VESTED AND CONTINGENT INTEREST (19-24) Flashcards
SECTION 19- Meaning of VESTED INTEREST
Vested interest is an immediate right to a property. When a vested interest is created
the transfer of property is complete.
The immediate right may be either a right of
present enjoyment or a right of future enjoyment. As soon as the transfer is complete, the interest accrues to the transferee with immediate effect and the transferee’s title is complete.
In comparison to vested interest, contingent interest depends upon the happening of a specified uncertain event.
Such a contingent transfer becomes vested
only on the happening of that uncertain event.
Where no time mentioned
A person gets a vested interest in a transfer of property where the terms do not specify
the time when it is to take effect.
For example, a person sells his house to another
person. The purchaser gets the vested interest from the day of sale though the possession may not be given to him immediately.
Where it is to take effect forthwith
The interest created in favour of the transferee is vested where it is specified that it is to take effect forthwith, i.e., immediately, without delay. Where a deed contains such a declaration clearly, the deed conveys vested interest alone.
Enjoyment Postponed.
The Explanation to the section provides that an interest shall not be a vested interest is not to be inferred merely from a provision whereby the
enjoyment the property is postponed. A condition postponing enjoyment does not prevent the interest vesting immediately, but it is itself void for repugnancy after the transferee has attained majority
An illustration may be taken: where A transfers
property to B in trust for C, and directs B to give possession of the property to C when
he attains the age of 25. C has a vested interest and is entitled to possession at the age
of 18.
Prior interest.
Similarly, it is not to be inferred that an interest shall not be vested merely by a provision whereby a prior interest in the same property is given or reserved for some other person.
Where a prior interest is created there is only postponement of enjoyment and not the vesting of subsequent interest. For example, where A transfers property to B for life and then to C, here the interest of C is vested interest but only due
to the prior interest created in favour of B his right of enjoyment is postponed till the life
of B.
Accumulation of income.
It is not to be inferred that the interest shall not be vested whereby income arising from the property is directed to be accumulated until the time
of enjoyment arrives. However, the direction for accumulation of income must be within the limits sanctioned by section 17. If the direction is for a period in excess of the period specified, it will be invalid for the period in excess. Only the right of
enjoyment is postponed only but not the vesting.
Conditional limitation.
Section 28 of the Transfer of Property Act, 1882, allows for the creation of property interests that depend on the occurrence or non-occurrence of a specified uncertain event. This means that a property interest can be transferred to one person with the stipulation that if a certain event happens, it will pass to another person, or vice versa. Such conditional limitations must adhere to rules outlined in other sections of the Act, ensuring that the conditions are lawful and do not violate public policy
Main Characteristics of a Vested Interest
The main characteristics of vested interest may be summarized as follows:—
(1) Vested interest does not depend upon the fulfilment of a condition. It creates a present and immediate right. The enjoyment may be postponed to a future date.
(2) A vested interest is transferable as well as heritable.
(3) A vested interest is not defeated by the death of the transferee before obtaining
possession. The interest passes on to the heirs of the transferee.
Section 20- When unborn person acquires vested interest on transfer for his benefit.
According to this section, an interest created in favour of an unborn person vests as soon as he is born. Although the possession may not be given to him immediately on his birth, it may be postponed but the interest is vested in him when he is born alive.
There is no ban on the transfer of interest in favour of an unborn person.
Section 20 permits an interest being created for the benefit of an unborn person who acquires
interest upon his birth. No provision has been brought to the notice of the court which stipulates that full interest in a property cannot be created in favour of unborn person.
Where the donor gifted the property in favour of the appellant then living, with a stipulation that if other male children were later born to her brother they were to be joint-holders with the appellant, such a stipulation is not hit by section 13 and is permissible under section 20.
Section 21- Contingent Interest
This section provides for contingent interest. Contingent means happening or non- happening of unforeseen. Similarly in the transfer of property when an interest is transferred subject to the happening or non-happening of an event then the person in whose favour such kind of uncertain interest is transferred will have a contingent interest.
According to the rule laid down in the Section an interest is said to be contingent on
two occasions;
1. On the happening of a specified uncertain event;
2. On the non-happening of a specified uncertain event;
Such interest becomes vested in the first case if such an uncertain event happens and in the second case when the uncertain event does not happen.
