Methods of Sale

Key Point 1: Hire Purchase Basis

In the hire purchase system, the buyer pays the price of goods in regular instalments.
Although the goods are given to the buyer, the legal ownership stays with the seller until all instalments are paid in full.
The amount paid by the buyer is considered as rent or hire charges until the whole amount is settled.
If the buyer misses any payment, the seller can ask for the goods to be returned.
The seller also has the legal right to sue the buyer for damages if the agreement is breached.
The buyer can choose to pay the remaining amount in one go during the instalment period to become the owner sooner.
This system is mostly used for expensive and durable items where people may not be able to pay the full price at once.

Buying a Car on Hire Purchase: Rita buys a car by agreeing to pay ₹2,00,000 in 20 monthly instalments. Until she pays all ₹2,00,000, the car belongs to the seller.
Purchasing a Refrigerator: Amit gets a refrigerator by paying monthly instalments. Till he pays the last payment, the shop can take back the refrigerator if a payment is missed.
Acquiring Machinery for a Shop: An electronic shop takes machinery on hire purchase. The shop uses the machine but becomes its owner only after the last instalment.

Divide students into two groups: sellers and buyers.
Give one group (sellers) products like a "toy car" or "book".
The other group (buyers) must pay for these in 5 "instalments" using pretend money.
If any buyer fails to pay, the seller takes back the product.
If all payments are made, the buyer keeps the product.

Here, the buyer agrees to pay for goods in instalments, but the ownership is transferred to the buyer as soon as the first payment is made and goods are handed over.
If the buyer stops further payments, the seller cannot take back the goods because the buyer is already the legal owner.
The only way for the seller to get the remaining money is to go to court and sue the buyer.
This method is also called the deferred instalment plan.

Buying a Mobile Phone: Priya buys a phone and pays ₹1,000 down, promising to pay the rest in 9 equal monthly payments. If she misses a payment, the shop cannot ask for the phone back but can sue her to get the remaining money.
Purchasing a Laptop: John gets a laptop by paying ₹5,000 first and promises the rest over 12 months. The laptop is his from the beginning.
Furniture Purchase: Reena purchases a dining table, pays initial sum, and takes immediate ownership. If she defaults on payment, seller cannot take back the table.

Split the class into pairs.
Give each pair two scenarios: one of hire purchase and one of instalment payment sale (use the above examples).
Ask students to identify who owns the goods at each payment stage.
Discuss what happens if the buyer stops paying.
Share findings with the class.

You will note that ownership with hire purchase remains with the seller, while in instalment payment it goes to the buyer immediately.
If there is default, in hire purchase, goods go back to the seller; in instalment, only legal action is possible.

Basis of Comparison	Hire Purchase System	Sale through Instalment Payment System (Deferred Payment)
Ownership	Ownership remains with the seller until the final instalment is paid.	Ownership transfers to the buyer immediately at the time of sale, upon payment of the initial amount.
Right to Recover Goods	If the buyer defaults, the seller can take back the goods and may also sue for damages.	The seller cannot take back the goods on default. Can only sue for recovery of the unpaid balance.
Status of Goods	Goods are considered to be on hire until the final payment is made.	Goods are sold outright; payments are only deferred.
Payment Treatment	Payments are treated as hire charges until the option to purchase is exercised.	Payments are treated as part-payment of the sale price.
Right to Terminate	The buyer has the right to terminate the agreement and return the goods (though some charges may apply).	The buyer cannot terminate the agreement; they are liable to pay the entire amount.
Common Examples	Used for expensive consumer durables like cars, motorcycles, televisions, refrigerators, machinery.	Also used for similar goods like furniture, electronic gadgets, property, where ownership is transferred immediately.

Scenario: You buy a TV by paying monthly instalments but miss two payments.
- Question: Can the seller take back the TV under the hire purchase system?
- Answer: Yes, because the TV is still owned by the seller until all instalments are paid.
Scenario: Ravi buys a washing machine under the instalment payment system but fails to pay the last three instalments.
- Question: Can the seller take back the machine?
- Answer: No, the seller cannot take back the washing machine, but can sue Ravi for the remaining amount.
Scenario: You have paid all but the last instalment for a bike on hire purchase.
- Question: Do you own the bike?
- Answer: No, you get the ownership only after the final payment is made.
Scenario: After making the initial payment for a computer under the instalment payment system, you want to gift it to a friend.
- Question: Can you do this, and why?
- Answer: Yes, because ownership has already passed to you after the first payment.
Scenario: A shopkeeper wants to sell expensive kitchen equipment but customers can’t afford to pay all at once.
- Question: Which method of sale, hire purchase or instalment, should the shopkeeper choose to secure their goods until payments are completed?
- Answer: Hire purchase, because the shopkeeper keeps ownership until all payments are made.