Free Judiciary Notes · TPA Notes
TPA Section.14 Rule against perpetuity
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RULE AGAINST PERPETUITY
Perpetuity means indefinite period.
Where a property is transferred in such a way that it becomes non-transferable in future for an indefinite period, the property is tied up for ever. This disposition would be a transfer in perpetuity.
Rule against perpetuity is the rule which is against a transfer making the property inalienable for an indefinite period or forever.
The object of the rule against perpetuity is to ensure free and active circulation of property both for purposes of trade and commerce as well as for the betterment of the property itself. Frequent disposition of property is in the interest of the society and also necessary for its more beneficial enjoyment by its owners.
14. Rule against perpetuity.-
No transfer of property can operate to create an interest which is to take effect after the life-time 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 14 of the Transfer of Property Act provides that in a transfer of property, vesting of interest cannot be postponed beyond the life of last preceding interest in the living person (or persons) and the minority of the ultimate beneficiary.
The essential elements of the rule against perpetuity as given in this section may be stated as under:
1. There is a transfer of property.
2. The transfer is for the ultimate benefit of an unborn person who is given absolute interest.
3. The vesting of interest in favour of ultimate beneficiary is preceded by life or limited interests of living person (s).
4. The ultimate beneficiary must come into existence before the death of the last preceding living person.
5. Vesting of interest in favour of ultimate beneficiary may be postponed only up to the life or lives of living persons plus minority of ultimate beneficiary; but not beyond that.
Property may be transferred to any number of persons who are living at the date of transfer. In this way, vesting of interest in favour of ultimate beneficiary may be postponed for any number of years.
Thus property may be transferred to A for life then to B for life and then to C for life and so on for several years and all these persons who hold the property successively for their lives would tie up the property for many years before it goes absolutely to the ultimate beneficiary.
However, as required under Section 13, such ultimate beneficiary must be born before the termination of the last preceding interest.
Accordingly, there should not be any interval between the termination of preceding interest and its consequent vesting in the ultimate beneficiary vesting of interest cannot be postponed even for a moment.
By way of relaxing this strict rule of Section 13 it is provided in Section 14 that vesting of interest may be postponed but not beyond the life of preceding interest and the minority of the ultimate beneficiary.
In other words, Section 14 provides that vesting of interest may be postponed but not beyond a ‘certain period.’ If in a transfer of property, vesting of interest is postponed beyond this period as prescribed in this section, the transfer would be void as being a transfer for an indefinite period or a transfer in perpetuity.
Where property is made to vest within the limit prescribed in this section, the transfer is valid. Any delay beyond this period would make the transfer void.
Maximum remoteness of vesting.—
Under Section 14, the maximum permissible remoteness of vesting is the life of the last preceding interest plus minority of the ultimate beneficiary.
Ultimate beneficiary in mother’s womb.—
Where the ultimate beneficiary is in the mother’s womb i.e. it is a child en ventre sa mere, the latest period up to which vesting may be postponed, (after the preceding interest) is the minority plus the period during which the, child remains in mother’s womb.
The period during which a child remains in womb after being conceived is called gestation. In India, the maximum possible remoteness of vesting would, therefore, be as under:
Maximum permissible remoteness of vesting = life of the preceding interest + Period of gestation of ultimate beneficiary + Minority of the ultimate beneficiary.
However, in cases where gestation period is to be added, only normal period of gestation (which is about nine months or 280 days) can be allowed to be added in the period of remoteness of vesting of interest.
Illustrations
i. A transfers certain properties to X for life and then to Y for life and then to U.B., when he attains the age of majority.
X and Y are persons living at the date of the transfer and U.B. is the ultimate beneficiary not in existence even in mother’s womb.
Here, the last preceding life interest is with Y.
When Y dies the U.B. must be already in existence either
i. in mothers womb as a child of say, six months or,
ii. a born child of say, six years.
In case (i) the maximum period up to which vesting of property in U.B. can be postponed would be life of Y + six months (period of gestation) + 18 years.
In case (ii) the maximum period upto which vesting may be postponed would be life of Y + 18 years.
ii. A fund is bequeathed to A for his life and after his death to B for his life, and after B’s death to such of the Sons of B as shall first attain the age of 25 years.
A and B survive the testator.
Here, the son of B who shall first attain the age of 25 years may be a son born after the death of the testator;
such son may not attain 25 years until more than 18 years have elapsed from the death of the longer lives of A and B and the vesting of interest may thus be delayed beyond the lives of A and B and the minority of the sons of B. The bequest after B’s death is void.
Contingent interest.— Under Section 14, vesting of interest in favour of the ultimate beneficiary may be postponed up to his minority.
v In other words, the property does not vest in him until he attains the age of majority. What then is the nature of his interest during his minority?
Between the period when last person dies and the majority of the ultimate beneficiary, the ultimate beneficiary has a contingent interest which becomes vested upon his attaining majority.
Where the ultimate beneficiary is already born at the death of the last person but does not survive to attain majority e.g., dies at the age of fifteen years, the interest does not vest in him and therefore it reverts back to the transferor or his legal heir if the transferor is dead by that time.
Where at the time of transfer of property there is possibility or probability that in future it would be a transfer in perpetuity, the disposition shall be void even if at the time of actual vesting of interest there is no violation of rule against perpetuity.
Illustrations
i. A makes a gift of his properties to his daughter B for her life and then to her children when they attain the age of 21 years.
B has no children at the date of the gift.
The gift in favour of B’s children is void because the vesting in favour of B’s children has not been made within normal period of minority (18 years) but three years later.
It may be noted that the maximum period up to which vesting can be postponed after B’s death is the minority of B’s children who are the ultimate beneficiary.
Normally minority terminates at the age of 18 years and only in exceptional cases the minority extends upto 21 years.
Thus, at the date of gift the probable remoteness should have been 18 years, instead of 21 years.
When the gift was made it was probable that no guardian would be appointed by Court for the children of B. When B died, it was not certain that any of the children would actually have guardians appointed.
Accordingly, the gift in favour of B’s children is void under this section even if the guardians were actually appointed for them. After B’s death, the property would revert back to A or his legal heirs.
Exceptions to the Rule Against Perpetuity.— The rule against perpetuity is not applicable in the following cases:
1. Transfer for the benefit of public.— Where a property is transferred for the benefit of public in the advancement of religion, knowledge, commerce, health, safety or any other object beneficial to mankind, the transfer is not void under the rule against perpetuity.
2. Personal agreement.— Personal agreements which do not create any interest in property are exempted from the rule against perpetuity. Rule against perpetuity is applicable only to a transfer of property. If there is no transfer of property i.e. no transfer of interest, the rule cannot be applied. Contracts are personal agreements even though the contracts relate to rights and obligations in some property.
a. In Ram Baran v. Ram Mohit the Supreme Court has held that a mere contract for sale of an immovable property does not create any interest in immovable property and therefore, the rule cannot apply to such contracts e.g. it cannot apply to a covenant of pre-emption.
3. Rule against perpetuity is not applicable to mortgages. because in mortgage there is no creation of any future interest. The right of redemption is a present interest in property and a stipulation that it may be redeemed any time by the mortgagor, does not create any interest in future on which the rule may be applied.
Rule Against Perpetuity Under Hindu & Muslim Law.—
The Transfer of Property Act was made applicable also to Hindus by the Amending Act of 1929. Now, the provisions of this Act including Section 14 are applicable to Hindus.
Although Chapter II of the Transfer of Property Act is not applicable Muslims but a gift to remote and unborn generations was held void although a exception has been made in case of wakfs.