This article on ‘Understanding the concept of Vested and Contingent Interest’ has been written by Nishant Vimal, a 3rd-year student at Symbiosis Law School, Hyderabad.

Concept of Vested Interest

Section 19 of the Transfer of Property Act, 1882 states about Vested Interest. 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.

For example, A promises to transfer his property to B on him attaining the age of 22. B will have vested interest in A’s property till the time he does not get the possession of it.

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.

For example, in the above example, if B dies at the age of 21, then the interest vested in B will pass on to the legal heirs of B and they will be entitled to the property in the prescribed time period.

There are the important aspects of a vested interest as stated above, all these are discussed in detail below:

1. Interest should be vested: This is the basic meaning of the provision that lays down that interest should be created in favour of a person where time is not specified or a condition of the happening of a specified certain event. A person should profess to transfer a particular property in order for this interest to be created.
2. Right to enjoy property is postponed: When interest is vested in a person, he does not immediately get the possession of that property and hence cannot enjoy that property.

But any person who is not a major and has a guardian is only entitled to the vested interest after he attains majority.

For example, X agrees to transfer the property ‘O’ to Y and directs his guardian Z to give him the property when he attains the age of 22. Y gets vested interest once he attains the age of 18.

1. Time of vesting: The interest is vested right after the transfer is initiated. Nothing can stop the interest from vesting in the person in favour of whom the transfer is to be made.
2. Contrary Intention: The transferor can specify a particular time as to when the interest will be vested in the person who will receive the property.
3. Death of the transferee: If the transferee dies before getting the property in his possession, the interest vested in him will now vest in his legal heirs and they will get the possession of that property once the condition is fulfilled.

In the case of Lachman v. Baldeo (1), a person transferred a deed of gift in favour of another person but directed him that he will not get the possession of that property until the transferor himself dies. The transferee will have a vested interest even though his right of enjoyment is postponed.

Characteristics of Vested Interest

1) Vested interest creates a present right that is in effect immediately, although the enjoyment is postponed to the time prescribed in the transfer. It does not entirely depend on the condition as the condition involves a certain event.

2) Death of transferee will not render the transfer invalid as the interest will pass on to his legal heirs.

3) Vested interest is a Transferable and heritable right.

Section 20 of the Transfer of Property Act, 1882 states about vested interest to an unborn child. The interest in the property will be vested in him once he is born. The unborn child may not get the right of enjoyment of the property immediately after having vested interest.

Concept of Contingent Interest

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 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. Contingent interest is entirely dependent on the condition imposed on the transfer.

For example, A agrees to transfer the property ‘X’ 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 ‘X’. He shall get the property only if he gets 90 % and when the condition is fulfilled.

In the case of Leake v. Robinson (2), the court held that whenever a condition involves a bequest that is to be given ‘at’ a particular age or ‘upon attaining’ a particular age or ‘after’ attaining this particular age, then it can be derived that the transfer involves a contingent interest.

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Characteristics of Contingent Interest

1. A) This interest is entirely dependent upon the condition. It only happens when the condition is fulfilled.
2. B) 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.
3. C) 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.

There are some important aspects surrounding contingent interest which are explained in detail below:

1. Interest: In a transfer if a condition is such that the transfer will take effect only upon the fulfilment of that condition and till that time, the interest is contingent.
2. Contingent Interest exists in wills: Any bequest to a wife, son or daughter can be a contingent interest if the condition provides so.
3. Exception: When a person who has an expectancy in the rights of ownership of a particular property, and he for the time being till the happening of the event, gets any sort of income that arises from that property. This interest in the property does not come under the aspect of contingent interest.

Section 120 of the Indian Successions Act, 1925 lays down the exceptions for contingent interest.

Section 22 states about the transfer to a group or class of members with a contingent interest. 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.

Section 23 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 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. 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.

Difference between Vested & Contingent Interest

Conclusion

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.

The conditions are required to be fulfilled and they have to necessarily comply with the rules of the preamble that talk about justice, equity and good conscience, the three major principles of the natural law on which this whole act is based upon. In a transfer of property involving vested interest, the transfer is not invalidated if the condition mentioned is not fulfilled. The reader will get to know about the basic meaning and interpretations of the sections involving the two concepts with the help of various examples. The author has tried to explain the two concepts by discussing all the aspects of both for a better understanding of the provisions. Towards the end, the author has also discussed certain judicial pronouncement in a brief manner as to make sure that the reader understands the concept in a more direct and easier way and so that he can get into more and more specific details of the two concepts.

References

1. (1919) 21 OC 312.
2. (1817) 2 Mer 363.
3. The Transfer of Property Act, 1882 by Mulla.
4. www.srdlawnotes.com
5. www.legalcrystal.com

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