When entering into contracts, individuals rarely consider whether their contractual obligations would bind or impose liabilities on their heirs in the event of their demise. Therefore, upon the passing of the contracting party, it is, at times, not straightforward to ascertain whether the heirs are liable to honour the deceased’s obligations. The Supreme Court of India (“SC”) was recently called upon to opine on this issue in the matter of Vinayak Purshottam Dube (Deceased) v. Jayashree Padmakar Bhat and Ors.[1].
Obligations
Contractual obligations may be of two kinds: (i) pecuniary / monetary / proprietary obligations or compensatory claims; and (ii) personal obligations. As regards the former, the SC observed that the estate of the deceased would undoubtedly be liable for such claims; if a decree is executed against the legal representatives, they would be liable to pay compensation to the extent of the deceased’s property received by them, which had not been duly disposed of.
Therefore, the main issue arising in this matter concerned the latter types of claims – i.e., whether legal heirs / representatives would be liable to discharge contractual obligations which are personal in nature. The relevant facts are explained below.
Background facts
The dispute pertained to breach of a Development Agreement dated July 30, 1996 (“Development Agreement”) entered between Vinayak Purshottam Dube, a sole proprietor (“Developer”) and the original claimants (“Claimants”). As per the Development Agreement, the Claimants were to receive eight residential flats and cash consideration.
Allegedly, the Developer failed to honour the payment obligations and breached various terms of the Development Agreement relating to quality and standard of construction. The Developer made a counter allegation against the Claimants, which is not relevant to the facts at hand.
The Claimants originally approached the District Consumer Forum, Kolhapur. The order of the District Forum was challenged before the Consumer Dispute Redressal Commission, Maharashtra. Thereafter, the matter reached the National Consumer Disputes Redressal Commission (“NCDRC”); however, during the pendency of this appeal, the Developer passed away and his legal representatives were brought on record.
The NCDRC order, post an application for review, was finally passed in favour of the Claimants. The legal representatives of the deceased Developer were ordered to (i) make payment of the amounts due under the Development Agreement (with interest); and (ii) comply with other construction-related directions such as building a compound wall, obtaining and handing over completion certificate to the Claimants, executing the conveyance deed, and providing electricity connection to the Claimants.
Aggrieved by this order of the NCDRC, the legal representatives of the deceased Developer sought relief from the SC, specifically as regards the personal directions issued against them.
Arguments of parties
The legal representatives contended that they could not comply with the directions of the NCDRC since they did not possess the skill and expertise required to fulfil the Developer’s obligations, which were personal in nature. The legal representatives argued that since the deceased Developer had been a sole proprietor, his estate should be liable only for satisfaction of compensatory payments.
In response, the Claimants insisted on performance of the construction related directions issued by NCRDC as non-compliance by the legal representatives would leave them “high and dry”.
SC examination of jurisprudence
Before delving into the facts and analysis, the SC first examined the jurisprudential framework pertaining to personal rights and corresponding duties as relevant in the matter. The SC explained that personal rights, such as rights relating to status or arising out of contractual obligations, are neither transferable nor inheritable. In the same manner as a personal right, which is uninheritable and dies with the owner of the right, a personal duty also is not capable of being transferred to the legal representatives of the deceased.
In support of these observations, the SC placed reliance on Section 306 of the Indian Succession Act, 1925 (which applies the maxim “actio personalis moritur cum persona” (i.e., a personal right of action dies with the person)) and Sections 37 and 40 of the Indian Contract Act, 1872[2].
SC analysis
Based on the above jurisprudence, the SC observed that a contract can be performed vicariously by the legal representatives of the promisor depending on (i) the subject matter of the contract; and (ii) the nature of performance. Where a contract involves exercise of an individual’s skills or expertise, or which depends upon his/her personal qualification or competency, it must be performed by the contractor himself and not by his/her representatives.
In this context, given that the deceased Developer was a sole proprietor, the SC observed that a proprietorship is not a separate legal entity and is merely the name under which a proprietor carries on business. If the decree or order is based on the skills and expertise of the sole proprietor (rather than against his estate), then the obligations which were to be performed by him would cease on his demise and would not extend to his legal heirs or representatives. Examining the relevant terms of the Development Agreement, the SC opined that they clearly indicated that the obligations imposed on the deceased Developer were to be carried out by him personally.
Accordingly, the SC held that while legal heirs of the deceased Developer were responsible for monetary obligations from the deceased’s estate, they were not liable for personal obligations under the Development Agreement that required the deceased Developer’s skills or expertise. Consequently, the order of the NCDRC was set aside to that extent.
For further information, please contact:
S.R. Patnaik, Partner, Cyril Amarchand Mangaldas
sr.patnaik@cyrilshroff.com
[1] AIR 2024 SC 1386.
[2] Section 37 provides that, as regards contracts, promises bind the representatives of the promisor in case of the death of the promisor before performance, unless a contrary intention appears from the contract. Section 40 provides that if it appears from the nature of the case that it was the intention of the parties to any contract that any promise contained in it should be performed by the promisor himself, such promise must be performed by the promisor.
