Monday, September 7, 2015

TRANSFER OF PROPERTY TO UNBORN




Generally speaking property cannot be transferred nor an interest created therein in favour of a person not in existence. However, there are certain exceptions to this general principle.  They are dealt with under Section 13, 14 and 20 of the Transfer of Property Act, 1882.

TRANSFER UNDER TRANSFER OF PROPERTY ACT, 1882
Section l3 of the Act deals with the transfer of property for the benefit of unborn persons.  According to this Section, where on a transfer of property an interest therein is created for the benefit of a person not in existence on the date of the transfer, subject to a prior interest created by the same transfer, the interest created for the benefit of such person shall not take effect, unless it extends to the whole of the remaining interest of the transferor in the property. Thus, the interest of the unborn must be for the whole remainder and it is not permissible to confer an estate for life on an unborn person.  For example, if A transfers his property to B in trust for A and his intended wife successively for their lives and after the death of the survivor, for the eldest son of the intended marriage for life and after his death, for A's second son. The interest created for the benefit of the eldest son does not take effect because it does not extend to the whole of A's remaining interest in the property.  

Further, the intended transfer in favour of A's first and the second son is opposed to public policy since it could prejudice the other relations. To make a transfer in favour of unborn persons valid, the prior interest created by the transfer should not be contingent but vested interest. In the instant case, the possibility of A getting male children could be a remote possibility and can only  be termed as a contingency.

Take another example, under a deed of settlement if an interest is created in favour of the children of a person and the interest to them would take effect on the death of that person, then till the death of that person the interest of the children would be contingent. 

To make transfer of property favoring unborn persons to be valid, there has to be a prior interest created by the very transfer. It may be noted that a vested interest does not imply immediate enjoyment. It is not permissible under law to change the rule of succession under the colour of fictitious endowment. Further, a life-interest-holder cannot defeat the interests of the unborn person by transferring the life interest to a third person. Once a gift to an unborn person is found to be valid under Section 13 of the Transfer of Property Act, it is not permissible to defeat such interest and the unborn person acquires a vested interest on his birth. Similarly, prior disposition or transfer would not be affected if a condition subsequent becomes inoperative.  

Section l4 of the Transfer of Property Act is also relevant and it deals with the rule against perpetuity. While under Section l3 of the Act, the transferor is not permitted to transfer anything less than his whole or entire interest in the property in favour of unborn persons with prior interest created in the same transfer, the rule against perpetuity [Sec.14] prohibits the creation of certain remote interest in the immovable property so as to last for one or more existing lives plus l8 years. However, the stipulation relating to renewal of lease is not regarded as transferring any right in the property and hence is not hit by sec.l4. Similarly, a contract for sale does not create any interest in favour of the prospective purchaser and does not come within the purview of sec.l4 while a covenant for resale or for redemption of a mortgage stands on a different footing.

The object of rule of perpetuity is to restrain creation of a future conditional interest in the property. The rule of perpetuity is concerned only with the rights of property and does not affect making of contracts which do not create rights of property.  A mere contract for sale of immovable property does not create any interest in the immovable property and therefore the rule of perpetuity cannot be applied. 

If a contract does not create any interest in favour of an individual or any party, such a contract does not come within the purview of sec.l4.  For application of sec.l4, there should be a transfer of interest in the immovable property. Section 20 of the Transfer of Property Act  stipulates that where on a transfer of property, an interest is created for the benefit of a person not  living then, he acquires upon his birth, unless a contrary intention appears  from the terms of the transfer, although he may not be entitled to the enjoyment thereof immediately on his birth.
      
TRANSFER UNDER THE INDIAN SUCCESSION ACT, 1925

The principle of Section 13 is akin to Section 113 of the Indian Succession Act.  Section 113 of the Indian Succession Act deals with transfer in favour of unborn persons which provides that where a bequest is made to a person not in existence at the time of the testator's death, subject to prior bequest contained in the will, the later bequest shall be void, unless it comprises the whole of the remaining interest of the testator in the thing bequeathed. 

For example, a property is bequeathed to A for his life and after his death to his eldest son for life and after the death of the latter to his eldest son. At the time of the testator's death, A has no son. Here, bequest to A's eldest son is a bequest to a person not in existence at the testator's death. It is not a bequest of the whole interest that remains to the testator. The bequest to A's eldest son for his life is void.

If the beneficiary is not in existence at the time of the testator's death, the bequest is void under sec.113.  Similarly, Section 113 does not concern itself with any possible diminution of the extent of the property by addition to the class for whose benefit the bequest is made. The vesting of property is not affected by postponement of possession.  In the case of a bequest made for the benefit of an unborn person the amount is not payable until the birth of the person and the intermediate income would then accumulate for his benefit.  

Creation of successive life estates in favour of persons not in existence is not permissible in law and the life estate so created in favour of persons in existence and those not in existences would take effect with reference to those in existence at the time of the death of the testator and would become invalid as to the rest.

BEQUEST TO UNBORN PERSON UNDER MOHAMMEDAN LAW:

Section 120 of the Shariat Act provides that a bequest to a person not yet in existence on the testator's death is void, but a bequest may be made to a child in the womb, provided it is born within six months from the date of the Will.

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