Vested versus Contingent Rights

Picture three students. The first has a confirmed admission: the fee is paid and the seat is hers, though classes begin only in August. The second has a provisional admission, good only if she scores sixty per cent in the board examination due next month. The third has nothing but the hope that the college may one day open the course he wants. The first holds a vested right with enjoyment postponed; the second a contingent right hanging on an uncertain event; the third a mere expectancy, which the law does not treat as a right at all. Notes 28 and 31 list the pair among the kinds of rights and of ownership; this note explains it through the Transfer of Property Act and worked examples.

1. Salmond's Distinction

Every right comes to its owner through a title, the vestitive facts that create it (Note 36). When all of them have happened, the right is vested: it belongs to its owner now, completely and unconditionally, even if the day on which he may enjoy it lies in the future. When only some of them have happened, and the rest depend on an event that may or may not occur, the right is contingent. The contingent owner has a real but incomplete title; the missing piece is the uncertain event.

Two consequences follow. A contingent right is still a present right: it exists and has value today, though it may fail. And the test is certainty of vesting, not timing of enjoyment. A right to be paid on a certain future date, or on a person's death, which is certain though its date is not, is vested. A right to be paid if a person marries or passes an examination is contingent, however soon the event is expected.

2. Condition Precedent and Condition Subsequent

The distinction is best seen through the kind of condition attached. A condition precedent must be satisfied before the right vests: 'to B if he marries C'. Until B marries C his interest is contingent; if he dies unmarried, or C dies first, it fails. A condition subsequent operates on a right that has already vested: 'to B absolutely, but if he dies before attaining twenty-five the property shall pass to D'. B's interest is vested now, but it may be divested if the event happens.

The Transfer of Property Act regulates both. Section 25 makes a transfer on a condition precedent void where the condition is impossible, forbidden by law, immoral or opposed to public policy; its first illustration is a lease of a farm on condition that the lessee walk a hundred miles in an hour, which is void. Section 26 is content with substantial compliance with a condition precedent. Section 31 permits a condition that a transfer shall cease to have effect on a specified uncertain event, and its illustration is a farm transferred to B for life, with a proviso that the transfer shall cease if she cuts down a certain wood: if she cuts it, she loses her life interest. For an ulterior transfer taking effect on a condition subsequent, Section 29 requires the condition to be strictly fulfilled.

The law leans towards early vesting. The Explanation to Section 19 says that an intention that an interest shall not vest is not to be inferred merely from a postponement of enjoyment, from a prior interest given to another person, from a direction to accumulate the income until enjoyment, or from a provision that the interest shall pass to another if a particular event happens. A gift over on a condition subsequent thus leaves the first interest vested, though defeasible.

3. The Statutory Scheme: Sections 19 to 23 TPA

Section 19: vested interest

An interest is vested in three situations, unless a contrary intention appears: where no time is fixed for it to take effect, where it is to take effect forthwith, and where it is to take effect on an event which must happen, such as the death of a named person. The closing sentence gives the most examined consequence: a vested interest is not defeated by the death of the transferee before he obtains possession. If A transfers property to C, to be enjoyed after B's death, and C dies before B, C's heirs take on B's death. Being complete, it is transferable and heritable.

Section 20: the unborn transferee

Property cannot be transferred directly to a person not yet born; under Section 13 an interest for an unborn person must be preceded by a prior interest created by the same transfer and must extend to the whole of the remaining interest of the transferor. Section 20 then fixes the moment of vesting: the unborn person acquires a vested interest on his birth, unless a contrary intention appears, even though he may not be entitled to enjoy it immediately. If A transfers land to his son B for life and then absolutely to B's eldest son, the grandson's interest vests the day he is born, though he takes possession only when B dies.

Section 21: contingent interest

An interest is contingent when it is to take effect only on the happening of a specified uncertain event, or only if such an event does not happen. It becomes vested in the first case when the event happens, and in the second when the event becomes impossible. The Exception is important: where a person is to take an interest on attaining a particular age, and the transferor also gives him the income absolutely until that age, or directs it to be applied for his benefit, the interest is not contingent.

Sections 22 and 23: class gifts and failure

Under Section 22 a gift to a class on attaining an age does not vest in a member below that age. Under Section 23 an interest on an uncertain event with no time fixed fails unless the event happens before, or when, the prior interest ends. For bequests the Indian Succession Act 1925 contains a parallel scheme, Section 119 for legacies payable at a postponed date and Section 120 for contingent legacies; the TPA governs transfers inter vivos.

4. Spes Successionis: Not Even a Contingent Right

A contingent right must be distinguished from a mere expectancy. Section 6(a) TPA declares that the chance of an heir apparent succeeding to an estate, the chance of a relation obtaining a legacy on the death of a kinsman, or any other mere possibility of a like nature, cannot be transferred. A son's hope of inheriting his father's self-acquired house is such a spes successionis: the father may sell it, bequeath it, or be survived by a nearer heir. A contingent interest, by contrast, springs from a transfer already made, and only an external event stands between its holder and a vested interest. That is why a contingent interest can be transferred, while a spes cannot.

5. The Two Compared

6. Worked Examples

7. Vested Rights in the Wider Sense

Outside property law, 'vested right' means any right that has accrued under the existing law. A statute is presumed not to take away vested rights retrospectively, and Section 6 of the General Clauses Act 1897 saves any right, privilege, obligation or liability acquired, accrued or incurred under a repealed enactment, unless a different intention appears. The right of appeal is treated as a vested, substantive right that arises when the suit is filed (Garikapati Veeraya, 1957), while no one has a vested right in a particular procedure. (Note 113).

8. Evaluation

By leaning towards early vesting the law lets property be dealt with and inherited without waiting on remote events. Its weakness is that the line depends on drafting: 'to B at twenty-one' and 'to B, but if he dies under twenty-one to D' may describe much the same wish yet fall on opposite sides. That is why the Explanation to Section 19 and the Exception to Section 21 direct attention to the intention of the transferor read from the whole instrument, not to a single word.

9. Frequently Asked Questions

Q. If a vested interest can be enjoyed only in the future, how is it different from a contingent one?
A. A vested interest will certainly take effect: only the time of enjoyment is deferred. A contingent interest may never take effect, because it depends on an event that may not happen.

Q. What happens to a vested interest if the transferee dies before possession?
A. It is not defeated. Under Section 19 TPA it passes to his heirs or legal representatives, who take possession when the time for enjoyment arrives.

See also: Note 28 (legal rights and duties: kinds of rights), Note 31 (ownership), Note 36 (title), Note 90 (primary versus secondary rights), Note 113 (substantive versus procedural law), Note 132 (perfect versus imperfect rights).