The Rule Against Perpetuity

Two points of accuracy that carry marks.

First, the Indian rule uses the actual minority of the person, not a flat period. English law allows a gross period of twenty-one years whether or not there is a minor. Under section 14 the extension is the real minority of a real person, so if that person is already fourteen when the last life ends, only four years are added, and if the interest is given to a person already of full age, no extension is available at all.

Second, the period of gestation is allowed for at the front. A child in the womb at the relevant date is treated as being in existence, which is why the standard statement of the rule adds "plus the period of gestation" where a child is en ventre sa mere, a Law French phrase meaning in its mother's womb.

Sections 15 and 16: what happens when a gift fails

These two sections handle the consequences, and they pull in opposite directions.

Section 15: a gift to a class fails only as to those it offends. Where an interest is created for the benefit of a class of persons and it fails as to some of them by reason of section 13 or section 14, the interest fails in regard to those persons only and not in regard to the whole class.

The words in that final phrase were substituted by amendment, and the change is the point: before it, the whole class gift fell. Now the court saves the members whom the rules do not hit and strikes out only those they do.

Section 16: an interest intended to take effect after a failed interest fails too. Where, by reason of section 13 or section 14, an interest created for a person or a whole class fails, any interest created in the same transaction and intended to take effect after or upon the failure of that prior interest also fails.

The reason is that the later gift was drafted on the assumption that the earlier one would run its course. It was meant to begin when the earlier interest ended, and if the earlier interest never existed, the later one has no starting point. Section 16 refuses to let it be pulled forward into a position the transferor never intended.

The interaction with section 15 is where problems get their difficulty. If a class gift fails only in part under section 15, the class gift has not failed as a whole, and a later interest is not destroyed by section 16, because section 16 operates only where the interest fails "in regard to such person or the whole of such class".

Section 18: transfers for the benefit of the public

Section 18 provides that the restrictions in sections 14, 16 and 17 do not apply to a transfer of property for the benefit of the public in the advancement of religion, knowledge, commerce, health, safety, or any other object beneficial to mankind.

The exemption is deliberate and it is easy to justify in an answer. The mischief behind section 14 is property tied up in a private family and withdrawn from use. A permanent endowment for a hospital, a school, a temple or a public library is the opposite: the property is dedicated to continuing public use, and the longer it lasts the better the object is served. So the policy that condemns a private perpetuity commends a public one.

Note which sections are exempted. Section 14, the rule itself; section 16, the failure of a subsequent interest; and section 17, the limit on accumulation, taught in [Direction for Accumulation]. Section 13 is not in the list.

What the rule does not apply to

The rule strikes at transfers creating an interest in property. A number of arrangements fall outside it, and they are frequently examined.

Rambaran Prosad v. Ram Mohit Hazra, AIR 1967 SC 744, decided on 6 September 1966 by Ramaswami, Bhargava and Raghubar Dayal JJ, is the authority.

Facts. Two brothers, Tulshidas and Kishorilal Chatterjee, held property in Calcutta. A partition award of 1941 divided the land into four blocks and contained a covenant of pre-emption: before selling to an outsider, each was to offer the property to the other. Tulshidas sold block A in 1941 after Kishorilal declined it. Kishorilal sold blocks B and D in 1942, and those came to the plaintiffs. In 1952 the purchaser of block A sold it on to the first defendant without any offer being made, and the plaintiffs sued to enforce the covenant.

Held. The covenant bound successors and assignees although it did not say so in terms, and the rule against perpetuity did not defeat it. Reading section 14 with section 54, which provides that a contract for the sale of immovable property does not of itself create any interest in or charge on the property, the Court held that the rule against perpetuity applies to interests in property and not to personal contracts, so it cannot be applied to a covenant of pre-emption even where no time limit is fixed for exercising the option.

Why it matters here. It draws the outer edge of section 14 by telling a student what the rule does not touch. A right that is merely contractual, however long it may run, is outside the section, because no interest in property has been created.

Other recognised exceptions, which sit on the same reasoning or on express provision:

• A charge, which secures money rather than creating an interest in the land.
• A personal agreement that creates no interest in property, as in the case above.
• A covenant of redemption in a mortgage, since the mortgagor's right to redeem is not a future interest of the kind the rule attacks.
• A contract of pre-emption.
• A lease, including a covenant for perpetual renewal, because the lessee's interest is present rather than future.
• A transfer for the benefit of the public within section 18.

A worked example

Chandrakant, who owns a bungalow at Nashik, executes a settlement in 2026. At that date his son Deven is alive and aged forty; Deven has no children.

Version one. To Deven for life, then to Deven's first son on his attaining the age of eighteen.

Deven is a life in being. His first son will be a person in existence at the end of that life, if born. Vesting is postponed until that son attains eighteen, which is exactly his minority. The gift is within the maximum permitted by section 14 and is good.

Version two. To Deven for life, then to Deven's first son on his attaining the age of twenty-five.

Deven is a life in being. But vesting is now postponed beyond the son's minority by seven years. Section 14 permits the lives in being plus the minority of the ultimate beneficiary, not minority plus a margin. The gift is void.

Version three. To Deven for life, then to Deven's first son for life, then to Deven's first grandson absolutely.

Two failures, and it is worth separating them. The gift to Deven's first son, an unborn person, is a life interest, which fails under section 13 as taught in the previous chapter. The gift to the grandson is created in the same transaction and is intended to take effect after that failed interest, so it fails under section 16.

Version four. To Deven for life, then to such of Deven's children as attain the age of twenty-five.

This is a class gift. As to any child who is alive at Deven's death and under twenty-five, vesting is postponed beyond his minority and the gift offends section 14. As to a child who has already turned twenty-five, the interest vests at once on Deven's death and there is no offence. Section 15 saves the second group and strikes out only the first.

Version five. To trustees on trust to maintain a free dispensary in the village, for ever.

Section 18 exempts it. The transfer is for the benefit of the public in the advancement of health, so sections 14, 16 and 17 do not apply, and the endowment may last indefinitely.

What it does NOT mean

It does not forbid postponing enjoyment. The rule is about postponing vesting. An interest may vest at once and be enjoyed much later, as with the unborn child in section 20 whose interest vests at birth.

It does not allow a flat twenty-one years. That is the English rule. Section 14 allows the actual minority of the ultimate beneficiary.

The minority used must be that of the ultimate beneficiary. Section 14 requires that the interest, if he attains full age, is to belong to him. Borrowing the minority of some other child does not work.

A class gift is not wholly destroyed. Section 15 preserves the members the rules do not hit.

Section 18 does not exempt section 13. It names sections 14, 16 and 17 only.

A contract is not caught. As held in the case above, a covenant of pre-emption creates no interest in property, so the rule has nothing to bite on.

Distinctions

Quick revision

• Section 14: vesting may be postponed only for lives in being at the date of the transfer, plus the minority of a person in existence at the end of that period, to whom the interest is to belong on attaining full age.
• Add the period of gestation where a child is in the womb.
• Minority is eighteen, or twenty-one where a court has appointed a guardian.
• The Indian rule uses actual minority, not England's flat twenty-one years.
• Section 15: a class gift fails only as to the members it offends.
• Section 16: an interest meant to take effect after a failed interest also fails, but only where the prior gift failed as to the person or the whole class.
• Section 18 exempts transfers for the public benefit in the advancement of religion, knowledge, commerce, health, safety or any object beneficial to mankind, from sections 14, 16 and 17, but not section 13.
• Outside the rule: charges, personal contracts, covenants of redemption, pre-emption, leases and perpetual renewal covenants.

Test yourself

1. State the maximum period allowed by section 14. The lifetime of one or more persons living at the date of the transfer, plus the minority of a person who is in existence at the expiration of that period and to whom, if he attains full age, the interest is to belong.

2. A transfers to B for life, then to B's first son on attaining twenty-one, no guardian having been appointed by a court. Valid? No. Minority in that case ends at eighteen, so vesting is postponed three years beyond the permitted period and the gift offends section 14.

3. What is the difference between the Indian and the English rule? Section 14 allows the actual minority of the ultimate beneficiary after the lives in being, so the extension varies with the person's age and may be nothing at all. English law allows a fixed period of twenty-one years regardless of whether any minor exists.

4. Does the rule apply to a covenant of pre-emption without a time limit? No. In Rambaran Prosad v. Ram Mohit Hazra, AIR 1967 SC 744, the Supreme Court held that reading section 14 with section 54, the rule applies to interests in property and not to personal contracts, so a covenant of pre-emption is outside it even with no time limit.

5. A gift is made to such of X's children as attain twenty-five. At X's death two children are twenty-eight and one is nine. What is the result? The gift is good as to the two who are already twenty-five, whose interests vest immediately. It offends section 14 as to the nine-year-old, because vesting is postponed beyond his minority. Section 15 confines the failure to him.

6. Why does section 18 exempt public transfers? Because the mischief of section 14 is property withdrawn from use and tied to a private family. An endowment for religion, knowledge, commerce, health, safety or another object beneficial to mankind dedicates property to continuing public use, which the law encourages rather than restrains.

7. If a gift to an unborn person fails under section 13, what happens to the gift that was to follow it? It fails too, under section 16, provided it was created in the same transaction and was intended to take effect after or on the failure of the prior interest.