Chapter:

Vested Interest & Contingent Interest

I. Introduction:
Section 19 & 21 of Transfer of Property Act expounds the terms Vested or
Contingent Interest in relation to transfer of property. Transfer of Property involves
transfer of interests. But important is - what is the time of accruing interest i.e. when
does the transferee gets the interest. The answer is that, the interest may either be
vested or contingent.
Vested Interest: Where the interest transferred is vested, the transferee gets the
interest immediately. In other words, as soon as the transfer is complete, the interest
accrues (gets added) to the transferee with immediate effect and the transferee’s title is
complete.
Contingent Interest: Where the interest is contingent, the transferee gets the interest
only upon the happening of an uncertain future event specified in the transfer. In such a
transfer the title of the transferee is not complete unless the specified event happens.
Section 19 defines Vested Interest and Section 21 defines Contingent Interest.

II. Part A: Vested Interest

1. Section 19: Vested interest -

“Where, on a transfer of property, an interest is created in favour of a person -
a. without specifying the time when it is to take effect, or
b. in terms specifying that it is to take effect –
(i) forthwith or
(ii) on the happening of an event which must happen,
such interest is vested, unless a contrary intention appears from the terms of the
transfer.
A vested interest is not defeated by the death of the transferee before he obtains
possession.”
Explanation - An intention that an interest shall not be vested is not to be inferred
merely from a provision
- whereby the enjoyment thereof is postponed, or
- whereby a prior interest in the same property is given or reserved to some other
person, or
- whereby income arising from the property is directed to be accumulated until the
time of enjoyment arrives, or
- from a provision that if a particular event shall happen the interest shall pass to
another person.
2. Meaning:
Vested interest is an immediate right to a property. When a vested interest is
created the transfer of property is complete. As soon as the transfer is complete, the
interest accrues to the transferee with immediate effect and the transferee’s title is
complete.

3. Analysis of Section:
According to the section, where there is transfer of a property, the interest in the
property is vested i.e. created in favour of a person, where -
(i) no time is specified as to the when it is to take effect, or
(ii) it is specified that it is shall take effect forthwith (immediately), or
(iii)it is specified that it is shall take effect on the happening of an event which must
happen.
(iv)A vested interest is not defeated by the death of the transferee before he obtains
possession.
Explanation provides clarification that -
An intention that - interest is not vested should not to be inferred merely from a
provision where:
(i) the enjoyment of the property is postponed, or
(ii) a prior interest in the same property is given or reserved to some other person, or
(iii)income arising from the property is directed to be accumulated until the time of
enjoyment arrives, or
(iv)if a particular event shall happen the interest shall pass to another person.

4. Essential Conditions:
This section says that an interest is vested in a person under the following
conditions:
1) 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.
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.

2) 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.

3) On the happening of an Certain event:

 The interest is a vested interest where the operation of the transfer is made to
depend upon some specified certain event. The event must be clearly specified,
explained and it must be certain to happen.
For example: death of a person is certain to happen, likewise sunset and sunrise are
bound to happen, etc.

5. Implied Vested Interest

Explanation to vested interest clearly states that though there may be
postponement of interest that does not mean that interest is not vested, but the
interest is vested. Following are the situations where it is to be implied that interest is
vested -
(a) Enjoyment Postponed:
The Explanation to the section provides that an interest shall be a vested interest
and it not to be inferred that is not vested merely from a provision whereby the
enjoyment of the property is postponed. A condition postponing enjoyment does not
prevent from vesting of interest immediately, but it is itself void for repugnancy after
the transferee has attained majority.
Illustration: 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.
(b) 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.
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.
(c) 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 but
not the vesting.
(d) Conditional limitation:
The interest is vested and it is not to be inferred that it is not vested from a
provision that if a particular event shall happen the interest shall pass to another
person. Such type of a provision is known as a ‘conditional limitation’. A conditional
limitation divests an estate which has become vested and vests it in another person.
4) Death of Transferee:
When an interest is vested, it becomes the property of the transferee and he can
transfer it even before he has obtained possession. A transfer of property made without
possession is valid and effective. When the transferee dies, his interest vests in his legal
representatives, whether the possession has been obtained or not.

III. Part B: Contingent interest

1. Section 21: Contingent interest -

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 transferor also gives to him
absolutely the income to arise from such interest before he 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.

