CREATION OF INTERESTS

TRANSFER FOR BENEFIT OF UNBORN PERSONS

(Ss. 13-14 & 18)
Section 13, 14 and 18 of the Act deal with the law relating to transfer to an unborn
person, that is, a person who is not born on the date of the transfer . Now, one of the
essentials of a valid transfer is that the transferee must be a living person. Therefore,
a transfer cannot be made directly to an unborn Person. But, on a transfer of
property, an interest therein may be created for the benefit of such a person, subject
to certain restriction set out in Ss. 13 and 14. The conditions to be complied with are
as under:
The interest of the unborn person must be preceded by a prior interest to one or
more living persons.
The unborn person must be in existence when the prior interest (or the last prior
interest) comes to an end and he has the interest at the latest when he attains
majority.
The interest created for the benefits of such unborn person must compromise the
whole of the remaining interest of the transferor in the property; in other words, a life-
estate cannot be conferred on an unborn person.
The phrase ‘the whole of the remaining interest of the transferor’ has been a subject
of judicial discussion. Though the decision is not directly under the Transfer of
Property Act, they are under a similar provision of the India Succession Act, and
therefore deserve careful attention.
Under S. 13 of the Act, when on a transfer of property, an interest in such property is
created for the benefit of a person who is not in existence at the date of the transfer,
subject to a prior interest created by the same transfer, the interest created for the
benefit of such unborn person will not take effect, unless it extends to the whole of
the remaining interest of the transferor in the property.
Illustration.—A transfers property of which he is the owner, to B in trust for A and his
intended wife successively for their lives, and after the death of the survivor, for the
eldest son of the intended marriage for life, and after his death for A’s second son.
The interest so created for the benefit of the eldest son does not take effect, because
it does not extend to the whole of A’s remaining interest in the property.
S. 13 of the transfer of the property Act is an attempt to import into India, what used
to be known in England as “the rule in Whitby v. Mitchell” or “the rule against double
possibilities;. According to this rule, giving an estate to the child of an unborn person,
after a life-estate to the unborn parent, is void.
The principle underlying the rule is that a person disposing of property to another
should not be allowed to fetter the free disposition of that property in the hands of
more generations that one. The rule is quite distinct from the rule against perpetuity,
although both these rules restrict the postponement of vesting of property and both
rules may apply in the same case.
In other words, the section provides that an unborn person cannot be given property
only for his life-time, the property going to his child after him, because it is an
obvious contingency (as in the above example), that A might never have a son.
Besides, there is another possibility also. A might not have a second son or the
second son might predeceases the eldest son.
Suppose A gives property to B for life, and afterwards to his son, (who is unborn at
the date of the transfer), subject to the condition that if the son changes his religion,
the property should be forfeited. Here, the condition regarding change of religion
fetters the estate, and does not therefore comply with S. 13, which speaks of the
whole of the estate.
Thus, the effect of S. 13 is that there cannot be a direct transfer to a person who is
not in existence (unborn person) on the date the transfer. It is for this reason that the
said uses the expression “for the benefit of” and not “transfer to” an unborn person.
Under English law, a limited interest 9as for instance, a life interest) can be created
in favour of an unborn child-but not thereafter.

Rule against perpetuity (Ss. 14 & 18)

