Friday, August 5, 2016

Transfer of property to an unborn person

Transfer of Property to an unborn child


Introduction:

Under Section 5 of the Act a transfer may be made in favor of living persons only. A transfer cannot be made directly in favor of an unborn person. But as Sections 13; 14 and 15 show, that interests in property may be created in favor of unborn persons. And this may be effected through the medium of trusts. As there can be no present transfer in favor of an unborn person and as no property can be allowed to remain in abeyance without an owner, it follows that the estate must rest in some living person or persons between the date of transfer and the time of the coming into existence of the unborn person. And when, therefore, by any transfer an interest is created for the benefit of a person not in existence at the date of the transfer, such interest must be preceded by an interest in favor of some living person or persons. But in such a case the rules embodied in Sections 13, 14, 15, 16 and 20 must be observed.
Transfer of Property to an unborn child, Transfer of property Act 1882

RELEVANT PROVISIONS:


  • Sections 13-16 and 20 T.P. Act govern the transfer in favor of an unborn person. 

  • Sections 113-116, Succession Act also enact the provisions to the same effect. 

Text of the Relevant Provisions of the Transfer of Property Act, 1882 

Section 13: Where, on a transfer of property, an interest therein is created for the benefit of a person not in existence at 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. 

Illustration:

A transfers property of which he is the owner 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 wife, and after his death for A’s second son. The interest so 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. 

Section 14: No transfer of property can operate to create an interest which is to take effect after the lifetime of one or more persons living at the date of such transfer, and the minority of some person who shall be in existence at the expiration of that period, and to whom, if he attains full age, the interest created is to belong. 

Section 15: If, on a transfer of property, an interest therein is created for the benefit of a class of persons with regard to some of whom such interest fails by reason of any of the rules contained in Sections 13 and 14, such interest fails (in regard to those persons only and not in regard to the whole class).

Section 20: Where on a transfer of property, an interest therein is created for the benefit of a person not then living, he acquires upon his birth, unless a contrary intention appear from the terms of the transfer, a rested interest although he may not be entitled to the enjoyment thereof immediately on his birth. 

ESSENTIAL CONDITIONS FOR TRANSFER TO UNBORN PERSON

In order that a transfer in favor of an unborn person may be valid, the following conditions must be fulfilled:

  • 1) An intermediate interest must be created.
  • 3) The interest created must be the whole remainder.
  • 3) The unborn person must come into existence. 
  • 4) Interest must rest in unborn person.
  • 5) Enjoyment of interest may be postponed. 
  • 6) Transfer must not be in perpetuity. 
  • 7) Transfer to class of persons does not fail wholly.
  • 8) Interest must fail if prior interest fails. 

EXPLANATION OF ESSENTIAL CONDITIONS 

(1) AN INTERMEDIATE INTEREST MUST BE CREATED

Section 13 provides that where an interest is created in favor of an unborn person, the creation of such interest must be preceded by a prior interest and that the interest created in favor of the unborn person should be the whole remainder making it impossible to confer a lesser interest on an unborn person. 
The words “subject to a prior interest” suggest that the estate must rest in some person until the unborn person comes into existence. The interest of the unborn person will, therefore, be, in every case, preceded by a prior interest. 

(2) THE INTEREST CREATED MUST BE THE WHOLE REMAINDER 

The section says that the interest created for the benefit of the unborn person shall not take effect, unless it extends to the whole of the remaining interest of the transferor in the property in other words, the section, in effect, says that the interest of the unborn person must be in the whole remainder. The transferor is not permitted to transfer any but an absolute estate, i.e. his whole and entire interest in the property in favor of unborn person, when the transfer in favor of him is to take effect after the determination of the prior interest created by the same transfer.
Illustration:
If A wants to give B a house and then to C who is unborn at the time of the gift, A must give C the whole of the remaining interest. It cannot be set out in the transfer that C shall have only a power of disposing and the possession will remain with the heirs of B or, rents and profits shall be given to somebody else.

(a)Philosophy behind:

The principle on which this section rests is that the liberty of alienation shall not be exercised to its own destruction, and that all contrivances shall be void which tend to create a perpetuity or tend to place the property for ever out of reach of the power of alienation. This principle is recognized in Section 10, providing that an absolute restraint upon alienation is void, and in Section 14 which is directed against attempts to tie up properties for an indefinite period by creation of successive life interests.
This rule is an attempt to import into and adapt for use what used before 1926 to be known in England as the “rule against double possibilities”. The principle is that a person disposing of property to another shall not fetter the free disposition of that property in the hands of more generations than one. AIR 1945 Pat 162(DB) 

(3) THE UNBORN PERSON MUST COME INTO EXISTENCE 

The unborn person must come into existence on or before the determination of the last life-estate.

(4) INTEREST MUST VEST IN UNBORN PERSON 

Section 20 declares that where interest is validly created for the benefit of an unborn person, it becomes vested in the unborn person upon his birth, unless a contrary intention appears from the terms of the transfer. A contrary intention may appear from the terms of the transfer as where the transferor states that the unborn person is to take the property on his attaining a particular age. In such cases Section 14 lays down a limit of time beyond which the vesting cannot be postponed. It enacts that ‘ho transfer can create an interest which is to take effect after a life or lives in being and the minority of an unborn person. In other words, the vesting of interest created for the benefit of an unborn person may be postponed till he attains majority but no further.

