By Ekuma, Chinonso

The tentacles of Covid-19 pandemic touched on all the meat and substance of human existence. The biting sting is more tenacious in the economy of nations, Nigeria inclusive. Mitigating the impact of Covid-19 pandemic on Hire purchase obligations is instructive because it will help define the boundaries on duties, liabilities and abilities of parties in performance of their contractual obligations during the new normal: Covid-19 pandemic, and possibly assist in shaping futuristic events with the same characteristics.

Hire Purchase contracts are special class of commercial transactions on its own. It is often commonly confused with other forms of commercial arrangements. The term hire purchase is always loosely employed by many people as synonymous with credit purchase or such similar transactions. Hire itself is more often confused with Hire purchase. For clarity, Hire entails the hirer paying a specific sum not for the transfer of the property in such goods but just for the use of such goods and he or she is expected to pay a certain sum that would ordinarily not be paid for the purchase of such goods. However, the law regards what happens when the hirer is not just only interested in hiring the goods but also interested in owning them and he/she cannot afford to pay the bulk price but opts to pay in installments as Hire Purchase. The purchaser therefore pays in installments to the seller, and once he completes the last installment he may purchase the goods from the owner. In otherwards, a hire purchase agreement is a bailment of goods with an option to the hirer to buy or return the goods; the option of return is of essence to the agreement. See Alhaji Jimo Ajagbe v. Alaiwo Idowu (2011) 17 NWLR pt. 1276 at 422.

In the Halsbury’s Laws of England Vol. 1st Edition, a contract of hire purchase has been defined as “a contract of hire with option to purchase under which the owner of the chattel undertakes to sell it to, or that it shall become the property of the hirer conditionally on his making a certain number of payments. Until the making of the last payment, however, no property in the chattel passes.” see also Scammell v. Austin (1941) 1All E.R 14, where it was defined as a complex transaction, not a contract of sale but a bailment. English Hire-Purchase Act, 1965 as: “an agreement for the bailment of goods under which the bailee may buy the goods, or under which the property in the goods will or may pass to the bailee.”

Similarly, Hire purchase contracts contain clauses which entitles the owner of the property to retain back his property in the event that the hirer fails to meet up with the contractual obligations. This includes where he fails to pay the instalments as agreed by the parties and stipulated in the contract as terms.

On 30th March 2020, the Federal Government pursuant to the Quarantine Act, 2004, issued the Covid-19 Regulations, 2020 and imposed a lock down and restriction of movement in the FCT, Lagos and Ogun State for an initial period of 14 days. Some other states in the Federation also passed the quarantine law and as a result imposed similar lockdown and restrictions of movement. These acts to reasonable extent constitutes acts of permanent impossibility of performance in part, and on the other, temporary impossibility of performance of Hire Purchase contract.

It’s a common knowledge that in Hire Purchase contract, time is of essence. Generally, any hinderance to the effective performance of a contract whether temporary or permanent can be treated as either a frustration or force majure. Unless the parties anticipate the occurrance. This is because parties are bound by their agreement, in absence of any other overriding circumstances. See EMMANUEL OLAMIDE LARMIE V. DATA PROCESSING MAINTENANCE & SERVICES LTD (2005) LPELR-SC.157/2001, where the court held that, in determining the effect generally, what should be taken into consideration at all times is the circumstances of the case and the agreement of the parties.

Let us look at the following circumstances:

Where however, both the temporary impossibility of performance is known to the parties, and the exact time when the hindrance will abate, even though the parties have by a separate oral agreement varied the contents of the written agreement, it is submitted that the owner of the property is not taken to have waived or otherwise varied the contents of the agreement in essence. This is because, oral agreement cannot in any way be used to vary the content of a written agreement.
For instance, A, hired his motorcycle to B, on a hire purchase agreement. At the subsistence of the agreement, the covid-19 pandemic broke out with it’s antecedent new legal orders which adversely hindered performance of the agreement. A initially promised B that he will condone the lapses but thereafter recovered his property from B despite his promises to B not to do so, considering the fact that non of the parties anticipated the events. Will A be said to have breached the contract?

Ordinarily, we would have answered in the negative and conclude that A is not in breach. This is because the subsequent oral agreement was not reduced into writing and cannot be said to have varied the contract. See ATIBA IYALAMU SAVINGS & LOANS LTD v. SUBERU & ANOR (2018) LPELR-44069(SC) where the court held that, “It is settled law that where the contract between the parties is reduced into writing, extrinsic evidence is not permitted to add, vary, subtract from or contradict the terms of the written instrument.” Per KUDIRAT MOTONMORI OLATOKUNBO KEKERE-EKUN ,J.S.C ( P. 32, paras. A-C ) See also Ogundepo Vs Olumesan (2011) 18 NWLR (Pt. 1278) 54.

