Discuss vested and contingent interest and distinguish between them.

Question: Discuss vested and contingent interest and distinguish between them. [JJS 2017]

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Answer

The Transfer of Property Act deals with two kinds of interest vested interest and contingent interest. Vested interest is to be distinguished from contingent interest. When an interest is vested, the transfer is complete but when the interest is contingent, the transfer depends upon a condition precedent. When the condition is fulfilled the transfer takes effect and that the interest becomes vested.

Vested Interest: An interest is said to be vested when it is not subject to any condition, or precedent, i.e., when it is to take effect on the happening of an event which is certain. A vested interest is transferable and heritable. The word “vested” is used in two different senses. It may mean “vested in possession” or “vested in interest”.

For Example, a gift to Raju on the death of Shyam creates a vested interest in Raju even during the lifetime of Shyam for there is nothing more certain than death

a) “vested in possession” –

A right is said to be “vested in possession” when it is a right to present possession of property

For Example, if a land is given to Raju for life with a remainder to Shyam, Raju’s right is vested in possession.

b) “vested in interest” –

A right is said to be “vested in interest” when it is not a right to present possession but a present right to future possession.

For Example, if a land is given to A for life with a remainder to B, A’s right is vested in possession, B’s right is vested in interest.

Contingent interest: An estate is contingent when the right to enjoyment depends upon the happening of an event which may or may not happen.

Example: Mr. A, conveys a piece of land to Mr. B but states that Mr. B's interest in the property will only take effect if Mr. B marries before a certain date. Until Mr. B gets married, his interest in the property is contingent. If he marries within the specified time frame, the contingent interest becomes vested, and he becomes the absolute owner of the property. If he does not marry within the specified time frame, the interest in the property might go to someone else as per the conditions specified by Mr. A in the property transfer.

Differences between Vested and Contingent Interest:

a) Definition

Section 19 of the Transfer of Property Act defines Vested interest as follows:-

“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.”

Section 21 of the Transfer of Property Act defines Contingent interest as follows:-

“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.”

b) Fulfillment of conditions

Vested interest does not depend upon fulfillment of any condition. It creates an immediate right though the enjoyment is postponed to a future date.

Contingent interest is solely dependent upon the fulfillment of any condition. If the condition is not fulfilled the interest fails

c) Effects of transferee's death

Vested interest is not defeated by the death of the transferee before he obtains possession but Contingent interest is defeated by the death of the transferee before he obtains possession.

d) Nature of Transfer

Vested Interest is both Transferable and heritable. If the transferee of the vested interest dies before actual possession or enjoyment it passes to his heirs.

However, the contingent interest is transferable but whether it is heritable, depends upon the nature of the condition. It passes not on heir on the death of the transferee received to transfer.

e) Right of enjoyment.

In vested Interest, There is present and immediate right even when its enjoyment is postponed. However, in contingent interest there is no present right of enjoyment, there is merely a promise to give such a right.