Contingent and Vested Interest

vested interest and contingent interest

Meaning of Vested Interest

Section 19 of Transfer of Property Act 1882 lays down the meaning of vested interest. Vested interest can take place in two stages. First when the transferee is in immediate and present possession of the property and second when the transferee has acquired an interest in the property but is not in the present possession of property that is the right to enjoyment is postponed to a future date.

Vested interest is when an interest in a property is transferred in favour of a person without specifying the time or a specific condition. Such interest must vest in the person on happening of an event which is bound to happen. The interest in the property remains vested in the transferee even though the right to enjoyment of the property is postponed. In other words, interest is said to be vested when it depends on happening of a certain event precedent. [i]

Illustration

X, the father of Y agrees to transfer an ancestral property in favour of Y after his death. The interest in the ancestral property in favour of Y is dependent on the condition of the death of his father X, which is certain. Hence on the death of X, Y will have vested interest in the ancestral property. 

Characteristics of Vested Interest

The three main characteristics of vested interest is as follows-

1. Vested interest does not depend on an uncertain event. It depends on a certain event which must happen. It creates a present or immediate right though the right to enjoyment is postponed.

2. Vested interest is not defeated by death. On the death of the transferee, the interest is passed to the heir of such transferee.

3. Vested interest is a transferable right as well as a heritable right.[ii]

Section 20 pertains to the acquisition of a vested interest in a property transferred to an unborn child. When a transfer of property takes place in favour of an unborn child, the interest in such a property vests in the unborn child at the time of the child’s birth. Such a child maybe not be able to enjoy the property immediately but the interest in the property is transferred immediately. [iii]

Under the following circumstances, the vested interest remains vested in the transferee even though

1. When the enjoyment of the property is postponed.

2. When a prior interest in the property is created.

3. Income arising from the property is accumulated till the right of enjoyment of the property.

4. When on the happening of a certain event interest passes on to another person.

Case Law

Sunder Bibi v. Rajendra [iv] 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.

Meaning of Contingent Interest

Section 21 of the Transfer of Property Act 1882, contingent interest is when interest is created in a property in favour of a person to whom such property is transferred, such interest is dependent on the happening of a specified uncertain event which may or may not take place. Hence the transfer of an interest in a property is dependent on a contingent event. 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. The creation of interest of the person’s right to enjoyment, possession or ownership in the property is dependent on happening of a condition which may or may not take place.[v]

Illustration

A agrees to transfer his house in favour of B on the condition that B should marry his daughter ‘X’. Hence such a transfer of property in favour of B is dependent on the condition of B marrying A’s daughter ‘X’. B may or may not get married to ‘X’.  If B gets married to X, the interest in A’s house gets transferred to B immediately on happening of the specified event.

Exception

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

There are three main characteristics of contingent interest which are as follow-  

1. The interest in a specific property transferred will be subject to a condition which is uncertain i.e., it may or may not take place. Only on fulfilment of such a condition will the contingent interest in the property become vested interest in the transferee.

2. If the transferee dies before acquiring the interest in the property, the contingent interest will lapse and the transferor will remain the owner of the property.

3. The contingent interest can be transferred i.e. it is a transferable right. However, if the contingent interest is heritable or not depends on the contingent event and nature of the transaction. [vi]

Section 22 states that a contingent interest in a property is transferred to a group or class of persons on the condition that persons who have attained a particular age on a specified date will acquire an interest in the property. Such interest will only be transferred in favour of the people who satisfy the required condition. [vii]

For example, an interest in a property is transferred in favour of a group of 10 people. Such a transfer is dependent on the condition that only people who are above the age of 18years as on the date of transfer will have vested interest in the property. Hence all people above the age of 18 years will get an interest in the property and the others will not get an interest in the property.

Section 23 states that when a transfer of an interest in a property is dependent on 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. [viii]

For example, a property is transferred to X for life as a gift and then to Y if, Y returns from the U.S.A. Whether Y returns from the U.S.A. is a contingency as it may or may not happen and no time is mentioned for his return. Hence if Y returns from the U.S.A. during X’s lifetime then Y must get the property. 

