TRANSFER FOR THE BENEFIT OF UNBORN (13-18) Flashcards
s 13] Transfer for benefit of unborn person.
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The Transfer of Property Act, 1882 deals only with the transfers of property between living persons.
An unborn person means a person not in existence even in the mother’s womb. A child in the mother’s womb is considered to be a competent transferee.
Therefore, the property can be transferred to a child in mother’s womb because the child exists at that time but not to an unborn person who does not even exist in mother’s womb.
Every transfer of property involves transfer of interest. As soon as the property is transferred, the transferor is divested of that interest and the interest is vested in the transferee.
For vesting of interest, therefore, it is necessary that the transferee must be in existence. Otherwise the interest will remain in abeyance till the transferee comes into existence. This is against the very concept of an interest.
Transfer for the Benefit of Unborn Persons
Section 13 provides that the property cannot be transferred directly to an unborn person but it can be transferred for the benefit of an unborn person.
For transfer of property for the benefit of unborn person two conditions are required to be fulfilled:—
(i) Prior life interest must be created in favour of a person in existence at the date of transfer, and
(ii) Absolute interest must be transferred in favour of unborn person.
Creation of a Prior or a Life Interest
It is necessary for a valid transfer of property to an unborn person that before the transfer actually takes place, a prior interest must be created in favour of a living person on the date of transfer.
The unborn person must be in existence when the prior interest comes to an end. After the death of the person who had life interest, the property would ultimately pass to the unborn person, who will by that time have come into existence.
For instance, A transfers property to B for life, and after him, to C, and then to D again for their lives and then absolutely to B’s unborn child UB.
On B’s death, the possession would be taken by C and on C’s death, by D. On D’s death, the possession would go to B’s child, who should have come in existence by this time.
If he is not there, the property would revert back to A, if he is alive, else, to his heirs.
[13.1.2] Absolute Interest
It is further necessary that whole of the remaining interest of the transferor in the property must be given to the unborn person. Only absolute interest may be transferred in favour of the unborn person and not limited or life interest, i.e., the whole of the remaining interest is the entire interest of the transferor less the prior life interest carved out of the ownership.
Unborn Person- English Law
The rule provided that “if an interest in property is given to an unborn person, any remainder to his issue is void, together with all subsequent
limitations.
Thus, if land was limited to A (a bachelor) for life, remainder to his son for life, remainder to A’s son’s son in fee simple’ the remainder to the grandson would be valid under this rule.
However, after the 1925 Act was enacted, this rule was abolished and transfers in favour of unborn persons began to be governed by the rule against
perpetuity.
No Life Interest for an Unborn Person
As far as the unborn person is concerned, no life interest can be created for his or her
benefit. Section 13, specifically prohibits that, by the use of the expression, ‘the interest
created for the benefit of such person’ shall not take effect, unless it extends to the whole of the remaining interest of the transferor in the property.
It means that the transferor must convey to the unborn person, whatever interest they had in the property, without retaining anything with them. Thus, no limited estate can be conferred for the benefit of the unborn person. If a limited interest in the property is settled for him or her, the same would be void.
For example, A creates a life estate in favour of his friend B, and a life estate for the benefit of B’s unborn first child UB1 and then absolutely to B’s second child UB2.
The second transfer is of a limited interest in the property for the benefit of an unborn person and would therefore be void and incapable of taking effect in law.
After the death of B, here, the property would revert back to A or his heirs as the case may be, as
even though the transfer for the benefit of UB2 appears to be proper, as it is dependent on a void transfer that cannot take effect in law; a transfer subsequent to, or dependent on a void transfer can also not take effect.
A father can create a valid and enforceable settlement of his properties by giving a life interest in his properties to his son and then to his unborn children absolutely.
But where the interest in favour of the unborn child was a life interest, the settlement would be void, and a subsequent interest would also fail.
Girjish Dutt v Data Din
In this case, A made a gift to her nephew’s daughter B for her life and then to B’s male descendants absolutely, if she had any. But if she had no male descendant then to B’s daughter without the power of alienation. In case, B had not descendant, male or female, them to her nephew, Datadin.
B died without any child. It was held that
as the gift to B’s unborn daughters was a limited interest only, therefore, transfer to nephew which was dependent upon prior interest also failed.
Section 14. Rule against perpetuity.
Perpetuity literally means eternity or infinity, and is also generally understood as an indefinite, long time period, and in relation to transfer of property, it means creation of an interest in present, but which is to take effect after perpetuity.
Though the term perpetuity is not explained anywhere with reference to specific number of years, it is understood under section 14 as equivalent to the lifetime of one or more living persons plus the minority (till attainment of eighteen years) of an unborn person, who would
take the absolute interest in the property.
Analysis of Section 14
(1) There should be a transfer of property.
(2) Transfer is to create an interest in the favour of an unborn person.
(3) Interest so created should take effect after the life-time of one or more persons
living at the date of such transfer and during the minority of the unborn person.
(4) The unborn person should be in existence at the expiration of the interest of the
living person.
Perpetuity Period
The question arises what is perpetuity period, i.e., the maximum period during which the property may be rendered inalienable. According to section 14, the maximum permissible remoteness of vesting is the life of the last preceding interest plus minority of the ultimate beneficiary.
For example, the owner of a property may transfer it to a living person, A, for life and after his death to B (a living person) for life and on or before the death of B to his unborn son when he attains the age of 18 years (or 21 years when the minor is under the supervision of the court).
However, a problem arises when an unborn person does not come into existence at or before the expiry of the last prior interest but he is merely in womb. In such a case, the period of gestation has to be included as a period of grace with the perpetuity period.
