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What is Vested Interest and Contingent Interest? Difference Between Them

Introduction

Property transfer and exchange is very common in the day to day life of an individual. There are various provisions under the Indian Law related to property matters. But firstly, what do we mean by the term property? Property may be defined as any physical or virtual entity owned by an individual or a group of individuals who hold the ownership and rights on the property. Property can be transferred or sold from one person to another by various means according to the statutes in India. The Transfer of Property Act, 1882 (ToPA) deals with the transfer of properties between one person to another.

According to  The Transfer of Property Act, 1882, the parties for the contract of transfer of property are Transferor and Transferee. The transferor is someone who transfers his property to another while the transferee is a person who is transferred. Provisions of the Indian Contract Act, 1872 are applicable in the transfer of property.

For the transfer of a property two major interests are taken into consideration, namely, Vested Interest and Contingent Interest. They are explained under The Transfer of Property Act, 1882 along with the necessary conditions related to transfer of property.

Vested Interest is mentioned in Section 19 and Contingent Interest is mentioned in Section 21 of the Transfer of Property Act, 1888.

Vested Interest

Vested Interest is an interest which is created for the favour of a person when the condition specified for the contract of transfer of property is certain and the event will happen surely in the future. The transferer and the transferee enter into a contract of transfer of property and the transferer makes a certain condition for the fulfillment of transfer of property and upon the completion of the condition, the transferee gets the possession of the property. The transferee may not get the possession of the property immediately after making a contract but he can expect it after the fulfillment of the specific certain condition.

Vested Interest is defined under Section 19 of the Transfer of Property Act, 1882[1] as –

“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. 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.”

For instance, A person X promises person Y to transfer the property and come into a contract. Here X is the transferer and Y is the transferee of the property. For transferring the property X puts a condition that Y can get the possession of his property only after X’s death. X’s death, here, is a certain event which will surely occur in future and so Y can claim X’s property after X’s death. If Y dies before X, then the property will be transferred to the legal heirs of Y after X’s death. Here, Y has Vested Interest over X’s property.

Vested Interest can be done in different situations as well. For instance, if a person P who is transferer of the property and person    Q who is willing to take the property from P, as a transferee comes into a contract of transfer of property. P who has the absolute right over his property decides to give the possession of the property to Q only when he attains the age of 40. In this contract, Q will have the possession of the property when he attains the desired age, i.e. 40 according to the contract of transfer of property. The condition in this contract is certain and it will happen in the future and if Q dies before the age of 40, then the legal heirs of Q can claim the property of P according to the terms and conditions of the contract.

Characteristics of Vested Interest

  • Vested Interest Depends on Certain Events.

For the fulfillment of a contract related to transfer of property by vested interest, the condition of the contract must be certain. Impossible event or uncertain event is not considered to be a vested interest.

Conditions which are meant to happen in future, for example, death, aging, etc are considered as certain events. The fulfillment of the contract is solely based on the happening of certain events.

  • Vested Interest is applicable irrespective of the death of the parties.

If the transferee dies before the enjoyment of property, the interest is not defeated by the death and the right to enjoy the property is vested in the legal tiers of the transferee.

CASE LAW-

In the cases of Pearey Lal Vs Rameshwar Das,  AIR 1918 Mad 294[2] and Sri Ram Vs Abdul Rahim Khan, AIR 1946 1 M.L.J.275 it was held that vested interest is not even defeated by the death of the devisee before he obtains possession and his representatives will be entitled to its benefit.

In the case of K. Subramaniam Chetti Vs T. Subramaniam Chelti[3], AIR 1971 (Madras) 202. , the executor died before the junior wife. It was held that the executor has vested interest in the property and thus their heirs were entitled to the property.

Sunder Bibi Vs Rajendra[4] , 47 All. 496 The court held that A would hold the property till his death and subsequently after his death the property would pass to B. The interest acquired by B in the said property is a vested interest. B would acquire vested interest because the death of A is a condition which is a certain event and is bound to take place.

  • Vested Interest is a transferable as well as a heritable right.

The transferee in the contract of transfer of property through vested interest has both transferable and heritable rights. It means that the person has the rights of the property while claiming the property from the transferor and also has the rights of the property upon his death. The property will be in possession of the legal heirs of the transferee after his death.

Conditions Applicable for Vested Interest

There can be various conditions for vested interest when the parties are minor, insolvent, unborn, etc. The rights and possession of property in such conditions are mentioned in accordance with the Transfer of Property Act, 1888, The Indian Partnership Act, 1932 and the Indian Contract Act, 1872.

  • Minor

If a person is a minor in the contract of transfer of property, he cannot have any right on the vested interest till he attains the age of majority and is guided by the legal guardian who holds the possession of the property till the minor attains the majority age.

  • Insolvent

If a person is held insolvent, he cannot possess the vested interest and has no rights on the property until he restores his financial crisis.

CASES – Subbaraya Chettiar Vs Papathi Ammal[5]  ,A.I.R. 1918 Mad. 294, Vijiaranga Naidu Vs N drayanappa,A.I.R. 1946 Mad. 371[6].

  • Unborn Child

According to Section 13 of the Transfer of Property Act, 1888, an unborn child is not considered as a living person and he cannot hold the vested interest individually. For the transfer of property, the unborn child will enjoy his rights after the birth and the interest is transferred immediately to the legal heirs of the unborn child.

