VESTED AND CONTINGENT

INTEREST

Sections19-21
 WHAT IS AN INTEREST?
Interest means having an ownership in property or having a kind of right to do something with or on the
property.
▪ Legal Interest: This refers to the formal ownership of the property, typically recorded in official
documents or registries.
▪ Equitable Interest: This represents a right or interest in the property recognized by equity, even if not
formally recorded. For example, a beneficiary of a trust has an equitable interest in the trust property.
▪ Possessory Interest: This means having physical control over the property, such as a tenant living in a
rental property. (Lease)
▪ Non-Possessory Interest: This includes rights to use the property in certain ways without possessing
it, like easements or rights of way.
▪ Future Interest: This is a legal right to property ownership that will begin in the future, such as a
remainder or reversion.
▪ Security Interest: This is an interest in property granted to a lender, like a mortgage, to secure
repayment of a loan.
▪ For the transfer of a property two major interests are taken into consideration, namely, Vested
Interest and Contingent Interest
 VESTED INTEREST
19. Vested interest.—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.
IMPORTANT ASPECTS OF A VESTED INTEREST
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.
▪ 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.
IMPORTANT ASPECTS OF A VESTED INTEREST
▪ 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.

▪ 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.

▪ 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, 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
▪ 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 person with the vested interest does not immediately get possession of the property. There is an expectancy to receive it
upon the occurrence of a specified certain event. For Example: A promises to transfer his property to B when B attains the
age of 22. B does not get possession immediately but will get it upon turning 22.
▪ Vested interest creates a present right that takes effect immediately. The enjoyment of this right is postponed to a specified
time in the future. With a Condition that Vested interest does not entirely depend on the condition, as the condition involves a
certain event.
▪ Death of transferee will not render the transfer invalid as the interest will pass on to his legal heirs. For 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.

▪ Vested interest is a Transferable and heritable right. A vested interest can be transferred to another person.

• Transferable Right: Example: : A promises to transfer his property to B when B turns 22. Before turning 22, B can transfer
his vested interest to C. Thus, C will receive the property when B turns 22.
▪ Heritable Right: Example: A promises to transfer his property to B when B turns 22. If B dies at the age of 21, the vested
interest will pass to B's legal heirs. When B would have turned 22, the legal heirs will receive the property.
 CONDITIONS OF VESTED INTEREST
▪ Section 20 -- When unborn person acquires vested interest on transfer for his benefit.—Where, on a transfer of property, an
interest therein is created for the benefit of a person not then living, he acquires upon his birth, unless a contrary intention appear
from the terms of the transfer, a vested interest, although he may not be entitled to the enjoyment thereof immediately on his birth.

▪ 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.

▪ Section 13- Transfer for benefit of Unborn Child- When a property is transferred and an interest is created for someone who is
not yet born, this interest depends on an prior interest from the same transfer, the future interest for the unborn person will only be
valid if it covers the entire remaining interest in the property.

▪ Section 14- Rule against Perpetuity- The rule against perpetuity prevents the creation of property interests that would begin after
the lifetimes of individuals alive at the time of the transfer, It must take effect within the lifetimes of people alive when the transfer
is made, plus the time it takes for a minor who is alive then to reach adulthood.
 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.
 CASE LAWS
▪ Sunder Bibi v. Rajendra; 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.

▪ In the cases of Pearey Lal Vs Rameshwar Das, AIR 1918 Mad 294 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 Chelt, 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.
CONTINGENT INTEREST
CONTINGENT INTEREST
▪ 21. Contingent interest.— 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.
 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, 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.
CHARACTERISTICS OF CONTINGENT INTEREST

▪ This interest is entirely dependent upon the condition. It only happens when the condition is fulfilled.

▪ 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.

▪ 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.
CHARACTERISTICS OF CONTINGENT INTEREST

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

▪ 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.

▪ Contingent Interest exists in wills: Any bequest to a wife, son or daughter can be a contingent interest
if the condition provides so.

▪ 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.
 INTEREST

Vested Interest Contingent Interest

(sections 19-22) (sections 21-24)

In possession Not in possession

Uncertain Event

By a provision By the
intervention Only be fulfilled if
postponing conditions are
enjoyment of a prior
interest fulfilled

By a provision for
accumulation of income