The period of gestation is that period for which the unborn person has to remain in his mother’s womb. It is normally a period of 9 months or 280 days.
The unborn person is the one in whose favour the interest is created. This vesting of interest in favour of the ultimate beneficiary is preceded by life interest of one or more living persons. Life interest is always a limited interest. It is necessary that the ultimate
beneficiary must come into existence before the death of the last preceding living person.
Therefore, the total period of perpetuity i.e., the period for which the vesting of property can be postponed is given below:
(1) Where the unborn person has come into existence either at or before the expiry of the last prior-interest, his minority period.
(2) Where the unborn person is in womb at the expiry of the last prior-interest, the period of gestation plus his minority.
For example, A transfers certain properties to B for life and then to C for life and then to an unborn person when he attains the age of majority. B and C are living at the date of the transfer and unborn, the ultimate beneficiary, is not in existence even in the mother’s womb.
The last prior life interest is with C. When C dies, the contemplated unborn must be in existence either as a born child or unborn in mother’s womb. The maximum period up to which the vesting of property in unborn can be postponed would be, in case of a born child, life of C plus till the child attains the age of majority, and in case of a child in mother’s womb, life of C plus period of gestation plus period of majority.
Contingent Inte
The vesting of interest in favour of the ultimate beneficiary may be postponed till his minority, i.e., till he becomes a major.
Therefore, between the period the last person having prior life interest dies and the unborn, who is the ultimate beneficiary, attains the age of majority, the ultimate beneficiary has only a contingent interest which becomes vested in him when he attains majority.
Where the ultimate beneficiary is already born
at the death of the last person but does not survive to attain majority, the interest does
not vest in him but reverts back to the transferor or his legal heir if he is dead at that time.
Ram Newaz v Nankoo
It is necessary in deciding questions of remoteness of vesting of interest, regard must
be had to the possible events and not merely actual event. Every limitation must be
considered at the time when the instrument creating it takes effect. Even if at the time
of transfer of property, there is a slightest possibility that in future it will be a transfer in
perpetuity, the disposition will be void
X sold his entire property except two bighas of land to Y. The terms of the sale included a condition that two bighas of land would remain in X’s possession for life and after his death in the possession of X’s lineal descendants.
The conditions further added that X or X’s lineal descendants had no right to transfer the land and if none of the X’s lineal descendants is alive then the property shall be the own property of Y who is the purchaser. X had only one son who
was alive on the date of transfer but he died childless. The transfer of this land to Y
was held valid.
In this case the court held that although the actual transfer took place within the period allowed under this section but since there was a possibility that the transfer might be postponed for an indefinite period, the transfer of 2 bighas was held to be void.
Section 16. Transfer to take effect on failure of prior interest.
A valid transfer which is subsequent to and dependent upon a void transfer is itself
rendered void.
This section provides that where an interest created for the benefit of a person or of a class of persons fails due to the reasons contained in sections 13 and 14 (transfer in favour of unborn person and rule against perpetuity respectively), any other interest created in the same transaction which is to take effect after the prior interest also fails.
The rule embodied in this section is a rule of English Law that a limitation following upon a limitation is void for remoteness, is itself, void, even though it may not itself transgress the rule against perpetuity.
This section becomes applicable only when the prior interest is void only due to rules
contained either in section 13 or 14 and not otherwise. If the prior interest fails due to
any other reason given in any other section (for example, section 25), this section will
not be applicable.
[s 18] Transfer in perpetuity for benefit of public.
The principle underlying section 18 is to create a distinction between transfers that are
purely commercial or personal in character and those which are intended to benefit the public.
Where the transfer is for public welfare or public benefit, it is usually not subject to rigorous limitations or restrictions, rather, it is considered necessary to keep it intact so that public welfare can be taken care of.
Therefore, restrictions imposed on general transfers such as rule against perpetuity, subsequent transfers failing to take effect if prior transfer is void, and directions for accumulation are not applicable here.
[s 17.1] Rule against Accumulation (Section 17)
The law favours the transfer of property. The storage of wealth for an unreasonable period of time without its distribution to the expectant heir or disposal otherwise is injurious to society. A direction for accumulation of income is a method of restraining
enjoyment of property.
Sub-section (1) of this section provides that where the terms of a transfer of property direct that the income arising from the property shall be accumulated either wholly or in part during a period longer than the life of the transferor or a period of 18 years from the date of transfer such direction shall be void.
This section provides the limits beyond which a direction for accumulation of income arising out of the property transferred shall be void.
The limits are given below:
(i) the life of the transferor, or
(ii) a period of 18 years from the date of the transfer.
If the transferor prescribes any limits other than life of the transferor or a period of 18 years from the date of transfer, it shall be void to the extent to which it exceeds the longer of the aforesaid period. The effect of this provision is that at the end of such last
mentioned period, the property and its income shall be disposed of as if the period during which the accumulation has been directed to be made has elapsed.
However, where a direction for accumulation is made without specifying any of the two periods, then it will be seen what happens after the transfer. If the transferor dies more than 18 years from the date of the transfer, the direction will be void after the death of the transferor.
If he dies before the expiry of period of 18 years from the date of the transfer, the direction will be void beyond the period of 18 years. For example, X
transferred his property to Y in 1960 with a direction for accumulation till 1985 (i.e., for 25 years). A died in 1980. The transferor was alive for more than 18 years from the date of the transfer. Thus, the direction for accumulation was to be valid till 1980, i.e., the life
of the transferor and void after that. However, if the transferor had died in 1970, the longer period would have been period of 18 years from the date of transfer, and the direction would have been valid for 8 years, i.e., till 1978.
