Contract Law Case: Hari Prasad Joshi vs. Hikmat Bahadur Malla, NKP, No. 6, P. 1018,
Case: Enforcement of contract in its original terms.
Plaintiff: Hikmat Bahadur Malla
Defendant: Sudur Paschimanchal Bus and Mini Bus Entrepreneurs Committee.
Decision No: 8396
This case is related with unilateral violation of contract.
Facts of the Case:
Plaintiff owned a plot of land in Dhangadhi Municipality-4. On 2061/04/03 BS, plaintiff and defendant entered into a 5-year lease agreement. The land was leased to defendant to be used as a bus park or for other business purposes. Key terms of the contract: The monthly rent was fixed at Rs. 30,000/-, The rent would increase by 10% every year. Neither party could terminate the lease early. If defendant left early, they had to pay rent for the remaining period. If plaintiff evicted them early, plaintiff had to pay compensation equivalent to the remaining period’s rent. On 2063/02/30 BS, defendant sent a letter to plaintiff stating that due to the committee’s weak financial condition, they had unilaterally decided to reduce the monthly rent to Rs. 20,000/- effective from 2063/03/01 BS, without mentioning the annual 10% increase. Aggrieved by this unilateral reduction, plaintiff approached to Appellate Court Dipayal seeking the enforcement of the original contract.
Plaintiff’s Claim:
Plaintiff claimed that defendant’s unilateral decision to reduce monthly rent and ignore the 10% annual increment violated Section 87(2) of Contract Act, 2056. Plaintiff requested to court to issue an order directing defendant to pay monthly rent and yearly increments exactly as specified in the original agreement.
Defendant’s argument:
Defendant argued that plaintiff had breached agreement first by digging drainage drains and constructing a road on the bus entry path, making it unsafe for buses. They also argued that while the agreement was for a single entry/exit point, plaintiff created multi-directional paths, compromising the security of parked buses. Defendant claimed they invited Plaintiff multiple times to resolve the issues and negotiate a new agreement, but Plaintiff refused to show up. Thus, the committee had to unilaterally determine a “fair rent.” Defendant further claimed that during the appeal process, on Ashwin 23, 2063 BS, the committee officially terminated the contract due to plaintiff’s breaches. They also claimed they had started using a municipality-built bus park and were no longer utilizing Plaintiff’s land.
Legal issue:
- Can one party to a legally binding contract unilaterally modify or reduce its terms based on their weak financial condition or alleged breaches by the other party?
- Did defendant’s unilateral action of reducing the rent amount to Rs. 20,000/- constitute a breach of contract under the Contract Act, 2056?
Decisions of the Courts:
Appellate Court Dipayal: Court ruled in favor of Plaintiff. It stated that defendant was obligated under clauses 2 and 5 of the contract to pay the agreed rent and could not arbitrarily lower it. Since defendant was still occupying and utilizing the land, court ordered the enforcement of contract as per Sections 86 and 87 of Contract Act, 2056, rendering defendant’s letter null and void.
Supreme Court: Supreme Court upheld decision of Appellate Court Dipayal. Court dismissed defendant’s appeal, ruling that defendant’s unilateral decision dated 2063/02/29 BS, and subsequent letter dated 2063/02/30 BS, could not be implemented. Defendant must fulfill and respect the original contract in its entirety.
Established Principles:
- Once a contract is legally formed, it cannot be unilaterally breached or altered by any single party.
- Financial Incapacity is No Excuse: A party’s weak financial condition is not a valid legal excuse to escape contractual obligations or to honestly circumvent the terms of a signed agreement.
