Legal Heirs are not liable for Personal Contractual Obligations of the Deceased

Contracts

An Agreement specifying certain rights pertaining to two or more parties which are enforceable under law is a Contract. The parties to the Contract are bound by the terms of the said Contract. However, at the time of execution of Contract parties to such Contract do not usually consider whether the terms of the Contract would bind their legal heirs upon demise of the contracting party and as such no specific clause in this regard is mentioned in the Contract. Thus, it becomes difficult for the legal heirs of the contracting parties to ascertain whether such legal heirs are bound to discharge the obligations of the deceased contracting party. The said concern about the contractual obligations of the deceased was raised before Hon’ble Supreme Court and the same has now been settled.                

Obligations Under Contract

Contractual obligations may be of two kinds:

a.    Monetary or compensatory
b.    Personal obligations

The brief facts of the case decided by The Hon’ble Supreme Court are stated herein below:

The dispute pertained to breach of a Development Agreement entered between the parties. In terms of the said Agreement, the Claimants were to receive few residential flats as well as cash consideration. However, the Developer breached various terms of the said Agreement about the quality and standard of construction. Furthermore, the Developer failed to honour the cash consideration to be paid in terms of the said Agreement.

As such the aggrieved party approached the District Consumer Forum, Kolhapur. Pursuant thereto the order passed by the District Forum was challenged before the State Consumer Dispute Redressal Commission, Maharashtra. Thereafter, an appeal was filed before the National Consumer Disputes Redressal Commission (NCDRC). However, during the pendency of the appeal before NCDRC, the Developer passed away. Thus, the legal heirs of the deceased were brought on record.

The matter was heard by NCDRC and was decided against the deceased Developer. The legal representatives of the deceased Developer were directed to:

a.    Make payment of the amounts due along with interest in terms of the Development Agreement.
b.    Complete the construction work, obtain and hand over Completion Certificate, execute Conveyance Deed and provide electricity connection in terms of the Agreement.

Observations

The legal representatives of the deceased Developer being aggrieved by the Order passed by NCDRC moved to Hon’ble Supreme Court, regarding the directions issued against them to be executed in personal capacity of the deceased Developer.

The Hon’ble Apex Court after hearing the matter stated that personal rights which are the rights related to status or occurring out of any contractual obligations, are not inheritable and transferable by anyone. Similar to the personal rights, which are uninheritable and dies with the owner, a personal duty are not transferable to the legalized representatives of the departed.  

Based on the above, the Hon’ble Supreme Court observed that a Contract can be vicariously performed by legal representatives of the deceased depending on the following aspects:

i.    the subject matter.
ii.    the nature of performance.

It was further observed that according to the persons personal qualification or competency, if a contract contains exercise of an individual’s expertise and skills , then it ought to be performed by the Contractor personally and not by legal representatives of the said Contractor.

It was observed that a proprietorship concern is not separate from the Proprietor and is merely run by the Proprietor under the proprietorship concern. If any order so passed pertains to the skills and expertise of the sole proprietor other than monetary relief in such cases the obligations which were to be performed by the proprietor would cease on proprietor’s demise and would not extend to legal heirs or representatives. In the case in hand the Hon’ble Supreme Court held that the orders passed clearly stated that the commitments imposed on the deceased Developer were to be carried out in personal capacity as a Developer. The Hon’ble Court further held that the legal heirs were obligated to compensate and fulfil the monetary obligations and were not responsible to fulfil personal commitments under the Development Agreement that needed the departed Developer’s skills or expertise. Accordingly, the order passed by NCDRC was partially set aside.

Conclusion

In view of the above it is a settled position that the legal heirs cannot be compelled to fulfil any obligation involving personal skills of the deceased. The legal heirs can be held responsible to compensate monetarily and the personal obligations shall cease with the passing away of the contracting party.