Vested and Contingent Interests

Vested interest
• Vested interest depicts an interest in a property that represents
that the property belongs to that particular person.
• Vested interest is explained under Section 19 of the Transfer of
Property Act, 1882.
• According to it, an interest in a property is said to be a vested
interest, unless a contrary intention appears from the terms of the
transfer, When:
1. Transfer of property takes place, and
2. It doesn’t specify as to when the transfer is to take effect or it
specifies that the transfer is to take effect:
• forthwith, or
• on the happening of a certain event,
3. Such transfer creates an interest in favour of a person.
4. Provisions of the transfer as to
• Postponement in the enjoyment of the
transferred property,
• Creation of prior interest of some other
person in the same property,
• Accumulation of the income arising out of the
property till the time of enjoyment arises, or
• The transfer of the same interest to another
person on the happening of a particular event
5. There might be cases where the vested
interest is subject to a condition that is to be
performed after the transfer has taken place. If
the condition is not fulfilled, the vested interest
will come to an end. Hence, the transferee can
be divested of the vested interest subsequently.
• Examples:
• A transfers property to B, saying the property is
yours on the death of C. At that moment only the
property becomes B’s, as death is a certain event.
• A gifts a property to B, with a condition that if he
remains unmarried till he attains the age of 35
years, the property will be forfeited. This creates a
vested interest in favour of B and he would be
divested of his interest if he remains unmarried
on attaining the age of 35 years.
Characteristics of Vested interest:
• It’s a present fixed interest.
• It’s transferable and inheritable.
• It can be attached and sold in execution
• Mere fact that the transferee did not obtain
the possession of the property before his
death doesn’t defeat a vested interest.
• Example: A transfers a property to B and
creates a life interest in favour of C. Now, the
property is to be enjoyed by C till he’s alive
and after his death would go to B. Here the
vested interest is created at the time of the
transfer but the enjoyment of the property is
postponed. B dies during the lifetime of C. B’s
heirs have claim over the property X, as B had
become the owner of the property.
 • Section 20 further tells about when an unborn
person, for whose benefit a transfer has taken
place, acquires a vested interest in the property.
According to Section 20:
1. The transfer takes place,
2. That transfer creates an interest in favour of an
unborn person.
3. He acquires a vested interest in that property
upon his birth unless the terms of the transfer
provide with a different intention.
 Contingent Interest
• Contingency depicts uncertain future events. So, if the transfer is
to take place depending upon some uncertain future events, then
the interest created in the transferee is contingent interest.
• Section 21 of Transfer of Property Act, 1882 explains contingent
interest as:
1. Transfer of property takes place
2. The transfer creates an interest in favour of a person
3. Such transfer is to take effect on:
• Happening of a specified uncertain event.
Or
• Not happening of a specified uncertain event.
The interest created here is a contingent interest.
 • The contingent interest turns into a vested
interest when:
1. The transfer is to take effect on happening of a
specified uncertain event, the event takes place,
or
2. The transfer is to take effect on not happening of
a specified uncertain event, that event doesn’t
take place.
Example: a gift to B, of a property for his son, on the
birth of his son is a contingent interest. As soon as
his son is born it becomes a vested interest.
There can be 2 cases or the contingency can be
of 2 types:
• When the event depends upon the wish of
the party. Example: A’s gift to B of property X
on the condition that he marries W.
• When it depends upon nature. Example: A’s
gift to B of property X on the condition that it
must rain on B’s next birthday.