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Sales Contracts and Hiring Sale: with relation to the Civil Code

Sales Contracts and Hiring Sale: with relation to the Civil Code

by Fitsum Sitotaw

Contract of sale, as defined in Article 2266, is a contract whereby the seller undertakes to deliver a thing and transfer its ownership to the buyer in consideration of a price expressed in money which the buyer undertakes to pay him. On the other hand, hiring sale (hire purchase contract) is defined under Article 2412 as a contract in which the tenant of the thing will become the owner upon payment of a given number of installments. Although there are many distinctions between the elements of the two, the effects of both are similar since the provisions applicable for contracts of sale also apply for hire purchase contracts.

The Ethiopian Civil Code incorporated hiring sale under the chapter “Contracts allied to sale” because of its nature and its association with contracts of sale. We can observe that the provisions governing hiring sale refer to the contracting parties as a lessor and a tenant. This is because they are not buyers and sellers yet. The contract made between them is a rent contract with an option to buy. The payment is made periodically and unlike contract of sale, ownership is not transferred; only possession is.

Hiring sale has the elements of three different types of contracts. It includes contract of sales, contract of loan, and contract of lease. The relationship between the contracting parties is in a way similar to the relationship established between a buyer-and-a seller, a creditor-and-a debtor, and a lessor-and-a lessee. At the time of performing the contract, the parties have more of a lessor-lessee relationship because the lessor/seller still has the ownership over the thing. But mainly, it associates with contract of sale because of the end outcome, which is the transfer of possession along with ownership. Some of the distinctions that can be pointed out between sales contract and hiring sale are:

Duties of the seller/lessor: in both cases, the seller’s/lessor’s main duty is to deliver the thing to the buyer or the tenant. But in the case of a sales contract, the seller has also the duty to transfer its ownership to the buyer. In other words, there is no transfer of ownership in hiring sale at the very moment of concluding it. Transfer of ownership comes after the performance of the hiring sale contract.

Duties of the buyer/tenant: in a sales contract, the buyer is obligated to pay the price he agreed to pay to the seller. In a hire purchase contract, the buyer is considered as a tenant or a lessee for a given period of time. During that period, he is obligated to pay a fee periodically as agreed. Pursuant to Article 2413 of the Civil Code, he is also responsible for the safety of the thing. He shall be liable for any damages there might be on thing after the thing is delivered to him.

Rights of the buyer/tenant: in a hire purchase contract, the tenant has the right to terminate the contract by returning the thing to the lessor. This is because he is considered only as a lessee and not as a buyer until the payment is fully completed. And according to Article 2415(1) of the Civil Code, he can claim the rent he paid where the contract is canceled.

Finally, as a distinction from a sales contract, a hire purchase contract has its own purposes and functions. One of these could be its role as a security for the lessor. This is possible because the ownership title still resides with the lessor. As it was stated above, a hire purchase contract includes a loan contract along with it. This will make the lessor a creditor. And the fact that the lessor still possesses the ownership of the thing will make him a secured creditor. If the debtor/tenant fails to pay back the price of the thing then the lessor/creditor will be able to take back the thing and sell it to another person and get his money back. 



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