The Transfer of Property Act, 1882 deals with two kinds of interest that are vested interest and contingent interest. The concepts of vested interest and contingent interest are something that is very important to understand as there are many sections relating to these concepts. The main point to understand about both the concept is that the transfer of property involving Contingent interest takes effect only after the condition is fulfilled, if the condition is not fulfilled then the transfer will not take effect.
What is Vested Interest?
Meaning of Vested Interest: – The interest in a property which is created in favor of the person without specifying, the time or a specific connection is known as Vested Interest in the property. In this, the interest in the property is vested in favor of the transferee, even though the right to enjoy the property is delayed. The person having the vested interest does not get the possession of that property but has the expectancy to receive it upon happening of a specified certain event.
Section 19 of Transfer of Property Act defines Vested Interest: – “Where, on a transfer of property, an interest therein is created in favour of a person without specifying the time when it is to take effect, or in terms specifying that it is to take effect forthwith or on the happening of an event which must happen, such interest is vested, unless a contrary intention appears from the terms of the transfer.”
For Example: – ‘X’ promises to transfer his property to ‘Y’ on him attaining the age of 22. ‘Y’ will have vested interest in X’s property till the time he does not get the possession of it. If ‘Y’ dies at the age of 21, then the interest vested in ‘Y’ will pass on to the legal heirs of ‘Y’ and they will be entitled to the property in the prescribed time period.
Vested Interest can take place in two stages: –
- First, when the transferee is in immediate possession of the property.
- Second, when the transferee has acquired an interest in the property but not in the current possession of the property, where the right of enjoyment is delayed to a future date.
Section 20 of Transfer of Property Act deals with the acquisition of a vested interest in property transferred to an unborn child. When the transfer of property is done in the favor of the unborn child, so, the interest in such property vests in favour of an unborn child, at the child’s birth. Such a child may not be able to enjoy the property but interest in the property is transferred immediately.
What are the characteristics of vested interest?
There are three main characteristics of a Vested Interest as follows: –
- The vested interest does not depend upon an uncertain event, which may or may not happen. It creates an immediate or present right, though the right to the enjoyment of property can be delayed.
- Vested interest does not defeat by death, the property is transferred to the transferee. And on the death of the transferee the interest is passed to the heir of the transferee.
- Vested interest is both transferable right and heritable right.
When the vested interest remains vested in the transferee?
The vested interest remains vested in the transferee even in these conditions: –
- When the enjoyment of property is delayed and postponed.
- When a prior interest in the property is created.
- Income arising from the property accumulates till the right to enjoy the property.
- When on the happening of a certain event, the interest in the property passes to another person.
What is Contingent Interest?
Meaning of Contingent Interest: – When interest is created in favour of a person to whom such property is transferred, and such interest depends upon the happening of a specified uncertain event, it is called Continent Interest in the property. According to section 21 of Transfer of Property Act, the person having the contingent interest does not get the possession of that property but has the expectancy to receive it upon happening of that event but will not receive the property if the event does not happen as the condition is not fulfilled. Contingent interest is entirely dependent on the condition imposed on the transfer.
For example, ‘A’ agrees to transfer the property to ‘B’ on the condition that he shall secure 90 % in his exams. This condition is uncertain and the happening of the event or not happening is in doubt and therefore ‘B’ here acquires a contingent interest in the property. He shall get the property only if he gets 90 % and when the condition is fulfilled.
However, when a person has a chance of owning a specific property and before the uncertain event occurs, interest in the property is not a contingent interest if such person receives any income from such property.
Contingent Interest occurs on following conditons: –
- When interest is created in favour of a person to whom such property is transferred, and such interest depends upon the happening of a specified uncertain event.
- Therefore, the transfer of interest depends upon an uncertain event which may or may not happen.
- The contingent interest in the property can become Vested interest in the happening of that event.
- The right of enjoyment of ownership or possession in the property depends upon the happening of that uncertain event that may or may not happen.
Exception to Contingent Interest of Transfer of Property Act
Section 120 of the Indian Successions Act, 1925 lays down the exceptions for contingent interest: –
- Where, under section 21 of 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.
