TOPIC : VESTED AND CONTIGENT INTEREST

ASSIGNMENT : LAW OF PROPERTY

SUBMITTED BY

MANIKANTAN S KANDATHIL
ROLL NO : 33
7TH B.Com

SUBMITTED TO
ADV. AJAY UNNI

CSI COLLEGE FOR LEGAL STUDIES KANAKKARY , KOTTAYAM

DATE : 18/08/2020
 INTRODUCTION

The Transfer of Property Act deals with two kinds of interest vested interest
and contingent interest. Vested interest is to be distinguished from contingent
interest. When an interest is vested, the transfer is complete but when the interest
is contingent, the transfer depends upon a condition precedent. When the
condition is fulfilled the transfer takes effect and that the interest becomes vested.

Section 19 of the Transfer of Property Act, 1882 talks about Vested Interest. It is an
interest which is created in favour of a person where there is a condition of the
happening of a specified certain event and time is not specified. The person having
the vested interest does not obtain the possession of that property but expects to
receive it upon happening of a specified certain event.

Section 21 of the Transfer of Property Act, 1882 states about Contingent Interest.
It is an interest which is created in favour of a person on fulfilling a condition of
happening of a specified uncertain event. The person having the contingent
interest does not get the possession of the property but receives it upon
happening of that event but will not receive the property if the event does not
happen. Contingent interest is entirely dependent on the condition imposed on
the transfer.
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.

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.[ii]

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..

VESTED IN DIFFERENT FORMS

(i)Vested in possession- when it is a right to present possession for ex- our
residential house. Vested in possession is a term used to indicate an interest which
gives a right to immediate enjoyment of an interest in property as opposed to an
interest vested in remainder. For example, an estate is vested in possession when
there exists a right of present enjoyment; and an estate is vested in interest, when
there is a present fixed right of future, enjoyment. “The phrase "vested in
possession" is well understood as meaning a right of present enjoyment.
Contrasted with these terms is the phrase "vested in interest," which means a
present fixed right of future enjoyment. Thus any given interest may first be
vested in interest, then vested in possession, and finally reduced to possession.

(ii) Vested in interest – when it is not a right to present possession but a right to
future possession. Example- a land & building is given to Ramesh for his life with a
remainder to B , in that case ’s right invested in possession ,B’s right is vested in
interest .i.e. after ’s death property will come to B without anycondition. A vested
interest is transferrable and heritable.A vested interest is a “right that so
completely and definitely belongs to a person that it cannot be impaired or taken
away without the person's consent. The event or time frame that triggers vesting
is typically defined by contract, such as employee pension benefits vesting after a
certain number of years.

(iii) vested gift-A vested gift refers to an absolute gift. Generally, a vested gift is
free from contingencies. Although a vested gift is unconditional, its use or
enjoyment might not occur until sometime in the future. Hence, a vested gift can
be made for the purpose of present or future usage.

(iv)vested estate-Vested estate is an absolute, unconditional, and indefeasible

interest. It is an estate which is not contingent or expectant. Vested estate carry a
fixed right of present or future enjoyment. It gives a certain and fixed right of
present or future enjoyment; that is, an interest clothed with a present legal and
existing right of alienation. An estate is vested in possession when there exists a
right of present enjoyment, and vested in interest when there is a present right of
future enjoyment.

(v)vested future estate-Vested future estate is an estate which exists when there
is a person in being who would have an immediate right to the possession of the
lands upon the ceasing of the intermediate or precedent estate.

(vi)vested liabilities -"vested liabilities" means “the present value of the

immediate or deferred benefits available at normal retirement age for participants
and their beneficiaries which are no forfeitable.
(vii)vested right-A vested right is commonly defined as a “right that so completely
and definitely belongs to a person that it cannot be impaired or taken away
without the person's consent.

(viii) vested interest by will-property given to window in lieu of her maintenance

during her life time and after her death surviving right ,if any ,was to vest in
daughter , enactment of Hindu succession act, 1956 deprived daughter of their
legal right as widows interest enlarged into an absolute estate ,no right vested in
daughters will.

