Contingent and vested interest are two main interests spoken under the Transfer of Property Act 1882. Property can be described as any tangible or intangible entity which is either owned by a person or some group of persons. Ownership basically means that the person or group of people have the rights to use, enjoy and destroy the property. They are the whole and sole owner of the particular entity. Property can also be transferred or sold from one person to another, but they should be in accordance to the statutes of the State. The Transfer of Property Act 1882, deals with various kinds of transfer recognized by law for immovable properties such as land, house etc.
The parties to the contract of transfer are known as Transferor (person transferring rights) and Transferee (person to whom the rights are transferred). Along with this Act, some of the provisions of Indian Contract Act 1872 also apply to such immovable and movable property transfers.
In every transfer of property, there are two kinds of interests involved with respect to the property namely, Vested Interest and Contingent Interest. These two interests are very well explained under the Transfer of Property Act 1882. The concept of vested interest is defined under Sec 19 and contingent interest is defined under Sec 21 of the Act.
Vested Interest (Sec 19)
As stated above, Sec 19 of the Act 1882 defines “Vested Interest”. As per the provision vested interest is the general form of interest held by a person in the property, as in when interest in a property is transferred in favor of any individual without any specific conditions or time duration. This kind of interest will vest in the person on the happening of a certain event which is bound to happen in the near future. So, the interest in the property shall remain vested in transferee, even though the right to use and enjoy the property is deferred for the moment. In short, vested interest means the interest is vested in favour of transferee on the happening of a certain event.
Vested interest can take place in 2 stages; firstly, when transferee gets the immediate possession of the property and secondly when transferee has an acquired interest in the property which shall be transferred on the happening of certain future event and its rights of enjoyment are postponed for time being.
For example- A, father of B agrees to transfer the ancestral property to B after the death of A. In this case, B shall have an acquired vested interest in the ancestral property on the death of A, which is a certain event.
- Rights of unborn child (Sec 20)
Section 20 of the Transfer of Property Act 1882 refers to the acquirement of vested interest in an immovable property transferred to an unborn child. In some cases, when transfer of property are made in favour of an unborn child, such interest in the property shall vest in the unborn child till the time the child is actually born. Even though the child will not be able to enjoy the property immediately after his/her birth, but the rights are immediately transferred in the name of child.
There are certain conditions under which, the vested interest in a property shall remain vested with the transferee even if-
- The enjoyment of the property in deferred
- Any former interest in the property is created
- The income raised from the property is accumulated till the rights of enjoyment of property is transferred
- The happening of certain event leads to passing of the interest onto another person
In the case of Sunder Bibi v. Rajendra, the Court observed that C would be holding the property till his death and it would pass onto D subsequently after the death of C. The interest acquired by D in such property is vested interest, wherein the rights to enjoyment are postponed and governed on the happening of a certain event in the future.
Characteristics of Vested Interest
Some of the common features of Vested interest are-
- Vested interest doesn’t depend on the happening of an uncertain event. It has to be a certain event only, which should have the surety of happening in the coming future. The interest creates an immediate right over the transferee, even though the right to enjoyment can be postponed.
- In case of untimely death of transferee, the vested interest shall be passed onto the heir of the transferee. Vested interest cannot be beaten by death.
- Vested interest can be transferred as well as inherited as a right. This means that the transferee can claim the rights from the transferor or even inherit them after the death of transferor.
Contingent Interest (Sec 21)
Section 21 of the Act 1882, defines “Contingent Interest” which states that when any interest is created in property in favour of an individual to whom the property shall be transferred, but such interest depends on the happening of an explicit uncertain event which may or may not take place. Thus, it can be said that the interest shall be transferred or acquired only on the happening of an uncertain event which makes this a Contingent interest. The interest in the property will convert into a vested interest in favour of the person to whom it was transferred on the happening of the uncertain event. This means that the transferee’s right to enjoy, possess or own the property shall completely rely on the happening of the condition or event which may or may not take place.
For example- X agrees to transfer his fields of wheat to Y on the condition that Y should marry his daughter Z. Thus, such a transfer of property is dependent on the condition that Y has to marry Z in order to have an interest in the fields of X. In case, Y doesn’t marry Z or Z marries A, then the condition shall fail and Y can claim no interest in the fields of X. This is a contingent interest.
In the famous case of Leake v. Robinson, it was held that whenever a condition mentions about legacy which as to be given a certain age, or upon attaining particular age or special age, then it can be derived that it will be considered as contingent interest.
- Exception of Section 21
Nevertheless, it should be noted that when a person who has the chance or probability of becoming the owner of particular property and before the uncertain event taken place, receives any other form of income arising from the same property, then interest in the property will not be counted as Contingent interest.
Characteristics of Contingent Interest
There are three major characteristics of Contingent Interest which are as follows-
- The interest lying in a particular property shall be transferred subject to the fulfilment of a condition or happening of a specified uncertain event, which means that the event may or may not take place. Once the condition is fulfilled, the transferee shall have a vested interest in the property.