- Section 22 of Transfer of Property Act states about the transfer to a group or class of members with a contingent interest. Such interest in the property will only be transferred to those who fulfill that necessary condition. For example, there is a transfer to a group of 5 people, and the condition is that the property will be vested in persons who attain the age of 40 years on this particular date. The persons who have attained this age will get an interest in the property and people who have not, will not get an interest in that property. Therefore all the people above the age of 18 years will get an interest in the property and others will not get interest in the property.
- Section 23 of Transfer of Property Act states about a transfer that happens after happening of an event that was mentioned in the transfer involving contingent interest. This provision simply lays down one of the two branches of Section 21 that laws down about contingent interest. The two branches are happening of an event and non-happening of an event. This Section states about what happens after the happening of the specified uncertain event.
- Section 24 of Transfer of Property Act states about a transfer to a group or class of members who will get the property on a condition that they shall be living at the specified date. The transfer of an interest in a property will only be to such persons who are alive at the specified time. This is also a contingent interest as the event mentioned here is an uncertain event. The transfer will only take place for those people who satisfy the condition of surviving at a particular date. The legal heirs of the deceased cannot claim an interest in that property as a transfer involving a contingent interest solely depends upon the fulfilment of the condition.
What are the characteristics of Contingent Interest?
There are three main characteristics of contingent interest: –
- This interest is entirely dependent upon the condition. It only happens when the condition is fulfilled.
- Death of the transferee before getting the possession of the property will result in the failure of continent interest and the property will remain with the transferor.
- Contingent interest is a Transferable right, but whether it is heritable or not, it depends upon the nature of such any transfer and the condition.
What is the difference between vested interest and contingent interest?
The difference between vested interest and contingent interest is given as follows: –
| Serial Number | Ground of Difference | Vested Interest | Contingent Interest |
|---|---|---|---|
| 1. | Section | Vested interest is provided in Section 19 of the Transfer of Property Act, 1882. | Contingent interest is provided in Section 21 of the Transfer of Property Act, 1882. |
| 2. | Definition | It is an interest which is created in favour of a person where time is not specified or a condition of the happening of a specified certain event. The person having the vested interest does not get the possession of that property but has the expectancy to receive it upon happening of a specified certain event. | It is an interest which is created in favour of a person on a condition of the happening of a specified uncertain event. The person having the contingent interest does not get the possession of that property but has the expectancy to receive it upon happening of that event but will not receive the property if the event does not happen as the condition is not fulfilled. |
| 3. | Condition | The condition involves a specified certain event. A certain event means an event that will eventually happen. | The condition involves a specified uncertain event. There is a chance of the happening or non-happening of that particular event. |
| 4. | Fulfilment of conditions | Vested Interest does not entirely depend on the condition as the condition involves a certain event. It creates a present right that is in effect immediately, although the enjoyment is postponed to the time prescribed in the transfer. | Contingent interest is entirely dependent on the condition imposed on the transfer. Interest is only transferred to the transferee on the fulfilment of the condition imposed. |
| 5. | Right of Ownership | This right is created as soon as the interest is vested. | There is mere chance to be having the ownership rights. |
| 6. | Death of transferee | Death of the person who is having this interest will not have any effect over that interest as after the deceased, the interest will vest in his legal heirs. | Death of the transferee before getting the possession of the property will result in the failure of continent interest and the property will remain with the transferor. |
| 7. | Transferable and heritable | Vested interest is a Transferable and heritable right. | Contingent interest is a Transferable right, but whether it is heritable or not, it depends upon the nature of such any transfer and the condition. |
| 8. | The present right of enjoyment. | There is present, immediate right even when its enjoyment is postponed. | There is no present right of enjoyment, there is a mere expectancy of having such a right. |
| 9. | Examples | X professes to transfer the property ‘O’ to Y when he attains the age of 20. There is a vested interest with Y for the property ‘O’. | X professes to transfer the property ‘O’ to Y on the condition that he shall construct a well in his property. If he constructs, Y shall get contingent interest in the property until the condition is not fulfilled. |
Case laws
- Lachman vs. Baldeo (1919) 21 OC 312
- In this case, a person transferred a deed of gift in favor of another person but instructed him not to get possession of that property until the transferor himself dies. The transferee will have a vested interest even if his right to enjoy is postponed.
- Leake vs. Robinson (1817) 2 Mer 363
- In this case, the court stated that whenever a condition involves a legacy, which was given ‘at a particular age’ or ‘upon attaining a particular age’ or ‘special age’ goes. It can then be derived that the transfer involves a contingent interest.