Vested Interest and Contingent Interest

Vested Interest

Under Section 19 of the Transfer of Property Act, 1882 (TPA) it is provided that Vested Interest may occur in two manners; the transferee immediately gaining possession of the property, and the transferee acquiring an interest in the property but not gaining present possession of the same i.e., the right to enjoyment is postponed for a later date.

Vested interest is an interest in a property that is transferred in favor of an individual whereby the time or a particular condition is not specified. Such interest ought to be conferred upon the individual on the basis of an event bound to occur. The interest in the property persists to be vested in the transferee even though the right to receive enjoyment of the same has been delayed.

The provision of Section 20 of TPA is regarding vested interest to an unborn person. The interest in the property will be conferred upon him only once he/she is given birth. However, the unborn child may not be bestowed with the right to enjoyment of the same just after having a vested interest.

IMPORTANT ASPECTS

The basic definition of “interest must be vested” means that interest ought to be made in favor of an individual in a manner whereby time or a condition of a specific event’s occurrence is not stipulated. An individual must affirm transferring the said property so that the interest can be created.
When interest is conferred upon an individual, he/she doesn’t instantly gain possession of the property to enjoy it.
The interest is conferred upon someone immediately post the initiation of the transfer and nothing can hinder it once it is initiated.
The transferor may stipulate a given time for when the interest shall be vested in the individual receiving the property.
In the case of the transferee passing away before gaining the property’s possession, the interest conferred upon him/her will then be vested in his/her legitimate heirs who will gain the possession of the same as and when the said condition is satisfied.

ILLUSTRATIONS

A, B’s father, agrees to transfer a piece of property in favor of B after he is deceased. The interest in the property in favor of B depends on the condition that is the demise of A, which is bound to occur. Therefore, upon A’s demise, B will gain a vested interest in the said property.
C pledges to transfer his property to D once she turns 25 years old. D will gain a vested interest in C’s property till she completes 25 years of age after which she will gain the property’s possession. If D dies at a time when she is 24 years old, then the interest vested in her will go onto her legitimate heirs and they shall then be entitled to that property in the stipulated duration of years.
A minor with a guardian is entitled to vested interest solely after he/she turns 18 years old. So, when E agrees to transfer property to F who is a minor, he can tell F’s guardian G to bestow upon her the property at whatever age E wishes to set the threshold but F gains the vested interest only once she becomes a major i.e., 18 years old.

CHARACTERISTICS OF VESTED INTEREST

Vested interest is not based on an unsure occurrence. It is dependent on a particular event that is bound to take place. It constructs an instant right, though the right to enjoyment is set for a later date.
Vested interest is not eradicated by the occurrence of the individual’s demise. On the occurrence of such death, the interest passes on to the deceased transferee’s heir.
Vested interest is a right that is transferable in nature and also one that is heritable.

PRECEDENTS

In the case of Lachman v. Baldeo (1919) 21 OC 312, an individual transferred a deed of gift in another person’s favor but stated that the transferee shall not gain the property’s possession till the transferor himself passes away. The Transferee shall bear a vested interest even though his right to enjoyment is delayed to a later date.
In Sunder Bibi v. Rajendra AIR 1925 All 389, the court ruled that K would own the property till his demise, after which the property will pass onto L. The interest that L would gain would be that of a vested one because K’s death is the stipulated event bound to happen.

Contingent Interest

Under Section 21 of TPA, Contingent Interest is defined as an interest which is made in a property for an individual who will receive the property, and such interest is based on the occurrence of a stipulated unsure event i.e., the event in question may or may not happen. This interest in the property shall turn into a vested one in favor of the transferee once the said event takes place or when it fails, if not rendered completely impossible.

However, if the transferee has the opportunity of becoming the property’s owner even before the said event happens and if he/she procures any wage out of such a property, then such interest shall no longer be constituted as a contingent interest. Thus, such an interest would be an exception under Section 21. Apart from this, Section 120 of the Indian Successions Act, 1925 enumerates the other exceptions for contingent interest.

IMPORTANT ASPECTS

In a transfer, if the condition is that the transfer will effectuate solely once the condition is fulfilled, till that time the interest is deemed as contingent.
A bequest to any family member such as wife, son, or daughter may be a contingent interest if the condition so specifies.
When an individual who expects to take on the rights of a property’s ownership, and he/she till the occurrence of the event, receive any kind of wage arising from that property then such an interest cannot be considered contingent.

ILLUSTRATIONS

M agrees to transfer her house in N’s favor provided that N marries her son ‘O’. Thus, the transfer of property in N’s favor is dependent on the condition of her marriage to M’s son ‘O’. N may or may not marry ‘O’. But if she does, then the interest in M’s house transfers to N immediately as the condition has been satisfied.
P agrees to transfer the house to Q provided she gets 95% in her exams. The occurrence or non-occurrence of this condition is dubious and hence, Q acquires a contingent interest in the house. She will only receive the house if she secures 95%.
R agrees to transfer property to S based on the condition that S ought to build a shed in her property. Thus, S shall secure contingent interest in the property until the condition is fulfilled.

CHARACTERISTICS OF CONTINGENT INTEREST

Interest in a transferred property shall be subjected to an uncertain condition i.e., it may or may not occur. Only when such a condition is satisfied, will the contingent interest be conferred upon the transferee.
If the transferee passes away before securing interest in the property, the contingent interest will cease to exist and the transferor shall continue to be the property’s owner.
Contingent interest is transferable in nature. But the contingent interest being heritable or not is dependent on the said event and the nature of the agreement.

PRECEDENTS

In the case of Leake v. Robinson (1817) 2 Mer 363, the court observed that if a case is such in which the bequest is meant to be transferred upon or after turning a particular age, then it can be inferred that the transfer is regarding a contingent interest.
In Rajesh Kanta Roy v. Shrimati Sunita Debi AIR 1957 SC 255, the Supreme Court ruled that the interest acquired by the two siblings under the trust deed was vested and not contingent because it was a certain event that was bound to happen unlike under contingent interest which is inviolable and cannot be transferred.

Conclusion

The Transfer of Property Act, 1882 addresses two types of interest, namely vested interest and contingent interest. It is imperative to study and comprehend both concepts because there are numerous provisions under the Act relevant to them. The main reasoning behind the concept is that the transfer of a property regarding contingent interest effectuates only once the condition is satisfied, otherwise the transfer ceases to exist.

The conditions need to be satisfied and ought to mandatorily be in compliance with the rules of justice, equity, and good conscience mentioned in the preamble, the three principles of natural law on which this entire Act is based.

The author has attempted to put forward the two concepts by analyzing all the aspects of both for a comprehensive understanding. Illustrations, as well as judicial precedents, have been presented briefly to ensure that the concepts are understood directly and coherently.