- If the transferee dies before the condition is fulfilled or happening of the event, then the contingent interest shall lapse and the transferor will only remain as the owner of the property.
- The contingent interest is transferable right, but the contingent interest may or may not be heritable in nature, depending upon the nature of contingent event or the condition that is to be fulfilled.
Other Conditions With Respect To Contingent Interest (Sec 22-24)
There are certain other conditions which are laid down under the Transfer of Property Act 1882 regarding the contingent interest. They are-
- Section 22- This section speaks about the transfer to not an individual but to a group or class of members with a contingent interest. Example- The transfer is to be made to group of 4 members, on the condition that the property will have vested interest of those persons who attain the age of 45 years on the given date. So, as per the condition all those members who have attained the age of 45 on the given date shall have vested interest in the property and all those who don’t shall not have any interest in the property.
- Section 23- this section talks about the transfer that shall happen on the happening of an event, which was mentioned in the transfer involving a contingent interest. This section focuses on what shall happen once the condition is fulfilled or the event has occurred.
- Section 24- this section mentions that group or class of members shall be receiving the property on the condition that they shall be alive at the given specified date. This shall be marked as contingent interest. It is similar to Section 22, except for the fact it specifies the condition that only those will be receiving an interest over the property who would be surviving on the given particular date. And all those who have died, their heirs cannot claim an interest in the property as the contingent interest doesn’t pass onto the heirs after the death of transferee.
Difference Between Contingent and Vested Interest
There are many differences between Contingent and vested interest, some of the major ones are-
|Sr. No||Vested Interest||Contingent Interest|
|1||Section 19 of the TPA 1882 defines vested interest. The interest is acquired on the happening of a certain event.||Section 21 of TPA 1882 defines Contingent interest. The interest is transferred in favour of the transferee on the happening of an specified uncertain event or fulfillment of a condition.|
|2||Vested interest creates present or immediate interest, although the right to enjoy can be postponed.||Contingent interest depends on the fulfillment of condition only and interest is transferred only on happening of uncertain event.|
|3||Vested interest is not beaten by death and passes onto the heirs of transferee.||In Contingent interest, on the death of transferee, the interest may or may not pass onto the heirs of transferee.|
|4||It is transferable and heritable right.||It is transferable but depends on nature of contingency to say whether it is heritable or not.|
Doctrine of Election
The doctrine of election means choosing between 2 alternative rights. Whenever, there are 2 rights endowed on a person via any instrument in such a manner that one is more preferable than the other, then the person has to make decision of choosing one of the two options.
The doctrine of election is mentioned under Section 35 of the Transfer of Property Act 1882 on the same lines of Section 180 to 190 of the Indian Succession Act. It states that when a party transfers the property over which he doesn’t hold any right to transfer and in that transaction, he entails benefit to the actual owner of the property, then the title-holder or owner of the property shall elect his option at that moment to either validate such transfer of property or reject it.
This doctrine if universal in nature and applicable to all the religions. The main principle of this doctrine is to give the person a choice to either opt out of the transaction or validate the transaction to avail the benefits. The doctrine is founded on the equitable doctrine that who he accepts the benefit under an instrument or transaction of his own choice must either adopt the whole of it or renounce everything. This principle was found in the case of Codrington v. Codrington (1857).
Some of the essential conditions of Doctrine of Election were given in the case of Dhanpati v. Devi Prasad and Ors (1970). They need to be fulfilled.
- The transaction of transferring property should be made by a person who has no right to transfer.
- The person should transfer some benefit to the real owner of the property as part of the same transaction
- The owner must elect either to accept the transaction wholly or dissent from it completely. And in case the owner dissents the transaction; he shall forgo the benefit received from the transaction and return it back to transferor
There are two modes of Election as per this doctrine, either it can be direct or indirect. In direct election, one needs to simply let the other know about the elected choice of the person, and in case of indirect election, the acceptance of the benefit by the owner shall be subject to 2 conditions-
- The owner should have the knowledge about his responsibility to elect or reject the offer
- There should be proof of knowledge of circumstances which would indicate that the judgment was made as a prudent man regarding the decision of election.
It should be noted that the election will be assumed when the donee shall act in such a manner with the property gifted to him that it becomes impossible to return to the original owner in its original state.
Hence, from the above it can be inferred that Section 19 to 24 of the Transfer of Property Act 1882 talks about the principles of contingent and vested interest. These interests pertain to immovable property made in favor of the transferee and it mainly relies on the occurrence of some specified certain or uncertain event. Vested interest creates an immediate interest in the property whereas contingent interest depends on the fulfillment of an uncertain condition which may or may not occur. The article also mentions about the doctrine of election mentioned under Section 35 of the Act wherein the owner has the option to either accept the transaction with the benefit or reject it completely returning the benefits to transferor.
This article is authored by Rhea Banerjee.