2. Analysis:
The vesting of an interest which takes place after the fulfillment of some
condition precedent, till the condition is fulfilled remains contingent. In a transfer of
property a person get a contingent interest in the property when:
(i) the specified uncertain event happens, the happening of which was a condition for
vesting of interest, or
(ii) the specified uncertain event does not happen, the non-happening of which was a
condition for vesting of interest and the event has become impossible to happen.
In the case of a contingent interest, the interest becomes vested only when
either of the condition is fulfilled.
Example: A makes a gift to B provided X survives the age of 25 years, the interest of B is
contingent. Where A makes a gift to B provided X does not survive the age of 25 years,
the interest of B again is contingent.

3. Kinds of uncertain event:

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 present section relates to this kind
uncertain event.

4. Characteristics:
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 chance of an heir - apparent to succeed to a person as heir or similar possibilities
of a like nature are not ‘contingent interest’ within the meaning of this section.

Illustrations:
(1) A transfers his farm of Sultanpur Khurd to B if B shall convey his own farm of
Sultanpur Buzurg to C. Interest of B in the farm Sultanpur Khurd is contingent. It may
become vested if B conveys his farm Sultanpur Buzurg to C.
(2) A grant provided that on the death of the last surviving widow of the late Raja of
Tanjore, his daughter or failing her the next heir (if any) should inherit the property.
The Privy Council held that until the death of the last surviving widow, the interest
created in favour of the daughter was only contingent on her surviving the last
widow.
(3) A makes a gift in favour his sons with a condition that if any of them dies leaving no
male issue, his share will be taken by the others, and not by the widow or daughter
of the deceased son. The gift creates a contingent interest here2.

5. Exceptions –
If a transfer deed provides that a person becomes entitled to an interest
- upon attaining a particular age and the transferor also gives to him absolutely the
income to arise from such interest before he attains that age or
- directs the income or so much of it as may be necessary to be applied for his
benefit,
such interest is not contingent interest.
This exception is based on the principle that, “where the principal is given at a
distant epoch, and the whole income is given in the meantime, the court leaning in
 favour of vesting has said that the whole thing is given but if there occurs an interval or
gap, which separates the gift of interest from the principal, it is not vested.”
Example: A husband gives certain properties to his wife J, for her lifetime under a
Takshimnama, the deed providing that the "properties shall devolve upon my nephew B
or his legal heir, as absolute owner, generation after generation remain in possession...
of all the properties... in the possession of my wife, J, which he will get on her death." B
sells the properties and dies during the lifetime of J. The reversioner brings the suit for
possession of the properties. It was held that the B’s interest was contingent and came
to an end on his death during the lifetime of J.

6. Difference between Vested and Contingent Interest

(1) Definition:
A. Vested Interest: Where, on transfer of property an interest therein is created in
favour of a person -
(i) without specifying the time when it is to take effect, or
(ii) specifying that it is to take effect forthwith, or
(iii)on the happing of an event which must happen,
such interest is vested.
B. Contingent Interest: Where, on transfer of property an interest therein is
created in favour of a person -
(i) to take effect only on the happening of a specified uncertain event, or
(ii) if a specified uncertain event does not happen,
such person acquires a contingent interest in the property -
(2) Fulfillment of Condition:
A. Vested Interest: It creates an immediate right in the property though the
enjoyment may be postponed to a future date. It does not depend upon the
fulfillment of any condition.
B. Contingent Interest: It depends upon the fulfillment of the condition. If the
condition is not fulfilled, the interest fails.
(3) Effect of Transferee’s Death:
A. Vested Interest: It is not defeated by the death of the transferee before he
obtains possession.
B. Contingent interest: It cannot take effect in the event of the transferee's death
before the fulfillment of the condition precedent.
(4) Transferable or Heritable:
A. Vested interest: It is both transferable as well as heritable. If the transferee dies
before actual enjoyment, the interest passes on to his heirs.
B. Contingent interest: It is transferable but not heritable. If the transferee of the
property dies before obtaining possession, the contingent interest fails and does
not pass on to his heirs.
 (5) Present Right of Enjoyment:
A. Vested interest: In vested interest there is present immediate right even when its
enjoyment is postponed.
B. Contingent interest: There is no present right in contingent interest. There is only
a promise to give a right which depends upon the fulfillment of a condition. If the
condition is fulfilled the right is given otherwise not. Such promise is nullified by
the failure of the condition.

7. 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.

IV. Conclusion: