Vested and Contingent Interest

An interest is said to be a vested interest when there is immediate right of present enjoyment or a present right for future enjoyment.

An interest is said to be contingent if the right of enjoyment is made dependent upon some event. or condition which may or may not happen. On the happening of the event or condition a contingent interest becomes a vested interest.

Transfer of Property Act

The Transfer of Property 1882 as well as The Indian Succession Act, 1925 recognize this distinction between a vested interest and a contingent interest. Vested interest has been thus defined in Section 19 of The Transfer of Property Act, 1882:

“Section 19. 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 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 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.”

Contingent interest is defined in Section 21 of the said Act in the following terms:

“Section 21, 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, of 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.”

Indian Succession Act

In the Indian Succession Act provision with regard to date of vesting of a legacy when payment or possession is postponed is contained in Section 119 which provides as

“Section 119. Date of vesting of legacy when payment or possession postponed.– Where by terms of a bequest the legatee is not entitled to immediate possession of the thing bequeathed, a right to receive it at the proper time shall, unless a contrary intention appears by the will, become vested in the legatee on the testator’s death, and shall pass to the legatees’s representatives if he dies before that time and without having received the legacy, and in such cases the legacy is from the testator’s death said to be vested in interest.

Explanation: An intention that a legacy to any person shall not become vested in interest in him is not to be inferred merely from a provision whereby the payment or possession of the thing bequeathed is postponed, or whereby a prior interest therein is bequeathed to some other person, or whereby the income arising from the fund bequeathed is directed to be accumulated until the time of payment arrives or from a provision that; if a particular event shall happen, the legacy shall go to another person.”

Section 120 of the Indian Succession Act makes the following provision for date of vesting when legacy is contingent upon specified uncertain event: –

“Section 120. Date of vesting when legacy contingent upon specified uncertain event, —

(1) A legacy bequeathal in case a specified uncertain event shall happen does not vest until that event happens.

(2) A legacy bequeathed in case a specified uncertain event shall not happen does not vest until the happening of that event becomes impossible.

(3) In either case, until the condition has been fulfilled, the interest of the legatee is called contingent.

Exception. – Where a fund, is bequeathed to any person upon his attaining a particular age, and the will also gives to him absolutely the income to arise from the fund before he reaches that age, or directs the income, or so much of it as may be necessary, to be applied for his benefit, the bequest of the fund is not contingent.”

By virtue of Section 119, in a case where bequest is of a vested interest and by the terms of the bequest the legatee is not entitled to immediate possession of the thing bequeathed, the right to receive it at the proper time becomes vested in the legatee on testator’s death and in the event of the death of the legatee without having received the legacy the said right to receive it passes to the legal representatives of the legatee. This is however, subject to a contrary intention being expressed in the Will.

But in the case of a contingent bequest, Section 120 prescribes that legacy vests in the legatee only after the happening or not happening of the contingency which means that in the ever of the legatee dying prior to happening of that contingency no interest passes to his legal representatives. Although the question whether the interest created is a vested or a contingent interest is dependent upon the intention to be gathered from a comprehensive view of all the terms of the document creating the interest, the court while construing the document has to approach the task of construction in such cases with a bias in favour of vested interest unless the intention to the contrary is definite and clear. [See : Rajes Kanta Roy v. Santi Devi, 1957 SCR 77, at p. 90].

As regards Wills the rule is that “where there is doubt as to the time of vesting, the presumption is in favour of the early vesting of the gift and, accordingly it vests at the testator’s death or at the earliest moment after that date which, is possible in the contest.” [See : Halsbury’s Laws of England 4th., Vol. 50, para 589 at p. 395].

In order to determine whether the appellant can claim any right in the properties of the testator, it is, therefore, necessary to examine the nature of the bequest that was made by the testator in favour, we must construe the Will to Find out the intention of the testator in this regard. With regard to construction of Wills the law is well settled that intention has be ascertained from the words used keeping in view the surrounding circumstances, the position of the testator, his family relationship and that the Will must be read as a whole, [See : Gnanambal Ammal v. T. Raju Ayyar and Others, 1950 SCR 949, at p. 955, Navneet Lal Alias Rangi v. Gokul and others, 1976 (2) SCR 924, at pp. 927, 928].