INSTALMENT PURCHASE, in the law of contract, a form of purchase of goods on a system of extended credit. Origin ally applied to the sale of the more expensive kinds of goods, such as pianos and articles of furniture, the instalment system has now been extended to almost every description. The agreement is usually in writing, with a stipulation that the payments to purchase shall be by weekly, monthly or other instalments. The agreement is virtually one to purchase, but in order that the vendor may be able to recover the goods at any time on non-payment of an instal ment, it is treated as an agreement to let and hire, with a provision that when the last instalment has been paid the goods shall become the property of the hirer. A clause provides that in case of default of any instalment, or breach of any part of the agreement, all previous payments shall be forfeited to the lender, who can take possession of the goods. Such agreements, therefore, do not pass the property in the goods, until all the instalments have been paid. But the terms of the agreement may sometimes purposely obscure the nature of the transaction between the parties, where, for example, the instalment purchase is merely to create a security for money. In such a case a judge will look to the true nature of the transaction. If it is not a real letting and hiring, the agreement will require registration under the Bills of Sale acts. If the agree ment contains words to the effect that a person has "bought or agreed to buy" goods, the transaction comes under the Factors Act, 1889, and the person in possession of the goods may dispose of them and give a good title (see FACTOR). The doctrine of reputed ownership, by which a bankrupt is deemed the reputed owner of goods in his apparent possession, has been somewhat modified by trade customs, in accordance with which property is frequently let out on the instalment system (see BANKRUPTCY).
In the principal British dominions, such as Canada and Aus tralia, real property is frequently sold for payment on the instal ment system, usually during three years, some particulars of which will be found in Burge's Foreign and Colonial Laws, vol. iv. part ii. Instalment purchase is also the system followed by the building societies (q.v.), under which their members buy houses for them selves.
See also INSTALMENT SELLING. (W. A. B.) United States.--Instalment purchase in the United States takes either the form already described above, and known as the conditional sale, or the form of a sale outright with chattel mort gage (see BILL OF SALE) for the unpaid portion of the price. An apparent lease which in substance amounts to a conditional sale is almost universally treated as the latter, regardless of its form.
The fact that the goods are in full use of the buyer and hence appear to be his, opens the possibility of his creditors being misled by his apparent ownership, and even more the possibility that bosun fide purchasers of the goods from him may be misled, if the secret rights of the seller are given full force. These considera tions have led in more than half the States to legislation under which a contract of conditional sale fails to preserve the seller's rights as against bona fide purchasers from the buyer, or as against described classes of the buyer's creditors (including his trustee in bankruptcy) unless the contract is publicly filed or recorded in much the same manner everywhere required for a chattel mortgage. Where such filing is not required, sellers com monly use the conditional sale in the instalment purchase, to save the expense of filing, as also to avoid the publicity of filing, which generally is objectionable to the buyer as reflecting on his credit. On the other hand, wherever such filing is required- except in the nine States which have adopted the Uniform Condi tional Sales Act—there is much to be said in favour of using the chattel mortgage back as the lender's security. For there are disadvantages in the conditional sale when it comes to realization on the security. If a chattel mortgagee retakes the goods and forecloses on default, he is still entitled to recover at law any dif ference between the amount of the unpaid debt and the value of the goods, or the amount for which they sell on foreclosure. But, except under the Uniform Act, a conditional seller must elect be tween retaking the goods and recovering the unpaid portion of the price ; both he cannot do, and the retaking of used goods often results in a loss to him. On the other hand, under the conditional sale the seller may in a very favourable case stand to win, since he can keep as forfeited all that has been paid, even though his re sale of recaptured goods should result in a profit. In the case of a chattel mortgage, he would then have to pay over the difference to the defaulting buyer (mortgagor) ; and such is the vastly pref erable rule for the conditional sale, as well, as evidenced by the Uniform Act.
In the case of street cars and railroad rolling stock, instalment purchase has been introduced to permit specific new financing to companies whose credit standing has somewhat suffered, . and whose properties were already covered by a blanket mortgage framed to include after-acquired chattels. The buyer-company's interest, and hence the blanket mortgagee's, is held to be sub ordinate to that of the instalment seller, whether the form be con ditional sale, purchase money mortgage, or the peculiar Pennsyl vania Hence "equipment trust" securities can be marketed by a company whose new mortgage bonds cannot; since, too, the equipment in case of default can be removed and sold irrespective of the possible unprofitable location or condition of the road itself.
Land and houses, especially in the case of subdivision develop ment, are often sold on an instalment basis. In that situation radi cally different rules of law apply; there is no possibility, for in stance, of resale by the buyer to a bona fide purchaser; forfeiture on default of what the buyer has paid in is almost universal, yet often subject to mitigating periods of grace by virtue of liberal construction of the contract.
See Bogert's Commentaries on Conditional Sales (1924) ; W. A. Estrich, Law of Instalment Sales of Goods (1926) ; K. Duncan, Equip ment Obligation (1924) ; E. R. A. Seligman, The Economics of Instal ment Selling (1927). (K. N. L.)