CASE LAWS
In Kant Roy v. Santi Devi , father settled the property on his two minor sons. The
settlement provided that the sons would take absolute interest in the property
upon the death of the transferor and after discharging all his encumbrances. The
Supreme Court held that the sons got a vested interest, though enjoyment was
temporarily postponed.

In case of Sreenivasa Pai V.Saraswati Ammal A by a settlement deed transferred

property to P for life , then to S. S predeceased P .On the death of P, the heir of S
claims the property .It was held that since the interest was not subject to any
condition precedent .So it is a vested interest and is not liable by the death of its
owner before he becomes entitled to possession .So on the death of ,the heir of S
can claim the property.

DEFINITION OF CONTINGENT INTEREST

Section. 21 defines Contingent interest as follows -
Where, on a transfer of property, an interest therein is created in favour of a
person to take effect only on the happening of a specified uncertain event, or if a
specified uncertain event shall not happen, such person thereby acquires a
contingent interest in the property. Such interest becomes a vested interest, in the
former case, on the happening of the event, in the latter, when the happening of
the event becomes impossible..

Exception- where, under a transfer of property, a person becomes entitled to an

interest therein upon attaining a particular age, and the transfer also gives to him
absolutely the income to arise from such interest before it reaches that age, or
directs the income or so much thereof as may be necessary to be applied for his
benefit, such interest is not contingent.

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.

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.

NATURE OF CONTINGENT INTEREST

Contingent interest is a transferable interest- A contingent interest; not being a

mere possibility is a well recognized form of property which is capable of being
transferred. Such a transfer would be effectually passed to the transferee, all the
interest which the transferor possessed when the contingency happened and the
interest vested in possession. But though a contingent interest can be made the
subject of a valid transfer inter vivos it cannot be made the subject of a forced sale
in attachment proceedings.

It has been held that a contingent interest is not an existing right and may never
ripen into an existing right, and is not a sufficient ground to an action for
declaration of right.

A contingent interest is a non inheritable interest. On the death of a person having

contingent interest, his legal heirs do not get anything, not even the contingent
interest. After the death of such a person it is only his vested interest that can be
inherited.
CASE LAWS

Usha Subbarao vs B.E. Vishveswariah & Ors [1996 SCC (5) 201, JT 1996 (6) 607]
In order to determine whether the appellant can claim any right in the
properties of the testator, it is, therefore, necessary to examine the nature of the
bequest that was made by the testator in favour of his five sons including the
deceased husband of the appellant. If it is found that the bequest is in the nature
of vested interest, it would vest in the husband of the appellant on the death of
the testator and after the death of her husband the appellant as his legal
representative, would be entitled to claim her husband's interest in the properties.
But in case the bequest is found to be in the nature of a contingent interest which
was to vest in the legatees only after the death of Smt. Nadiga Nanjamma, the
appellant would not be entitled to claim any interest in the properties since her
husband had pre-deceased Smt. Nadiga Nanjamma. As regards Wills the rule is
that "where there is doubt as to the time ofvesting, the presumption is in favour
of the early vesting of the gift and, accordingly it vests at the testator's death or at
the earliest moment after that date which, is possible in the contest."

In Thimmi Chetty y. Govindan alias Muniappa Gounder (1978) 91 L.W. 570 a

Division Bench of this Court (to which one of us was a party) had to consider the
question in a case where a vestedinterest was created under an instrument,
whether the follow-up recitals, which militated against such vesting of absolute
title, would belittle the force and legality of such entitlement. No doubt, in that
case, the deed provided that on and from the date of the instrument the settlee
should enjoy the property absolutely and that possession of one half of the
property was also delivered over to the settlee since the settlee was already in
possession of the other half. This Court expressed the view that the terms used in
a deed should be interpreted in their strict and primary acceptation and should
not be viewed with reference to the secondary motives referred to by the settlor
in an instrument of settlement.

