Distinction Between Vested And Contingent Interest
Vested interest comes under the sec-19 of Transfer of Property act. Acc. to this where transfer of property, involves the transfer of interest. From the point of view of the quantum (quantity), the interest may be either absolute or partial interest. From the point of view of the time of accruing (i.e., when transferee gets the interest) the interest may either be vested or contingent interest. Where the interest transferred is vested, the transferee gets that interest immediately. In the other words, as soon as the transfer is complete, the interests accrue to the transferee with immediate effect to interest and the title of the transferee is complete.
Essentials Condition of the Vested Interest
i) No time has been specified as to when it is to take effect.
ii) It is specified that interest shall take effect immediately.
iii) It is to take effect upon the happening of an event which must happen.
i) A makes a gift of his house to B. A simply executes the gift deed but he does not specify any date on which the ownership is to be transferred. The interest of B is called a vested interest.
ii) A makes a gift of Rs. 10,000 to B on the death of C. Here, B has a vested interest in the Rs. 10,000 even before the C dies. But the money shall be transfer to B only upon the death of C. If, there B dies before the death of C, then the money shall be transfer to the legal heirs of B.
iii) A husband made settlement on his wife for her life and thereafter the sons born to them were to take the property absolutely. The sons acquired vested remainder interest.
iv) A transfer his property to B and C in equal shares to be paid (or to be given) to them on their attaining the age of 18 years and if there B and C die under the age of 18 years, then the property shall transfer to D. Here B and C have the vested interest even though their interest is to be the divested upon the happening of an uncertain future event.
Nature of Vested Interest
a) Present fixed right:- Vested interest is the present fixed right of the property. In a transfer of property where a vested interest is created in favour of the transferee, the transferee gets a present fixed right to property. Where the interest is vested, it accrues to the transferee immediately. In a vested interest, the title of the transferee is complete as soon as the transfer is completed.
Interest may be the ‘vested in possession’ or ‘vested not in possession’. Where the interest is ‘vested not in possession’, then there is the present indefeasible right to the future possession of an interest in which the case is transferee gets the possession or enjoyment interest not immediately but in the future. Thus, the vested interest confers the present right to the property even though the right of enjoyment is postponed or suspended.
b) Transferable and heritable interest:- Vested interest is transferable and heritable. Being a present fixed right and also since the title of the transferee is complete or absolute, the vested interest is the divisible and transferable interest. A vested interest in such a present fixed right of the transferee that it is regarded as his property. It is a transferable interest which means under Section 6 of the Act even though the transferee has no possession or right of the enjoyment. Further, the vested interest can also be attached and brought to sale in the execution of a decree.
c) Time of vesting of interest:- On the transfer of property, ordinarily, the interest created in the favour of the transferee vests immediately. Under Section 19 provides that the interest created is called vested when no time of its vesting is specified or it is to vest immediately or where though enjoyment is postponed but it is intended to the vest with immediate effect in the interest.
Illustration of Vested Interest
a) A transfers his property to the B and C in the equal shares to be transferred (or to be given) to them on their attaining the 18 years of age and if there B and C die under the age of 18 years, then the property shall transfer to D. Here B and C have vested interest even though their interests are likely to be the divested upon the happening of an uncertain future event.
b) A husband made settlement on his wife for her life and thereafter the sons born to them were to take the property absolutely. The sons acquired the vested remainder (interest).
According to Section 21, Where, on a transfer of property, an interest therein is created in favour of the 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.
Contingency means uncertain future events. In a transfer of property where the vesting of interest depends on any contingency i.e. uncertain future event, the interest is contingent. In a transfer of property where the vesting of the estate is dependent upon an event that may or may not happen the interest is contingent.
Essential Condition Of Contingent Interest
i) Some specified uncertain future events happen.
ii) Specified uncertain event does not happen.
iii) Where the creation of interest is made dependent on the happening or not happening of an uncertain future event.
Illustration Of Contingent Interest
i) A makes a gift of his property to B when he attains the age of 18 years or marries under that age with the consent of C with A condition that if B does not attain that age of 18 years and not married with the consent of C then the property shall transfer to the D. Here B and D both take a contingent interest in the property.
ii) A transfers his farm of Sultanpur Khurd to B if B shall convey his own farm of Sultanpur Buzurg to C. Here the interest of B in the farm of Sultanpur Khurd is contingent interest. And it may become vested if B conveys his farm of Sultanpur Buzurg to the C.
iii) A deed of settlement gave life-estate to X with remainder to his children not in existence at the time of the settlement. The interest of the children was not in existence at the time of the settlement. The interest of the children before the death of the holder of life-estate is contingent. The interest of the children would become vested after the death of the holder of life-estate.
iv) A makes a gift to B provided X survives( i.e. lives up to) the 20 years of age. Here the interest of B is the contingent interest.
v) Similarly, where A makes a gift to b provided X does not survive (i.e. dies before) the 20 years of age. Here too the interest of B is the contingent interest.
Nature of Contingent Interest
a) Future Possible Interest:- Contingent interest is a future possible interest. In the transfer of the property where the transferee’s interest is contingent interest, he has only the future possible right in the respect of the property transferred to him. It is not a present right and not a certain right. Since the happening or not happening of the event, is uncertain in the contingent interest, the interest dependent on it is also uncertain. In the contingent interest, the right of the enjoyment is also dependent on some event or condition which may or may not happen or be performed.
b) Not Heritable:- A contingent interest is also not heritable interest. Where a person having contingent interest dies his legal heirs do not get anything, not even the contingent interest. After the death of a person, his legal heirs are entitled to inherit only those properties in which he had a vested interest at the time of his death.
c) Transferable Interest:- Contingent interest is also a transferable interest. However, since a contingent interest is itself an uncertain interest in the property and the transferor’s own title is not perfect, the transferee gets an imperfect title. If the contingent interest subsequently becomes a vested interest, then the transferee’s interest also becomes a vested interest. But, if the contingency could not happen, then the transferee does not get any title to the property. In the other words, although a contingent interest is transferable, the transferee’s title is subject to the same contingency as it was before the transfer was made.
Distinction Between Vested and Contingent Interest
There are the following differences between vested and contingent interest are-
i) When accrues- On a transfer of property, a vested interest accrues immediately to the transferee. On the other hand, a contingent interest does not accrue to the transferee until the specified uncertain event happens or does not happen.
ii) Nature of title- A vested interest confers a complete and perfect title. But in the contingent interest, the title depends upon uncertain future events which may or may not occur.
This means that vested interest is owned absolutely, where, contingent interest is owned conditionally.
iii) Transferee’s rights in property- In a vested interest, the transferee has present fixed rights in the property. On the other hand, in the contingent interest, the transferee has merely a future possible rights in the property.
iv) Transferability- Vested and contingent interest both are transferable. But in a vested interest, the transferee gets complete title whereas, in the contingent interest the transferee takes an interest that may be defeated by non-fulfilment of a condition precedent or non-happening of the event.
v) Heritability- A vested interest is property of the transferee, therefore, it may be inherited by his even though he could not obtain possession at the time of his death. A contingent interest confers no title, therefore, it is not heritable.
vi) Attachment and sale in execution of decree- A vested interest is capable of being attached or sold in execution of a decree whereas, a contingent interest can not be sold in execution of any decree.
BALLB 5th Year ( Student)
Geeta Institute of Law, Panipat
Author: Rajnandni Saini,
Geeta Institute of Law/BALLB 5th Year/Student