The term ‘perpetuity’ literally means eternity of infinity. In the context of transfer of
property, it refers to the creation of an interest in present, but which is to take effect
after an infinitely long time. Significantly the term does not connote any specific
number of years. Thus, what is struck down by S. 14 is an interest created in
perpetuity, that is an interest which will not vest until an infinitely long period of time.
The rule against perpetuity ensures that one cannot postpone the vesting of property
in a transferee beyond is called the perpetuity period. The rule against perpetuity
defines the perpetuity period, and is to be found in S. 14 of the transfer of Property
Act.
S. 14 of the Act makes provision for such contingencies, and provides that no
transfer of property can operate to create an interest which is to take effect after the
lifetime of one or more persons living at the date of such transfer, and the minority of
some person who should be in existence at the expiry of that periods, and to whom,
the interest created is to belong if he attains the age of majority.
This section may be compared with sec. 114 of the Indian Succession Act, 1925.
The two illustrations to that section are cited below as elucidating the meaning of the
section:
Illustration (a)—A fund is bequeathed to A for his life, and after his death, to N for his
life, and after B’s death, to such of the sons of B as shall first attain the age of 25. A
and B survive the testator. Here, the son of B who shall first attain the age of 25 may
be a son born after the death of the testator. Such a son may not attain 25 until more
than 18 years have elapsed from the death of the longer liver of A and B, and the
minority of the sons of B. The bequest after B’s death is void.
RULE EXPLAINED.—when it is intended to benefit living persons by a transfer, there
is no limit to the number of successive interests that may be created in their favour.
Thus, A,B,C and D are all living when a transfer is made by a man in favour of A for
life, afterwards in favour of B,C and D, successively for their lives. Here, all the
successive interests are valid, as the person benefited are all in existence at the date
of the transfer. But when unborn persons are intended to be benefited, a three-fold
restriction is put on the power of the transferor:
The unborn person must be given all that remains after the termination of the
intermediate interests. (S. 13, seen earlier.)
Such interest must vest within the maximum period provided by S. 14 ordinarily; an
estate ought to vest in the remainder man immediately upon the termination of the
life-estate, but this section make a concession, and allows the delaying of the vesting
during the minority of a person who is not born at the date of the transfer.
The unborn person must come into existence on or before the expiry of the existing
life or the last existing life, that is, the last life-estate. This condition is intended to
prevent the property from remaining in abeyance indefinitely. Moreover, regard is to
be had to possible and not to actual events. For example, a transfer is made to A (a
bachelor) for life, and then to his wife for life, and the remainder to other persons.
The gift is invalid, because it is possible that A may marry a wife who was not born at
the transferor’s death. In other words, it is possible that an unborn person will take a
mere life-interest, and not all that remains. This mere possibility will vitiate the whole
transfer, though in reality, in a particular case. A’s wife may not be an unborn person
at the transferor’s death. In other words, a transfer is invalid, even if there is a sheer
possibility that a unborn person would take a life-interest.

Exception to the rule against perpetuities

The following are the eight exceptions to the rule against perpetuities;
Vested interest is not affected by the rule, for when an interest has once vested, it
cannot be bad for remoteness.
The rule has no application where land is purchased or property is held, by a
corporation.
Gifts to charities do not fall within the rule; thus, in case of a transfer for the benefit of
the public for the advancement of religion, knowledge, commerce, health, safety, or
any other object beneficial to mankind the rule does not apply. (S. 18)
Property settled upon individuals for memorable public services may, by express
legislation, be exempted from the operation of this rule.
The rule against perpetuity applies when interest in property is created and has no
application to personal contracts.
As seen above, in one case, the shebaits of a temple agreed to appoint the family of
X as pujaris from generation to generation to perform the service of the temple, and
make provision for the expenses and remuneration of the office. The Court held that
such an agreement is valid, and is not affected by the rule against perpetuity. (Nafar
Chandra v. Kailash, referred to earlier).
A covenant of redemption in a mortgage does not offend the rule.
The rule does not apply to contracts for perpetual renewal of a lease.
The rule also does not apply where only a change is created on some property, and
such a charge does not amount to transfer of any interest in that property.
Covenants for pre-emption in respect of land, unrestricted in point of time and
expressed to be binding on the parties, as well as upon their heirs and successors,
also do not offend the rule against perpetuities.
Summary of the law to transfer to unborn persons
When interest in property is sought to be created for the benefit of unborn persons,
the following three rules must be kept in mind:
The unborn person must be given the entire interest of the transferor in the property.
Whatever intermediate interest may be created in favour of living persons, the
unborn person must ultimately tale all that remains.
No interest in the property sought to be transferred should reach any unborn person
after the lifetime of one more intermediate persons living at the date of transfer and
the minority of that unborn person.
The beneficiary who is not in existence at the date of the transfer must come into
existence on or before the expiry of the existing life or lives named by the transferor.