DISTINCTION BETWEEN CONTINGENT AND VESTED INTEREST

These points of distinction between vested and contingent interest need to be
noted

A contingent interest is inalienable. On the other hand, vested interest is

heritable and transferable.
1. A contingent interest depends solely upon the fulfilment of a condition, so
that in case of non-fulfilment of the condition, the interest may fall thorough.
On the other hand, a vested interest does not depend upon the fulfilment of
any conditions and takes effect from the date of the transfer of property.
2. In case of a contingent interest there is no present right. However, there is a
promise for giving one and is altogether dependent upon the fulfillment of
the condition. As against this, in case of a vested interest, there is a present
and immediate right. Only its use is postponed. In case of a contingent
interest, the transferee takes an interest of a contingent nature, which may
be defeated by reason of non-fulfillment of the precedent conditions. This is
not the case in case of a vested interest.
3. It is to be noted that where, under a transfer of property, a person becomes
entitled to an interest in the property upon attaining a particular age and the
transferor also gives to him absolutely the income to arise from such interest
before he reaches that age, or directs the income to be applied for his
benefit, then such interest is vested interest.
4. In property law and real estate, a future interest is a legal right to property
ownership that does not include the right to present possession or
enjoyment of the property. Future interests are created on the formation of
a defensible estate; that is, an estate with a condition or event triggering
transfer of possessory ownership. A common example is the landlord-tenant
relationship. The landlord may own a house, but has no general right to enter
it while it is being rented. The conditions triggering the transfer of
possession, first to the tenant then back to the landlord, are usually detailed
in a lease.Vested interest should be without any condition

BASIS VESTED CONTINGENT

 Right of Immediate rights Merely a future possible
Enjoyment rights
accrues
Nature of No such condition Condition ( on happening
Event (happening or non or non happening of future
happening of future event )
event)
Heritability It is heritable right Not a heritable right
Nature of Title Perfect immediately Imperfect, Perfect on
happening of or non
happening of event
Effect of Immediately form the Condition precedent,
Interest date of Transfer which must in nature
Transferability Transferable Transferable, may be
defeated by reason of non
fulfillment of the condition
precedent.

CONCLUSION
In the case of a transfer of property, a person may acquire a contingent interest as
against a real interest or vested interest in the property. The relevant provisions
are contained under Section 21 of the Transfer of Property Act. According to the
statutory provisions, where on a transfer of property an interest is created in
favour of a person to take effect only on the happening or not happening of a
specified event, he acquires a contingent interest in the property.

For example, assume there is a stipulation that A's property is to be transferred to

C in case A and B die before the age of 18. In such a case, C has a contingent
interest in the property until A and B die, under the age of 18. An interest is
contingent when some contingency is to happen before the person is qualified to
take possession of the property.

It is to be noted that if under a transfer of property, a person becomes entitled to

an interest in a property on attaining a particular age, and the transferor also gives
him any income from such an interest before he reaches that age, or directs the
income to be used for his benefit, such an interest is not a contingent interest. In
countries with a sophisticated private property system, documents of title are
commonly used for real estate, motor vehicles, and some types of intangible
property. When such documents are used, they are often part of a registration
system whereby ownership of such property can be verified. In some cases, a title
can also serve as a permanent legal record of condemnation of property, such as in
the case of an automobile junk or salvage title. In the case of real estate, the legal
instrument used to transfer title is the deed.

A famous rule is that a thief cannot convey good title, so title searches are routine
for purchases of many types of expensive property. In several counties and
municipalities in the US a standard title search is required under the law as a part
of ownership transfer. Ordinarily the subject matter of ownership consists of
material objects like land, chattels etc. the wealth and assets of a person such as
interests in the land, debts due to him, share in a company, patents, copyrights
etc. may also be subject matter of ownership. Thus, intangible rights may also
constitute subject matter of ownership. Salmond also supports this view that
besides material objects, right may also be subject matter of ownership though a
man is said ‘not to own, but to have a right’. From this point of view many rights
cannot be considered as subject matter of ownership, like everyone has a right of
freedom of speech or right of reputation but it is never said that he owns these
rights, nor can he alienate them.

Vested interest defined under section19 of transfer of property act should be

distinguished from contingent interest as defined in sec.21. when an interest is
vested the transferee’s title is already prefect. when the interest is contingent his
title is yet imperfect, but is capable of becoming prefect on the fulfilment of some
condition implied.

BIBLIOGRAPHY
www.srdlaws.com/vestedandcontigentinterest

www.scribd.com/vestedandcontigentinterest