It appears however that the answer above ought to be chewed with caution. Such is capable of being defeated if not properly purified. It appears however that where a party has made a promise to another in respect of a particular transaction and pursuant to that promise, the promisee has acted in that respect altering his position, the promisor can be estopped from acting otherwise. In BFI GROUP CORPORATION v. BUREAU OF PUBLIC ENTERPRISES (2012) LPELR-SC.12/2008 the supreme Court Per FABIYI, J.S.C relying on the case of Central London Property Trust Ltd. v. High Trees House Ltd (1947) K.B. 130, held that, ”The position of the law still remains the same. It is that where by words or conduct, a party to a transaction freely makes to the other an unambiguous promise or assurance which is intended to affect the legal relations between them and the former acts upon it by altering his position to his detriment, the party making the promise of assurance will not be permitted to act inconsistently with it. The court further stated this, “It has remained good law for a long time now. I approve same without any reservation.” That notwithstanding, it is worthy of note that such principle must be used as a shield and not a sword. The court in BULET INTERNATIONAL NIGERIA LTD V. BALOGUN (2001) LPELR-CA/K/155/97 observed that, “It should be noted that this principle does not create new causes of action where none existed before. The principle must be “used as a shield and not as a sword.” It can only be used as a defence and as such could only be invoked by a defendant see: Combe V. Combe (1951) 1 ALL E. R. 767. Another qualification in applying the principle is stated in D & C Builders Ltd Vs Rees (1965) 3 ALL E. R. 837 where Lord Denning M. R. observed at p 841:- “In applying this principle, however, we must note the qualification. The creditor is barred from his legal rights only when it would be inequitable for him to insist on them. Where there has been a true accord, under which the creditor voluntarily agrees to accept a lesser sum in satisfaction, and the debtor acts on that accord by paying the lesser sum and the creditor accepts it, then it is inequitable for the creditor afterwords to insist on the balance. But he is not bound unless there has been truly an accord between them.”Per MUHAMMAD, J.C.A(Pp. 11-12, paras. F-C).

It is also instructive to immediately look at the decision of the supreme Court in BPS CONSTRUCTION & ENGINEERING CO. LTD v. FCDA (2017) LPELR-SC.293/2011 where the apex court enumerated the essential requirements for the application of the doctrine of promissory estoppel thus, “This Court expounded the doctrine of promissory estoppel in: Trans Bridge Co. Ltd. Vs Survey International Ltd. (1986) 4 NWLR (Pt.37) 576 @ 617 F – G and held the following to be essential requirements for its operation:

There must be in existence, two contracting parties, who are contractually bound, or who but for the representation could have been contractually bound.
There must be a representation, relied upon resulting in something different from what was agreed between the parties. It is not necessary that there should be detriment in the sense of loss or damage.
3.The representation is not necessarily supported by valuable consideration. It is sufficient merely if it is a promise which has been relied upon. If these conditions are present, the doctrine of promissory estoppel operates.” Per KEKERE-EKUN, J.S.C. (Pp. 41-42, Paras. B-B). See also CHUKWUMA V. IFELOYE (2008) LPELR-SC.229/2002.

The question as to whether or not such promise will constitute an estoppel depends solely on what purpose it’s used, either as a sword or shield. It is our submission that such promise should constitute an estoppel against the owner of the property if he thereafter claims adversely on the hirer. The point we are trying to make is that the hirer can only take refuge in the promise where he is sued in respect of the lapses for which he has been pardoned. It therefore means that he cannot sue the owner of the property to enforce the promise or set of promises.

Secondly, if considering the fact that the contract can no longer be performed at the appointed time and the parties agreed to vary the terms of the agreement to incorporate the unforseen circumstances and thereafter reduced that adjustment into writing, the parties can be guided by the most recent agreement so reduced Into writing. That was the import of the supreme Court’s decision in CBN V IGWILLO (2007) LPELR-835(SC) where the court stated thus: “…where a contract is in writing, any agreement which seeks to vary the original agreement, must itself, be in writing. See the cases of John Holt John Holt & Co. (Liverpool) Ltd. v. Stephen Lafe (1938) 15 NLR 14 and Bijou (Nig.) Ltd. v. Osidarohwo (1992) 6 NWLR (Pt.249) 643 AT 649. Again, a contract which must in law be in writing, can only be varied by an agreement in writing. See the case of Morris v. Baron & Co. (1918) A.C. 1 at 39.” Per IKECHI FRANCIS OGBUAGU ,J.S.C ( Pp. 39-40, paras. E- A ). In LARMIE v. DATA PROCESSING MAINTENANCE & SERVICES LTD (Supra), where Per NIKI TOBI ,J.S.C in ( P. 33, paras. E-F ) held, “If parties had earlier agreed orally on a particular point and later enters into a written agreement or contract, it is part of general commercial practice to reduce the oral agreement as part of the contents of the written agreement which is later in time.” The court quoted Eke v. Odolofin (1961) 1 All NLR (Pt. 2) 404.”
Assuming at the outbreak of the Covid-19 pandemic with it’s consequencial harsh regulations the owner of the property decides to recover his property for lack of performance their agreement on the side of the hirer, will it amount to a breach in the first place? The answer will be in the negative. It is submitted that the new legal order which makes it impossible for the hirer to fulfill his obligations amounts to frustration of such contract.
Ordinarily, it is settled that before an act will constitute force majure, the contract must specifically contain force majure clause. And that such defence will only cover the specific events covered by the clause. Force majure event being the occurrence of any event which is beyond the reasonable control of either party and which renders that party incapable of performing its contractual obligations.

