Contingent and Vested Interest

Meaning of Vested Interest

Section 19 of Transfer of Property Act 1882 lays down the meaning of vested interest. Vested
interest can take place in two stages. First when the transferee is in immediate and present
possession of the property and second when the transferee has acquired an interest in the
property but is not in the present possession of property that is the right to enjoyment is
postponed to a future date.

Vested interest is when an interest in a property is transferred in favour of a person without

specifying the time or a specific condition. Such interest must vest in the person on happening of
an event which is bound to happen. The interest in the property remains vested in the transferee
even though the right to enjoyment of the property is postponed. In other words, interest is said
to be vested when it depends on happening of a certain event precedent. [i]

Illustration

X, the father of Y agrees to transfer an ancestral property in favour of Y after his death. The
interest in the ancestral property in favour of Y is dependent on the condition of the death of his
father X, which is certain. Hence on the death of X, Y will have vested interest in the ancestral
property.

Characteristics of Vested Interest

The three main characteristics of vested interest is as follows-

1. Vested interest does not depend on an uncertain event. It depends on a certain event which
must happen. It creates a present or immediate right though the right to enjoyment is postponed.

2. Vested interest is not defeated by death. On the death of the transferee, the interest is passed to
the heir of such transferee.
3. Vested interest is a transferable right as well as a heritable right

Section 20 pertains to the acquisition of a vested interest in a property transferred to an unborn

child. When a transfer of property takes place in favour of an unborn child, the interest in such a
property vests in the unborn child at the time of the child’s birth. Such a child maybe not be able
to enjoy the property immediately but the interest in the property is transferred immediately. [iii]

Under the following circumstances, the vested interest remains vested in the transferee
even though–

1. When the enjoyment of the property is postponed.

2. When a prior interest in the property is created.

3. Income arising from the property is accumulated till the right of enjoyment of the property.

4. When on the happening of a certain event interest passes on to another person.

Case Law

Sunder Bibi v. Rajendra [iv] The court held that A would hold the property till his death and
subsequently after his death the property would pass to B. The interest acquired by B in the said
property is a vested interest. B would acquire vested interest because the death of A is a
condition which is a certain event and is bound to take place.

Meaning of Contingent Interest

Section 21 of the Transfer of Property Act 1882, contingent interest is when interest is created in
a property in favour of a person to whom such property is transferred, such interest is dependent
on the happening of a specified uncertain event which may or may not take place. Hence the
transfer of an interest in a property is dependent on a contingent event. This interest in the
property can become vested interest in favour of the person to whom it is transferred on the
happening of the event or when the happening of the specified event fails or becomes impossible.
The creation of interest of the person’s right to enjoyment, possession or ownership in the
property is dependent on happening of a condition which may or may not take place.[v]

Illustration

A agrees to transfer his house in favour of B on the condition that B should marry his daughter
‘X’. Hence such a transfer of property in favour of B is dependent on the condition of B
marrying A’s daughter ‘X’. B may or may not get married to ‘X’.  If B gets married to X, the
interest in A’s house gets transferred to B immediately on happening of the specified event.

Exception

However when a person who has a chance of becoming the owner of a specific property and
before the uncertain event takes place, if such a person receives any income arising from such a
property, this interest in the property is not a contingent interest. Hence such an interest is an
exception under section 21.

Characteristics of Contingent Interest

There are three main characteristics of contingent interest which are as follow-  

1. The interest in a specific property transferred will be subject to a condition which is uncertain
i.e., it may or may not take place. Only on fulfilment of such a condition will the contingent
interest in the property become vested interest in the transferee.

2. If the transferee dies before acquiring the interest in the property, the contingent interest will
lapse and the transferor will remain the owner of the property.

3. The contingent interest can be transferred i.e. it is a transferable right. However, if the
contingent interest is heritable or not depends on the contingent event and nature of the
transaction. [vi]