CASE – Raja Bajrang Bahadur Singh Vs Thakurdin Bhakhtrey Kuer[7], AIR 1953 SC 7

Contingent Interest

Contingent Interest is an interest which is created in a property in favour of a person to whom such property is transferred based on the occurrence or happening of an uncertain event which may or may not happen in future. It is defined under Section 21 of the Transfer of Property Act, 1888. The contract of transfer of property completes after the completion of a condition which is uncertain in nature. This interest in the property can become vested interest in favour of the person to whom it is transferred on the happening of the event or when the happening of the specified event fails or becomes impossible.

Contingent  Interest is defined under Section 21 of the Transfer of Property Act, 1882[8] as –

“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.”

For instance, A and B come into a contract of transfer of property where, A is the transferor and B is the transferee of the property and A puts a condition that the property will be transferred to B only if he sells his house to C. here, B may or may not sell his house to C and therefore it is an uncertain event. If B sells the property to C then the interest becomes vested interest.

However when a person who has a chance of becoming the owner of a specific property and before the uncertain event takes place, if such a person receives any income arising from such a property, this interest in the property is not a contingent interest. Hence such an interest is an exception under section 21.

Characteristics of Contingent Interest

  • Happens only if an uncertain event is fulfilled.

As the name suggests, a Contingent event happens only if there is a fulfillment of an uncertain event. The contract will not be called as complete if the event is not fulfilled.

  • Death of the transferee will result in the failure of contingent interest.

If the transferee dies before the completion of an uncertain event then the property will not be passed on to the legal heirs of the transferee as it is done in the condition of vested interest.

  • Contingent interest is transferable but it may or may not be hereditary.

In the condition of Contingent Interest, the transferee has the right of transfer of property and he owns the property after fulfilling the uncertain condition but it cannot be given to the legal heirs of the transferee.

Conditions Applicable for Contingent Interest

Conditions for contingent interest are given under Section 22[9], Section 23[10] and Section 24[11] of the Transfer of Property Act, 1888.

Section 22 : Transfer to members of a class who attain a particular age.

Section 22 explains that the contingent interest is fulfilled after attaining a certain age, or time or by fulfilling a certain condition. For instance, A keeps a condition that the transferee, say B will get the possession of the property only after he attains the age of 18 and marries A’s daughter.

Section 23 : Transfer contingent on the happening of specified uncertain event.

Section 23 explains that a transfer of an interest in a property is dependent on the happening of an uncertain event and the time within which such an event is to take place is not specified. Such a contingent interest fails unless such an event takes place before or at the same time as the intermediate or previous interest ceases to exist. For instance, A keeps a condition that the transferee, say B will get the possession of the property only after he gets a job in another country and buys a property of that country, Here the condition is uncertain and has no specified time duration.

Section 24 : Transfer to such persons as survive at some period not specified.

Section 24 lays down the transfer of an interest in a property to such persons who are alive at the specified time. For instance, A transfers property to B for life and after B’s death transfers to P ,Q ,R equally between them. P dies during B’s lifetime. On B’s death, the interest in the property shall pass to Q and R equally.

Difference Between Vested And Contingent Interest

VESTED INTEREST

CONTINGENT INTEREST

Vested Interest is mentioned in Section 19 of the Transfer of Property Act, 1888. Contingent Interest is mentioned in Section 21 of the Transfer of Property Act, 1888.
Happens only if a certain event is fulfilled. Happens only if an uncertain event is fulfilled.
 Vested interest is not defeated by the death of the transferee. Death of the transferee will result in the failure of contingent interest.
Vested Interest is a transferable as well as a heritable right. Contingent interest is transferable but it may or may not be hereditary.

Conclusion

Vested Interest and Contingent Interest are two major types of interest for the transferee in the contract of transfer of property under the Transfer of Property Act, 1888. Section 19 to 24 of the Transfer of Property Act 1882 explain the provisions related to vested interest and contingent interest. Such interests are acquired in immovable property in favour of the transferee on the transfer of such property to him. Such transfer of interest might take place immediately or on the occurrence of a specified event.

[1] Section 19 of the Transfer of Property Act, 1882, https://indiankanoon.org/doc/1817590/

[2]Pearey Lal Vs Rameshwar Das, AIR 1918 Mad 294, https://indiankanoon.org/doc/146718/

[3]K. Subramaniam Chetti Vs T. Subramaniam Chelti , AIR 1971 (Madras) 202 (Vested interest and contingent interest) https://www.casemine.com/search/in/K%28DOT%29%20A%28DOT%29%20SUBRAMANIAM

[4] Sunder Bibi Vs Rajendra , 47 All. 496, https://indiankanoon.org/doc/515934/

[5] Subbaraya Chettiar Vs Papathi Ammal  ,A.I.R. 1918 Mad. https://www.legitquest.com/case/subbaraya-chettiar-dead-another-v-papathi-ammal-alias-lakshmi-ammal-others/DE0D

[6]Vijiaranga Naidu Vs N drayanappa,A.I.R. 1946 Mad. 371 https://indiankanoon.org/doc/1713962/

[7] Raja Bajrang Bahadur Singh Vs Thakurdin Bhakhtrey Kuer, AIR 1953 SC 7 https://indiankanoon.org/doc/1230342/

[8] Section 21 of the Transfer of Property Act, 1882, https://indiankanoon.org/doc/420207/#:~:text=21.,contingent%20interest%20in%20the%20property.

[9] Section 22, https://indiankanoon.org/doc/1872590/

[10]  Section 23 https://indiankanoon.org/doc/1262251/

[11]  Section 24 https://indiankanoon.org/doc/1927677/

This Article is Authored by SHRUNGERI CHAUHAN, 2nd Year BALLB (Hons) Student at School of Law, DAVV

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