of Goods Act 1979. The £50 to buy the goods was clearly a nominal sum, so the hire purchase contract was a contract to buy.
The court disagreed. The hirer was not obliged to buy. The expectation which one may reasonably draw from the terms of the hire contract did not change the nature of the contract as it existed. An option to buy did not impose any duty to buy. Without such a duty, the contract could not be regarded as one of sale.
Close Asset Finance Ltd v Care Graphics Machinery Ltd. QBD. The Times 21 March 2000.
[2000.3/6]