Vested Interest and Contingent Interest

The fourth is the subtle one and it is worth pausing on. A gift over on a future event does not make the first interest contingent. The first interest is vested but liable to be divested, meaning it belongs to the holder now and may be taken away later if the event occurs. That is a different thing from an interest that has not yet arisen.

Section 21: contingent interest. Where an interest is created to take effect only on the happening of a specified uncertain event, or if a specified uncertain event shall not happen, the person acquires a contingent interest. Such an interest becomes vested: in the first case, on the happening of the event; in the second, when the happening of the event becomes impossible.

That last clause is neat and is easily overlooked. A gift "to B if C does not marry within ten years" is contingent, and it vests not when ten years pass but at the moment C's marriage within the period becomes impossible.

Section 22: transfer to members of a class who attain a particular age. Where an interest is created in favour of such members only of a class as shall attain a particular age, the interest does not vest in any member who has not attained that age.

The words "such members only ... as shall attain" are what make this contingent. Contrast a gift to "the children of A, payable at twenty-one", where the age fixes the time of payment and not the class, and the interest is vested under section 19 with enjoyment postponed.

Section 23: contingent on an uncertain event, no time mentioned. Where an interest is to accrue to a specified person if a specified uncertain event shall happen, and no time is mentioned for its occurrence, the interest fails unless the event happens before, or at the same time as, the intermediate or precedent interest ceases to exist.

This gives the contingency a deadline that the deed forgot to supply. The property must vest in somebody when the prior interest ends, so the event must have happened by then.

Section 24: transfer to such as survive at a period not specified. Where an interest is to accrue to such of certain persons as shall be surviving at some period, but the exact period is not specified, the interest goes to those alive when the intermediate or precedent interest ceases to exist, unless a contrary intention appears.

The Act's own illustration: A transfers property to B for life, and after his death to C and D equally, or to the survivor of them. C dies during B's life. D survives B. At B's death the property passes to D.

The tests, side by side

Ask three questions of any gift.

One, is the event certain or uncertain? Certain, including death, means vested under section 19. Uncertain means contingent under section 21.

Two, does the condition attach to the vesting or only to the enjoyment? If the deed postpones only possession, the interest is vested. The Explanation to section 19 makes this explicit for four common drafting patterns.

Three, would the interest pass to the holder's heirs if he died today? If yes, it is vested. This is the practical test and it is usually the quickest.

A worked example

Nandini transfers her house at Kalyan to trustees by one deed containing five separate gifts. Her brother Om is alive.

Gift one: "to Om for life, and after his death to Pranav." Om's death is an event which must happen. Pranav's interest is therefore vested at once under section 19, with enjoyment postponed until Om dies. If Pranav dies before Om, his interest is not defeated: section 19 says so in terms, and it passes to Pranav's heirs, who take on Om's death.

Gift two: "to Om for life, and after his death to Pranav if Pranav is then a practising advocate." Being a practising advocate at a future date is a specified uncertain event. Pranav takes a contingent interest under section 21. If he dies before Om while not qualified, nothing passes to his heirs.

Gift three: "to such of Nandini's nephews as shall attain the age of twenty-five." Section 22. The interest does not vest in any nephew who has not reached twenty-five, because the class is defined by attaining the age. A nephew who dies at twenty-three takes nothing and passes nothing on.

Gift four: "to Om for life, and after his death to Quresh if Quresh returns from Canada." An uncertain event, with no time mentioned. Section 23 applies: the interest fails unless Quresh returns before, or at the same time as, Om's life interest ends. If he returns two years after Om's death, he takes nothing.

Gift five: "to Om for life, and after his death to Rina and Sameer equally, or to the survivor." Section 24 and the Act's illustration exactly. No exact period is specified, so the property goes to whichever of them is alive when Om's life interest ends.

Now change gift one slightly: "to Om for life, then to Pranav, but if Pranav becomes insolvent the property shall go to Tarun." Pranav's interest is still vested, because the fourth limb of the Explanation to section 19 says a provision that the interest shall pass to another on a particular event does not prevent vesting. It is vested subject to being divested.

What it does NOT mean

Vested does not mean in possession. An interest can be vested in interest while somebody else is in possession. The unborn child in section 20 has a vested interest from birth and no right to enjoy it until the prior interest ends.

A postponement of enjoyment does not make an interest contingent. The Explanation to section 19 rules that out, along with a prior interest, a direction to accumulate income, and a gift over on a specified event.

A contingent interest is not a mere expectancy. This is the distinction with section 6(a). A contingent interest is a present interest subject to an uncertain event and is transferable; a spes successionis is not an interest at all and cannot be transferred. See [What May Be Transferred].

Death is not an uncertain event. It is certain in fact though uncertain in time, so a gift after somebody's death is vested.

"Vested subject to divesting" is not the same as contingent. The first has arisen and may be taken away; the second has not arisen at all.

Section 22 is not about payment at an age. It applies where the class itself is defined by attaining the age. A gift to children "payable at twenty-one" vests earlier.

Distinctions

Quick revision

• Section 19: vested where no time is specified, or it takes effect forthwith, or on an event which must happen. Death is such an event.
• A vested interest is not defeated by the death of the transferee before possession.
• The Explanation to section 19: vesting is not prevented merely by postponed enjoyment, a prior interest, a direction to accumulate income, or a gift over on a specified event.
• Section 21: contingent where the interest depends on a specified uncertain event, or on such an event not happening. It vests on the event, or when the event becomes impossible.
• Section 22: a gift to such members only of a class as attain a particular age does not vest in a member below that age.
• Section 23: an uncertain event with no time mentioned must happen before or when the prior interest ends, or the interest fails.
• Section 24: survivors at an unspecified period are those alive when the prior interest ends. The Act's illustration: C dies during B's life, D survives, D takes.
• Quickest practical test: would it pass to his heirs if he died today?

Test yourself

1. "To A for life, then to B." Is B's interest vested or contingent? Vested. A's death is an event which must happen, so section 19 applies and only enjoyment is postponed.

2. B dies before A in that gift. Who takes on A's death? B's heirs. Section 19 provides that a vested interest is not defeated by the death of the transferee before he obtains possession.

3. "To A for life, then to B if B marries C." What kind of interest does B have? Contingent, under section 21, because the marriage is a specified uncertain event. It becomes vested if and when B marries C.

4. Give the four things listed in the Explanation to section 19. A provision postponing enjoyment; a provision giving or reserving a prior interest to another; a direction to accumulate the income until the time of enjoyment; and a provision that on a particular event the interest shall pass to another person. None of them prevents vesting by itself.

5. Distinguish a contingent interest from a spes successionis. A contingent interest is a present interest created by a transfer, depending on an uncertain event, and it is transferable. A spes successionis is the bare chance of succeeding to an estate, is not an interest at all, and section 6(a) makes a transfer of it void.

6. "To such of my nephews as attain twenty-five." A nephew dies at twenty-two. What does he take? Nothing. Section 22 provides that where an interest is created in favour of such members only of a class as shall attain a particular age, it does not vest in any member who has not attained it.

7. "To A for life, then to B if B returns from abroad", no time being mentioned. B returns a year after A dies. Does B take? No. Section 23 requires the uncertain event to happen before, or at the same time as, the intermediate or precedent interest ceases to exist. B's return came too late and the interest fails.

8. When does a contingent interest depending on an event NOT happening become vested? When the happening of that event becomes impossible, under the closing words of section 21.