Section 24 lays down the transfer of an interest in a property to such persons who are alive at the specified time. [ix]For example, X transfers property to Y for life and after his (Y) death transfer to A, B, C equally between them. A dies during Y’s lifetime. On Y’s death, the interest in the property shall pass to B and C equally.

Difference between contingent and vested interest

1. Section 19 of the act defines vested interest. Vested interest is an interest in a property transferred to a person on happening of a certain event. Whereas section 21 defines contingent interest. Contingent interest is an interest in a property transferred in favour of a person on happening of an uncertain event which may or may not take place.

2. Vested interest in property creates an immediate interest in the property though the right to enjoyment is postponed. Whereas contingent interest solely depends on the fulfilment of a specific condition. The interest in the property is created in favour of a person on fulfilment of the condition.

3. Vested interest is not defeated by the death of the transferee. Whereas contingent interest passes on the death of the person or not depends on the nature of transaction and contingency.

4. Vested interest is a transferable and heritable right. Whereas contingent interest is transferable but if heritable or not depends on the nature of contingency.[x]

Conclusion

Hence 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.

Frequently Asked Questions

What is the difference between vested interest and contingent interest?

When on the transfer of a property the interest is created in favour of the transferee immediately or there is present right of possession with the transferee, it is called as vested interest. Such a vested interest exists even if the right to enjoyment in the property is delayed to a future date.

For example, A transfers his house to B for life and after his death to C. C will acquire a vested interest in the house on the death of B which is a certain event.

Whereas when on the transfer of property the interest created in favour of the transferee depends on a contingent event which may or may not take place, such contingent interest becomes vested in the person on fulfilment of the specific condition.

For example, A agrees to transfer his house to B, provided B constructs a well in a village. Whether B constructs a well in the village is an uncertain condition which may or may not take place. If B constructs the well, B acquires interest in A’s house.

Is contingent interest a transferable and heritable?

Contingent interest is a transferable right. Such an interest can be transferred in favour of another person. However, whether a contingent is or is not heritable by the legal heirs of the transferee depends on the nature of contingency on which the accrual of interest lies.

When does an unborn child acquire an interest in a property?

When a transfer is executed in favour of an unborn child, he acquires interest in the property transferred to him upon his birth. A vested interest is created in favour of the child on his birth. The child may however not be in the immediate enjoyment of the interest created in the property.

Edited by Sakshi Agarwal

Approved & Published – Sakshi Raje

Reference

[i] Transfer of Property Act, 1882; section 19

[ii]  Nishant Vimal, Understanding the concept of Vested and Contingent Interest, ipleaders, May 25 2019  https://blog.ipleaders.in/property-law-vested-contingent-interest/

[iii] Transfer of Property Act, 1882; section 20

[iv] 47 All. 496

[v] Transfer of Property Act, 1882; section 21

[vi]  Nishant Vimal, Understanding the concept of Vested and Contingent Interest, ipleaders, May 25 2019  https://blog.ipleaders.in/property-law-vested-contingent-interest/

[vii] Transfer of Property Act, 1882; section 22

[viii] Transfer of Property Act, 1882; section 23

[ix] Transfer of Property Act, 1882; section 24

[x] SRD Law Notes, Difference between vested interest and contingent interest https://www.srdlawnotes.com/2016/05/difference-between-vested-interest-and.html

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I am Dhruvi Dharia from University of Mumbai Law Academy (UMLA), pursuing B.B.A.-LL.B.(Hons.) I have a penchant for studying Corporate laws like Companies Act, Securities Law, Insolvency and Bankruptcy Code, mergers and acquisitions etc. and strong inclination towards numbers. I am also a budding Company Secretary and one level away from becoming one. I aspire to become a Corporate Lawyer in the future. I have always enjoyed reading and working on various legal matters whenever given a chance to. I constantly try to better myself by reading various Acts, articles, interviews of eminent lawyers and professionals and researching on various topics. I like reading on various contemporary legal issues and articles and I sometimes attempt writing on the same. Apart from academics in my free time I like drawing, painting and travelling to new destinations.