Frustration, on the other hand, is not always specified in the contract. Any act, thereafter the formation of a contract which renders the performance of such contract impossible amounts to frustration.

This however does not include events which render the performance difficult, inconveniencing or onerous. In G.N. NWAOLISAH V. PASCHAL NWABUFOH (2011) LPELR-SC.211/2003 the court opined that, “A contract is not frustrated merely because its execution becomes more difficult or more expensive that either party originally anticipated and has to be carried out in a manner not envisaged at the time of its negotiation. Davies Contractors Ltd v. Fareham N.D.C (1956) AC 696, Tsakineglon & Co. v. Noblee Thorh G.M.B.H (1962) A. C 93.”Per ADEKEYE, J.S.C (P. 36, paras. C-E).

Similarly, the court in Pulseline Services Ltd. v. Equitorial Trust Bank (2010) LPELR-CA/A/213/2008, has this to say on What amounts to frustration of contract, “… frustration of contract is the premature determination of an agreement between parties lawfully entered into and in course of operation at the time of its premature determination, owing to the occurrence of an intervening event or change of circumstances so fundamental as to be regarded by law both as striking at the root of the agreement, and as entirely beyond what was completed by the parties when they entered into the agreement.” Per ABBA AJI, J.C.A. (P. 23, paras. A-C), the court cited the case of MAZIM ENGR LTD VS TOWER ALUMINIUM (NIG) LTD (1993) 5 NWLR (PT.295) 526, with similar principle.

Generally, the effect of both a force majeure clause and frustration in a contract is to discharge the parties from liability and to excuse either non-performance or delay in the performance of a contractual obligation arising from such events.

Covid-19 pandemic may not ordinarily constitute frustration of contract or force majure, but various measures introduced by the government in a bid to curb the spread of the virus. For instance, sometime in April 11, 2020, the Ebonyi State government banned motorcycles for flouting the covid-19 regulations. So many people believed it was a ploy to permanently bann motorcycle in the State just as other States did in Nigeria. And the rumor that the government had imported tricycle which does not use fossil fuels, which will comfortably replace motorcycle. So, armed with these information, most owners of Motorcycles engaged in Hire Purchase arrangements resought to recovering their properties from their hirers. Will it be said that those owners could be liable in breach? To our mind, they are not in breach, provided he is acting within the stipulated agreement on the number of times non-performance will allow him to recover his property. This is also because new legal orders of a government could constitute frustration of contract if it prevents a party from carrying out his contractual obligations. The supreme Court in G.N. NWAOLISAH V. PASCHAL NWABUFOH (2011) LPELR-SC.211/2003 held that, “…The events which have been listed by the court to constitute frustration are:

(1) Subsequent legal changes or statutory impossibility

(2) Outbreak of war

(3) Destruction of the subject matter of the contract or literal impossibility

(4) Government acquisition of the subject matter of the contract.

(5) Cancellation by an unexpected event like where other party to a contract for personal service, dies or where either party is permanently incapacitated by ill-health, imprisonment etc., from rendering the service he has undertaken. Davies Contractors Ltd. v. Fareham DC (1956) AC 696, Akanmu v. Olugbode (2001) 13 WRN 132, NBCI v. Standard (Nig) Eng Co. Ltd. (2002) 8 NWLR (pt. 768) pg 104, Obayuwana v. The Governor of Bendel State (1982) SC pg.167, Taylor v. Caldwel (1863) 3 B & Y S 826, J. P Dawodu v. B. Anderson & Co, Ltd (1925) 6 NLR Pg. 105, Adu v. Makanjuola (1944) 10 WACA Pg. 168.” Per ADEKEYE, J.S.C (Pp. 35-36, paras. D-C).

Sometimes, before the frustrating events which made it impossible for the parties to perform their obligations occurred, financial commitments would have been made. The law is that where a contract has become frustrated, and the parties have for that reason been discharged from further performance of the contract, all sums paid or payable to a party in accordance with the provisions of the contract before the contract became frustrated will in the case of sums so paid, be recoverable by the person who paid the sums, and sums payable shall no longer be paid. See for instance, Section 8 (2) of the Law Reform (Contracts) Law of Lagos State. Under Section 8 (3) of the Law, the court may not order the recovery or refund of any portion of the contract sum that had been expended for the purpose of performance of the contract before the contract became frustrated.

Conclusion

The outbreak of Covid-19 pandemic seriously altered the arrangement of things everywhere in the world. Mitigating the impact thereof will assist parties to Hire Purchase transaction adjust their rights, obligations and liabilities. We therefore advise parties to this transaction to always seek legal advice especially in preparing the agreement so that all the necessary clauses will be included while drafting the agreement to help reduce the effects of such event on parties.

This article was written by Ekuma, Chinonso G.08143576372, [email protected]

He is a 500l Student of law, EBSU and Life Intern @St. Sen Solicitors