Contract Law Case: Prem Bahadur Basnet Vs. Agriculture Development Bank, Jhapa & Others, NKP, 2044, P. 589.
Case: Cancellation of Deed and Recovery of Money
Plaintiff: Prem Bahadur Basnet
Defendant: Agricultural Development Bank, Jhapa, Director of Nepal Trading Concern
Decision Number: 3101
This case is related to Acceptance of Goods and Subsequent Defect
Facts of the Case:
Prem Bahadur Basnet applied to the Agricultural Development Bank for a loan to purchase an Indian power tiller. On the basis of his application, a loan of Rs. 30,300/- was approved for purchasing the power tiller from Nepal Trading Concern. On 2043/12/20 BS, Basnet executed a written agreement with the Agricultural Development Bank regarding the loan. The quotation issued by Nepal Trading Concern also stated that goods once sold would not be taken back. On 2043/12/24 BS, Basnet inspected the power tiller and stated in writing that he found it to be in good condition and was fully satisfied with it. He subsequently received the power tiller from Morang Auto Works, Birtamod, on 2044/01/07 BS. After using the machine for some days, the power tiller broke down. Basnet then claimed that the machine appeared to be second-hand. He also complained that the Agricultural Development Bank had not performed its duties under the Agricultural Development Act, 2014. Meanwhile, Nepal Trading Concern informed the bank that it would replace the engine of the power tiller and later stated that it would repair the machine free of charge as a matter of goodwill. The bank also informed Basnet that the machine had been repaired and asked him to collect it. Basnet had also already paid the first installment of the loan to the Agricultural Development Bank. He therefore filed a case seeking cancellation of the loan agreement, refund of the Rs. 5,000/- he had already paid, and exemption from repaying the remaining loan.
Plaintiff’s Claim:
Prem Bahadur Basnet claimed that the power tiller supplied to him was defective and appeared to be second-hand and the Agricultural Development Bank had failed to perform its legal duties. The loan agreement should be cancelled. The Rs. 5,000/- first installment already paid by him should be returned. He should not be required to repay the remaining loan.
Defendant’s Arguments:
Agricultural Development Bank: The bank argued that Basnet had voluntarily obtained the loan and received the power tiller according to his own request. The bank stated that the goods were received by Basnet voluntarily and it had made payment for the goods as required. It was the buyer’s responsibility to inspect and accept the goods. Basnet had accepted the power tiller and subsequently paid the first installment. Therefore, the claim against the bank was incorrect.
Nepal Trading Concern: The supplier argued that it had provided a new and properly functioning power tiller. It stated that the machine had become defective because of issues such as oil, lubricant and maintenance, rather than because it was second-hand. The supplier also agreed to repair the machine and indicated that the engine could be replaced.
Legal Issue:
- Whether the loan agreement between Basnet and the Agricultural Development Bank could be cancelled?
- Whether Basnet was entitled to recover the Rs. 5,000/- installment already paid?
- Whether Basnet could avoid repayment of the loan on the ground that the power tiller later became defective and was alleged to be second-hand?
- Whether the Agricultural Development Bank had failed to perform its legal duties in relation to the transaction?
Decision of Courts:
Mechi Zonal Court: The Mechi Zonal Court held that plaintiff’s claim did not succeed to the extent claimed. It also ordered the relevant supplier to take back the power tiller.
Eastern Regional Court: The Eastern Regional Court held that Basnet himself had accepted the loan agreement, received the power tiller, and had even paid the first installment. The court noted that when Basnet initially inspected the power tiller, he had stated that it was in good condition and that he was fully satisfied with it. There was also no convincing evidence that the power tiller supplied to him was actually second-hand. Therefore, the Court held that Basnet could not have the agreement cancelled or recover the installment already paid. It also reversed the part of the Mechi Zonal Court’s decision requiring the supplier to take back the power tiller because that was not the relief specifically claimed by plaintiff.
Supreme Court: The Supreme Court upheld the decision of the Eastern Regional Court and dismissed Basnet’s claim. Court emphasized that Basnet had entered into the loan agreement with the Agricultural Development Bank. He had inspected the power tiller and stated that it was in good condition. He had received the power tiller and had subsequently paid the first installment. Even when making the first installment payment, he had not stated that the power tiller was second-hand. The agreement between Basnet and the bank was therefore not in a condition where it could be cancelled. Accordingly, the Supreme Court found no error in the decision of the Eastern Regional Court and affirmed it.
Established Principles:
1. Acceptance of goods affects a subsequent challenge to the transaction: When a buyer inspects and accepts goods as being in good condition, a later allegation that the goods were defective or second-hand must be supported by convincing evidence.
2. Subsequent defect does not automatically establish that goods were second-hand: The mere fact that a machine later breaks down does not by itself prove that it was second-hand.
3. When a person knowingly accepts goods after inspection, confirms that they are in good condition, and acts upon the related agreement by making payment, the agreement cannot ordinarily be cancelled merely because the goods later develop problems, particularly when there is insufficient evidence that the goods were actually second-hand.
