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This article is written by Udita Prakash, a student at UPES, Dehradun, pursuing a BBA LLB course. This article deals with the transfer of property, which favors vesting not divesting. 

Introduction 

Transfer means an act by which a property is transferred from one or more living persons to another. Such a transfer can take place in the present or in the future. This article deals with Section 26 of the Transfer of Property Act, 1882 (TPA, hereinafter) with a conclusive explanation of whether the law favors the acquisition of rights, not divestment. The explanation is cited clearly in this article, with clear examples and case laws to understand.

TPA can take place in the form of sale, exchange, gift, mortgage, lease, actionable claim, or charge under the TPA 1882. Law favors vesting and not divesting, as per Section 26 of the Transfer of Property Act, 1882 talks about the fulfillment of a condition which is precedent. The general principle says that when any transfer is made as per condition precedent, then transfer fails unless and until the condition will not be fulfilled. This section says that such a condition shall be assumed to be fulfilled if it is substantially complied with. 

Therefore, for the applicability of section 26 of the TPA, 1882, a literal performance of the condition is not required. It is an application of the well-approved principle that the law favors early vesting of the estates and not divesting. The vested interest also includes the fact that the person has the expectancy to receive the property on the happening of an event. For example- A promises to transfer property to B on attaining the age of 24 years and the attainment of the age would vest the property on B. 

Condition precedent to be fulfilled 

Considering the concept of contingent interest, a condition precedent has to be fulfilled. For example- A promises to transfer his house to B in case he gets married with the consent of both C as well as D. Hence, in such cases the condition has to be fulfilled by taking the consent of both. However, D passes away before B gets married, and hence his consent cannot be taken in this case. Here B cannot fully comply with the condition that was set for by A. Obtaining the consent of C is the only possible situation. Hence, substantially the consent of C has been fulfilled, and hence it can be considered as the satisfaction of the condition that has been set. In case D was alive, and B had not taken his consent, then it would not be considered to be in compliance with the condition set for obtaining the house.

Example – X transfers Rs. 20,000 to Y, on condition that he shall marry with the consent of A, B, and C. C dies. Y marries with the consent of A and B. Here Y cannot fully comply with the condition since C is dead. But he has obtained the consent of A and B which is the only possible thing to do, and the intention of the transferor can be said to be, in substance, satisfied by such consent. The condition is, therefore substantially complied with but if C is alive and his consent is not obtained there would be no substantial compliance with the condition.

In a situation where conditions precedents are the conditions then it is very necessary to be performed before an interest arises. For example, O makes a gift of his property in favor of N, his wife, and also provides in the instrument that his son A will be entitled to the property after performing the obsequies on the mother. There is no provision in the instrument property regarding the enjoyment of the property in case the son dies before the performance of obsequies.

Condition precedent

A condition precedent is a legal term describing a condition or event that must come to pass before a specific contract is considered in effect or any obligations are expected of either party. When interest is created in the transfer of a property but the vesting of such interest is dependent on the fulfillment of a condition prior to the transfer, this condition imposed is called a condition precedent. In other words, the condition must be fulfilled before the transfer is executed by the transferor. Therefore, the interest is made to accrue before the completion of the contingency.

  • A condition precedent is a stipulation that defines certain conditions that must be fulfilled before the transfer is made.
  • Condition precedents are common in wills as well as in trusts.

Basically, it is that type of condition that has to be fulfilled before the transfer of the property. When interest is created but is to be vested only after the fulfillment of certain conditions set by the transferor, it is referred to as a condition precedent. Hence, the condition has to be fulfilled before executing the transfer. 

Example- A agrees to transfer the property to B in case B goes to England to complete further education. In this case, the completion of the condition of going abroad to study will have to be done by B before the property is transferred to him by A. 

Essentials 

  • The condition imposed must be fulfilled before the actual transfer takes place. This is the most important as it creates the major difference between condition precedent and subsequent. 
  • The interest created by the transferor gets vested to the transferee post the fulfillment of the condition that has been set up. 
  • When the condition precedent becomes impossible or immoral to be performed the transfer will be declared void. It is so because setting up an impossible condition binds the transferee to a condition that will not be fulfilled at all. For example- B promises to transfer his house to A on the condition that he marries his sister to B. However, A does not have a sister, and hence the condition here is an impossible one, as A cannot fulfill the same under any circumstances. Such interest will be declared void. 
  • When the condition imposed is substantially complied with, it is deemed to have been fulfilled. As was explained in the illustration above, and one person dies before taking consent, taking consent of the other person would mean substantial compliance of the condition presented.

Illustration 

A agrees to transfer his property to B when B marries his son. Such a condition imposed should be fulfilled before the transfer takes place, hence it is known as a condition precedent. Therefore, the condition precedent is a state of affairs or event which is required before something else. 

There may also be condition precedents in the ongoing life of a contract, which state that if condition X occurs, event Y will then occur. Condition X is the condition precedent. 

If the condition becomes unlawful or forbidden by the law as it is immoral or can cause injuries to any person or property of the person then the transfer will be considered void. For example, X agrees to transfer his property to Y, if Y kidnaps Z. Therefore, the condition of murdering Z is unlawful as per the law, hence the transfer of the property is considered void.

