CONTINGENT INTEREST

Contingency means uncertain future event. 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 estate is
dependent upon an event that may or may not happen, the interest is contingent.
A contingent interest is an interest which is created to take effect only when (i)
some specified uncertain future event happens or (ii) specified uncertain event
does not happen. Where the creation of interest is made dependent on the
happening or not happening of any uncertain future event, it does not vest in the
transferee immediately. It vests only upon the happening or not happening, as
the case may be, of event.

Section 21 of the Transfer of Property Act 1882, contingent interest is when

interest is created in a property in favour of a person to whom such property is
transferred, such interest is dependent on the happening of a specified uncertain
event which may or may not take place. Hence the transfer of an interest in a
property is dependent on a contingent event. This interest in the property can
become vested interest in favour of the person to whom it is transferred on the
happening of the event or when the happening of the specified event fails or
becomes impossible. The creation of interest of the person’s right to enjoyment,
possession or ownership in the property is dependent on happening of a
condition which may or may not take place.

An interest created on a transfer of property in favor of a person is said to be

contingent interest to take effect i) on the happening of a specified uncertain
event or ii) if a specified uncertain event shall not happen (on impossibility of
happening). A contingent interest is one in which neither any proprietary
interest nor a right of enjoyment is given at present, but both depend upon
future uncertain events. The basic characteristic of contingent interest is that it
is solely dependent upon the fulfillment of a condition, so that in case of non-
fulfillment of the condition, the interest falls through.

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.

Another example, A agrees to transfer his house in favour of B on the condition

that B should marry his daughter ‘X’. Hence such a transfer of property in
favour of B is dependent on the condition of B marrying A’s daughter ‘X’. B
may or may not get married to ‘X’.  If B gets married to X, the interest in A’s
house gets transferred to B immediately on happening of the specified event.

Contingency or specified uncertain event may be of two kinds.

First, where the happening or not happening of the event depends upon the will
and desire of the parties e.g. marriage, payment of a sum of money or execution
of a deed etc.

For example, A makes a gift to B provided C marries within one year of the
transfer. The interest of B until C marries, is a contingent interest.

Secondly, where specified event does not depend on the will or desire of the
parties e.g. death of a person on or before a certain age.

Thus, where A makes a transfer of his property to B provided C dies at the age
of 40 years, the interest of B is contingent. It may be noted that death of a
person is a certain event therefore where property is transferred with a condition
precedent of the death of any person, the interest of the transferee is vested. But
when and at what age does a person die, is an uncertain future event. Therefore,
where a transfer is made with words: when, provided or, if a person dies at a
given age, or in a specified year or, dies before or after the death of another
person, the interest of the transferee is contingent.

Exception:

Exception to section 21 provides that where a transferee is to get the interest at a

particular age but is entitled to get absolutely the income of that interest before
attaining that age, the interest given to him is a vested interest. It may be noted
that where an interest is created in favour of a person on attaining a particular
age, his interest is contingent. But, if the transferor gives to the transferee also
an absolute right in the income arising out of that interest (property) or, directs
that so much of such income as is necessary for his benefit be applied with
immediate effect, the interest of the transferee is a vested interest.

However when a person who has a chance of becoming the owner of a specific
property and before the uncertain event takes place, if such a person receives
any income arising from such a property, this interest in the property is not a
contingent interest. Hence such an interest is an exception under section 21.

Nature of Contingent Interest:

 Future possible interest:

Contingent interest is a future possible interest. In a transfer of property where

the transferee interest is contingent, he has only a future possible right in respect
of property transferred to him. It is neither a present right nor a certain right.
Since the happening or not happening of the event, is uncertain, the interest
dependent on it is also uncertain. In a contingent interest, the right of enjoyment
is also dependent on some event or condition which may or may not happen or
be performed.
  Not heritable:

A contingent interest is not a heritable interest. Where a person having

contingent interest dies (i.e. dies before vesting) 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.

In Rajesh Kanta Roy v. Smt. Shanti Debt the Supreme Court observed thus:

In the case a contingent interest, one of the features is that if a person dies
before the contingency disappears and before the vesting occurs, the heirs of
such person do not get the benefit of the gift (transfer).

 Transferable interest:

Contingent interest is a transferable interest. However, since a contingent,

interest is itself an uncertain interest in the property and transferor’s own title is
not perfect, the transferee too gets an imperfect title. If the contingent interest
subsequently becomes vested, the transferee’s interest also becomes vested.

But, if the contingency could not happen the transferee does not get any title in
the property. In other words, although a contingent interest is transferable but
the transferees title is subject to the same contingency as it was before the
transfer was made.
Characteristics of Contingent Interest:

There are three main characteristics of contingent interest which are as follow-  

1. The interest in a specific property transferred will be subject to a

condition which is uncertain i.e., it may or may not take place. Only on
fulfilment of such a condition will the contingent interest in the property
become vested interest in the transferee.
2. If the transferee dies before acquiring the interest in the property, the
contingent interest will lapse and the transferor will remain the owner of
the property.
3. The contingent interest can be transferred i.e. it is a transferable right.
However, if the contingent interest is heritable or not depends on the
contingent event and nature of the transaction.

Section 22 states that a contingent interest in a property is transferred to a group

or class of persons on the condition that persons who have attained a particular
age on a specified date will acquire an interest in the property. Such interest will
only be transferred in favour of the people who satisfy the required condition.

For example, an interest in a property is transferred in favour of a group of 10

people. Such a transfer is dependent on the condition that only people who are
above the age of 18years as on the date of transfer will have vested interest in
the property. Hence all people above the age of 18 years will get an interest in
the property and the others will not get an interest in the property.