Illustrations
1. ‘A’ makes a gift of five star hotel to his nephew ‘Q’ who is to get interest in the property once he becomes a successful actor. Thus ‘Q’s interest in the five star hotel is contingent on his becoming a successful actor.
2. A’ makes a gift of a farm house to ‘Q’ which is to accrue once he sets up a business of two crore within six months. Here the accrual of interest is
contingent on the setting up of a business within six months.
In the above two illustrations interest in both the cases is contingent. In the first case when ‘Q’ becomes a successful actor, where the uncertain event becomes certain, then the interest which was contingent converts into vested. In the second case when ‘Q’ cannot set up a business worth crore which is impossible within a time period of six months then owing to the impossibility of the uncertain event the interest which was contingent becomes vested.
The specified uncertain event may be of 2 kinds
The specified uncertain event may be of 2 kinds. In the first type, the happening or non-happening of the event depends upon the will and desire of the parties like marriage or payment of a sum of money. In the second type, the specified event does not depend upon the will of the parties like death of a person on reaching a certain age.
The main characteristics of a contingent interest may be summarizes as following:
(i) The contingent interest is a transferable interest.
(ii) It is not heritable. On the death of a person having contingent interest, his interest does not pass to his legal heirs, The legal heirs of such a transferee do not get any interest.
(iii) Death is not an uncertain events but survival at the death of another is an uncertain event.
(iv) The charge of an heir apparent to succeed to a person as heir or similar possibilities of a like nature is not “contingent interest” within the meaning of this section.
Distinction between vested and contingent interest
- The interest is vested where the property is transferred without specifying the time when it is to take effect, or specifying that it is to take effect forthwith, or on the happening of an event which must happen. But the interest is contingent when the interest created is dependent on the happening or non-happening of a specified uncertain event.
- Vested interest creates a immediate right and is not dependent on the fulfillment of any condition. Whereas the contingent interest is solely dependent on the fulfillment of the condition.
- Vested interest is not defeated by the death of the transferee before obtaining the possession. But the contingent interest fails if the transferee dies before
fulfillment of the condition. - Vested interest is both transferable and heritable. But the contingent interest is only transferable but not heritable.
- Vested interest passes to the descendants of the transferee even if the transferee dies without taking possession. But contingent interest is incapable of descending to the heirs.
- Vested interest does not become contingent.
Whereas the contingent interest becomes vested. - Vested interest is perfect. Whereas the contingent interest is imperfect.
Rajesh Kanta Roy v Shanti Debi
A trust was created by A for the payment of debts
and the surplus was to be used for the benefit of A and his two sons. The trust was to come to an end with the total payment of debts and the death of the settlor and then the property was to vest in the two sons or to their legal heirs as the case may be. The
trust deed also provided that if any of the sons died before the trust came to an end, his heirs would represent him and were to be entitled to the benefits under the trust. The issue before the court was regarding the nature of interest created in favour of the sons, whether it was vested or contingent.
Here the widow of another son of A, (who had died before the creation of the trust) wanted to execute the decree passed in her favour, against the interest that the sons had in the trust property.
The decree could be executed against these interests only if the sons had a vested interest in it and not a contingent interest, as contingent interests are not attachable. The court held that the interest of the sons was a vested interest, as whether the sons took a vested or a contingent interest would depend upon
the intention of the settlor which was to be gathered from the language of the trust.
The emphasis of the settlor in this case was not as much on the repayment of the debts as it was on the benefits coming under it to the sons and his heirs. The court noted that the interest which either of these was to get in the properties allotted to
each was expressed to be one which each would get after the trust comes to an end.
The trust was to come to an end on the happening of two events viz.
—(i) the discharge of all debts specified in the schedules and (ii) the death of the settlor himself. Out of these two events that were specified, death of the settlor was a certain event; but the same could not be said about the discharge of debts. The court held that the interest of the sons was a vested interest
Contingent Interest and Spes-successionis
The contingent interest and spes-successionis both are future possible interests. In both, there is a possibility that it may become a perfect title in future. However, this degree of possibility is lesser in contingent interest. In case of contingent interest, the property is transferred subject to certain contingencies which may or may not happen.
But spes-successionis i.e., mere chance of heir apparent depends upon several possibilities like the heir apparent survives the deceased person, i.e., the propositus, etc.