Narayana Ayyar v. Subbraya Ayyar (1929)

Facts 

In this case, the facts are that there was a will made by Narayana Ayyar stating that all the property will go to his wife and the son will get a vested interest in that property only when he will perform the funeral rights of his mother. This was mentioned in the clause of the will. But the son died before her mother.

Issue 

The issue that was raised, who will get the property because vested interest will only be given if the condition was to be fulfilled. 

Judgment 

It was held by the court that the condition, in this case, is not a condition precedent and the son will get a vested interest in the property as he can claim the property as a matter of right. In real circumstances, the rule favoring the vesting of estates is a compressed statement of several separate but closely related sub-rules. If future interests are construed to become indefeasibly vested at the earliest possible time and when conditions are not readily implied and construed as narrowly as possible. It also says that future interests are characterized as defeasibly vested rather than contingent. If the transferee dies before the enjoyment of property, then interest is not defeated by the death, and the right to enjoy the property will be vested in the favor of the legal heirs of the transferee. 

A minor cannot have any vested interest in the property as the minor cannot claim it as a matter of right until he attains the age of majority, till that time property will be in the possession of the guardian. An insolvent can have no vested interest in the property. Section 13 of the Transfer of the Property Act, 1882 states that any interest created in the favour of the unborn child is a person who does not have existence and is not counted as a living person. 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. The death of the transferee will not render the transfer invalid as the interest will pass on to his legal heirs. Vested interest is a transferable and a heritable right.

Unlawful/ impossible conditions precedent 

Under Section 25 when the condition imposed becomes impossible or unlawful or immoral to be complied with, the interest accruing in the transfer of such property dependent on the condition fails. That is, where the condition is void the transfer becomes void too. When the condition precedent becomes –

Impossible to be performed

A condition which no longer can be fulfilled in any circumstance is said to be impossible. A condition precedent may become impossible to be performed when the subject matter is destroyed or there is no means to fulfill such a condition etc. For example- A agreed to sell his property to B while putting a condition of B giving him a horse in return, But the horse died before the transfer could be made. Here it becomes impossible. 

Unlawful 

The condition is referred to as unlawful when it is of a nature that is forbidden by law or opposed by public policy. A transfer depending on unlawful or immoral conditions is also considered to be void in nature. For example- A agrees to transfer his property to B, provided B robs a bank. Here the condition precedent is theft, which is unlawful in nature. Hence it will be considered to be a void condition.

Doctrine of Acceleration 

Let’s understand this with an example. M, V, A, S, and X. Let us assume that M has created an interest in the property for V for a lifetime, and after the death of V, the property will transfer to A, then to S, and then to X. Now in this chain, if ‘A’ dies, then instead of breaking the chain of transfer, the property will automatically transfer to S. In this way, the interest which ‘X’ will get is before the time in normal conditions when A would have been alive. So here, there is an acceleration in transfer for the transferee. 

In cases where the prior interest fails (in the above example, A’s death), then subsequent transfer operates. The interest is accelerated. Ulterior disposition shall take effect on the failure of prior disposition. Section 27, paragraph 2 clearly provides that ulterior disposition will take effect in the case when prior disposition fails in the prescribed manner. The doctrine of acceleration is a rule of construction. When a prior transfer is dependent on the fulfillment or non-fulfillment of a condition and if the prior condition fails, then ulterior disposition shall take effect i.e. vested interest will be created of another person in whose favor the interest was created in the same transaction. In such a case ulterior transfer instead of failing is accelerated due to the failure of the prior transfer. Thus, it can be said that where interest is created on the transfer of property in favor of one person and an ulterior disposition has been created in the same transaction of the same interest in favor of another person, then if the prior transfer fails, then in such case, the ulterior disposition takes place upon its failure rather than ceasing the transfer at the stage of failure of a prior transfer.

Conditional transfer 

The relevant provisions of conditional transfer are mentioned under Sections 25 to 34 of the Transfer of Property Act. The conditional transfer is a kind of transfer that is dependent on some conditions which are attached to it. That is the reason when the vesting of interest is created by way of transfer and it always depends on the fulfillment as well as non-fulfillment of a condition, it is only known as a conditional transfer. A condition that is attached to transfer will always depend on the happening as well as not happening of the event. The provisions for conditional transfer have been provided in Sections 25-34 of the Transfer of Property Act. Conditional Transfer as can be inferred from the name itself means a transfer that is dependent on a condition attached to it. That is when the vesting of an interest created by a transfer depends on the fulfillment or non-fulfillment of a condition. A condition can be a condition precedent, condition subsequent, or conditional limitations.

Conclusion 

It can be concluded that law favors vesting and not divesting. The general principle is that where a transfer is made on a condition precedent, the transfer will fail unless the condition is first fulfilled. It is very necessary in order to fulfill those conditions as once the condition is fulfilled then it will become vesting and the person would be able to enjoy his or her rights over that transfer. Once the condition is fulfilled then no one can take the right of ownership, possession, or enjoyment from the person.

The Transfer of Property Act favors vesting interest and not divesting, and the same can be inferred from the provisions that have been elucidated in the Act. This can be observed for both vested as well as contingent interest that is transferred to the transferee based on different provisions.

References 


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