Illustration:

Where A makes a will in favor of B, and directs the executors to hand over the funds to B’s trustees, who are to create a trust so that the funds may go to the children of B and B marries after the death of A and has a daughter, and dies a short time after his birth, the daughter takes a vested interest under the will. AIR 1946 B 134

(5) ENJOYMENT OF INTEREST MAY BE POSIPONED 

The vesting of an interest does not necessarily carry with it the right to enjoy such interest immediately. Hence, an interest may rest in the unborn person as soon as he is born, although he may not be entitled to the enjoyment thereof immediately on birth

(6) TRANSFER MUST NOT BE IN PERPETUITY 

In no case can be vesting be postponed beyond a number of lives in existence and the minority of that unborn person. In other words, the transfer in favor of the unborn person (after the life time of one or more living persons at the date of transfer) cannot be deferred for a longer period than what is necessary for his attaining majority

(a) Philosophy behind:

As long ago as 1732, Jekyll, MR., said that if the rule were otherwise “the mischief that would arise to the public from estates remaining forever, or for a long time unalienable or untransferable from one hand to another, being a damp to industry, and prejudice to trade, to which may be added the inconvenience and distress that would he brought on families whose estates are so fettered. ” 

(b) Period:

The transfer itself, whether of the whole or of a limited interest, cannot be created so as to last for one or more existing lives plus 18 years (and the period of gestation in case of a possible issue).
Section 13 enacts in favour of an absolute transfer after a period and Section 14 enacts against transfers in perpetuity

(7) TRANSFER TO CLASS OF PERSONS DOES NOT FAIL WHOLLY 

If a gift is made to a class of persons, with regard to some of whom it is void under Section 13 or 14, the gift fails with regard to those persons only and not in regard to the whole class. It 15 only when a whole class is sought to be benefited, that some of the members of that class may take notwithstanding the fact that other members of the class may be incapacitated by reason of the rule of perpetuity. The section does not apply where there is no provision with regard to the benefit of a class.

(a) Philosophy behind:

The uncertainty of the share which the transferees are to take in the subject-matter of the transfer may prevent an interest from being vested In other words. Even though the donee capable of taking under the limitation are ascertainable within the perpetuity period, the gift will nevertheless be void unless the exact share and nature of the donee is also ascertainable with due limits. This is of importance in the case of class gifts.
 Illustration:
(i) A transfer to the transferor’s “son’s son" or son’s daughters or to the “widows” of X, is a transfer to a class where the number is uncertain on the date of the transfer, 22 Bom 533

(8) INTEREST MUST FAIL IF PRIOR INTEREST FAILS:

Where an interest is intended to take effect after a prior interest and the prior interest is void for any reason, the rule is that the subsequent interest also fails. The reason is that the persons entitled under the subsequent limitations are not intended to take unless and until the prior limitation is exhausted; and as the prior limitation can never come into operation as being void, much less be exhausted. It is impossible to give effect to the intentions of the settler in favor of the beneficiaries under the subsequent limitations. This section merely gives effect to this general rule. But the rule will not apply where the subsequent interest is not intended to take effect after the prior interest, but is independent thereof.

Illustration 

(i) Where S gave away property to R for life and after her death, if there be any male descendants to them absolutely. If R would have only daughters they were to have it without any power of transfer. In absence of any issue male or female property was to go to D. Gift to R’s daughter was only of limited interest and as such void under Section 13 and gift over to D, was void under this section. AIR 1934 Oudh 35.

(ii) A gives away property to B for life, and after her death if there be any male descendants, whether born of son or of daughter, to them absolutely. If B will have only daughters, they are to have no power of transfer. In the absence of any issue whether male or female, living at the time of her death, the gifted property is not in any way so devolve upon her husband or his family, but it is to go to C, the father of B, if he then be alive, and if C be not alive, then the person who may be living of the line of C at that time will get it. B has no children at the time of the gift and she dies issue less.

As the gift over in favor of sons and grandsons of B relates to absolute interest, it is valid, but the gift over to the daughters is void because the transfer in their favor relates to a limited interest. The gift in favor of C is intended to take effect after the gift in favor of the daughters. The intention of the donor being that C shall get the property only in case the gift in favor of the male descendants and the daughters of B failed, the case is covered by the words “upon failure of such prior interest" and the gift in favor of C being dependent upon the failure of the prior interest in favor of the daughters, the gift in favor of C must also fill. (1934) O 35; 9 Luck. 329 

MOHAMMEDAN LAW ON TRANSFER TO UNBORN PERSON

A property cannot be transferred to unborn person under Muslim law. But Shia law does create a vested remainder in favor of an unborn person provided life estates are created in favor of persons in existence. AIR 1947 Bom. 185.

However, the following rules must also be kept in View:

(1) NO PERPETUITY BUT WAQF

With the exception of a waqf or a charitable devise, the Mohammedan law does not favor a perpetuity. But the creation of a waqf is often resorted to for the purpose of creating perpetuity. In such cases, the so-called ‘waqf’ is only so in name, the ulterior object of the donor being unmistakably to create a perpetuity for the benefit of the donee or his descendants. It is well settled that a trust immediately vesting the property in the trustee leaving the usufruct tied up forever for the benefit of other persons, infringes the rule against perpetuity. A waqf under which the lion's share of the income of the property would be utilized for the benefit of the Waqif and his descendants from generation to generation infringes the rule against perpetuity.

(2) GIFT TO CLASS PERSONS

Where there is gift or bequest to a class of persons with regard to some of whom it fails by reason of any of the rules contained in Sec 13 and 14, such interest fails in regard to those persons only and not only in regard to the whole class.

Relevant Questions:

Can a transfer be made in favor of unborn person?
When does an unborn person acquire vested interest in a property?
No transfer can be made in favor of an unborn person, is there any exception to this rule? If s, under what conditions? 
You may also read Rights and Duties of lessor and lessee

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