Section 23 states that when a transfer of an interest in a property is dependent

on happening of an uncertain event and the time within which such an event is
to take place is not specified. Such a contingent interest fails unless such an
event takes place before or at the same time as the intermediate or previous
interest ceases to exist.

For example, a property is transferred to X for life as a gift and then to Y if, Y
returns from the U.S.A. Whether Y returns from the U.S.A. is a contingency as
it may or may not happen and no time is mentioned for his return. Hence if Y
returns from the U.S.A. during X’s lifetime then Y must get the property. 

Section 24 lays down the transfer of an interest in a property to such persons

who are alive at the specified time.

For example, X transfers property to Y for life and after his (Y) death transfer to
A, B, C equally between them. A dies during Y’s lifetime. On Y’s death, the
interest in the property shall pass to B and C equally.

Difference between Vested & Contingent Interest

Ground of Vested Interest Contingent interest

Difference

Section Vested interest is provided Contingent interest is provided

in Section 19 of the Transfer in Section 21 of the Transfer of
of Property Act, 1882. Property Act, 1882.

Definition It is an interest which is It is an interest which is created

created in favour of a person in favour of a person on a
where time is not specified or condition of the happening of a
a condition of the happening specified uncertain event. The
of a specified certain event. person having the contingent
The person having the vested interest does not get the
 interest does not get the possession of that property but
possession of that property has the expectancy to receive it
but has the expectancy to upon happening of that event but
receive it upon happening of a will not receive the property if
specified certain event. the event does not happen as the
condition is not fulfilled.

Condition The condition involves The condition involves

a specified certain event. A a specified uncertain event.
certain event means an event There is a chance of the
that will eventually happen. happening or non-happening of
that particular event.

Fulfilment of Vested Interest does not Contingent interest is entirely

conditions entirely depend on the dependent on the
condition as the condition condition imposed on the
involves a certain event. It transfer. Interest is only
creates a present right that is transferred to the transferee on
in effect immediately, the fulfilment of the condition
although the enjoyment is imposed.
postponed to the time
prescribed in the transfer.

Right of This right is created as soon There is mere chance to be

Ownership as the interest is vested. having the ownership rights.

Death of Death of the person who is Death of the transferee before

transferee having this interest will not getting the possession of the
have any effect over that property will result in the
 interest as after the deceased, failure of continent interest and
the interest will vest in his the property will remain with the
legal heirs. transferor.

Transferable and Vested interest is Contingent interest is

heritable? a Transferable and a Transferable right, but
heritable right. whether it is heritable or not,
it depends upon the nature of
such any transfer and the
condition.

The present right There is present, immediate There is no present right of
of enjoyment. right even when its enjoyment, there is a mere
enjoyment is postponed. expectancy of having such a
right.

Examples X professes to transfer the X professes to transfer the

property ‘O’ to Y when he property ‘O’ to Y on the
attains the age of 20. There is condition that he shall construct a
a vested interest with Y for well in his property. If he
the property ‘O’. constructs, Y shall get contingent
interest in the property until the
condition is not fulfilled.

Distinction between Vested and Contingent Interest:

  When accrues

On a transfer of property, a vested interest accrues immediately to the

transferee. A contingent interest does not accrue to the transferee until the
specified uncertain event happens or does riot happen.

 Nature of the title

A vested interest confers complete and perfect title. In contingent interest the
title is dependent on uncertain future event which may or may not occur; the
title is therefore imperfect. Vested interest is owned absolutely, whereas,
contingent interest is owned conditionally.

 Transferees right in property:

In a vested interest the transferee has present fixed right in property. In

contingent interest the transferee has merely a future possible right in the
property. A vested interest confers a present right to property even if the
enjoyment is postponed or suspended whereas in a contingent interest all the
rights of property, including the enjoyment, are dependent on an event which
may or may not occur.

 Transferability:

Vested and contingent interests both are transferable. But, in a vested interest
the transferee gets complete title whereas, in contingent interest the transferee
takes an interest which may be defeated by non-fulfilment of condition
precedent or non-happening of the event.

 Attachment and sale in execution of decreed:

A vested interest is capable of being attached or sold in execution of a decree
whereas, a contingent interest cannot be sold in execution of any decree. A
merely contingent or possible interest is not liable to attachment and sale in
execution of a decree.

 Heritability:

A vested interest is property of the transferee, there- fore, it may be inherited by

his heirs even though he could not obtain possession at the time of his death. A
contingent interest confers no title, therefore, it is not heritable.

Conclusion:

The Transfer of Property Act, 1882 deals with two kinds of interest that are vested interest and
contingent interest. The concepts of vested interest and contingent interest are something that is
very important to understand as there are many sections relating to these concepts. The main
point to understand about both the concept is that the transfer of property involving Contingent
interest takes effect only after the condition is fulfilled, if the condition is not fulfilled then the
transfer will not take effect.

The conditions are required to be fulfilled and they have to necessarily comply with the rules of
the preamble that talk about justice, equity and good conscience, the three major principles of the
natural law on which this whole act is based upon. In a transfer of property involving vested
interest, the transfer is not invalidated if the condition mentioned is not fulfilled. The reader will
get to know about the basic meaning and interpretations of the sections involving the two
concepts with the help of various examples. The author has tried to explain the two concepts by
discussing all the aspects of both for a better understanding of the provisions. Towards the end,
the author has also discussed certain judicial pronouncement in a brief manner as to make sure
that the reader understands the concept in a more direct and easier way and so that he can get into
more and more specific details of the two concepts.