RULE AGAINST PERPETUITY

Perpetuity means indefinite period. Rule against perpetuity is the rule which is against a transfer making the property inalienable for an indefinite period or forever. 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 forever. This disposition would be a transfer in perpetuity. In any disposition, perpetuity arise in two ways:

  1. by taking away from the transferee his power of alienation and,
  2. by creating future remote interest.

Section 14 of Transfer of Property Act, 1882 dealt with rule of perpetuity which states, “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.”

ESSENTIAL ELEMENTS OF SECTION 14

The essential elements of the rule against perpetuity as given in this section may be stated as under:

  1. There is transfer of property.
  2. The transfer is for the ultimate benefit of an unborn person who is given absolute right.
  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.

OBJECT OF RULE AGAINST PERPETUITY

The object of rule against perpetuity is to ensure free and active circulation of property both for purpose of trade and commerce as well as for the betterment of the property itself. Frequent disposition of the property is in the interest of the society and also necessary for its more beneficial enjoyment. A transfer which renders property inalienable for an indefinite period is detrimental to the interests of its owners who are unable to dispose it of even in urgent needs or for any higher value. It also a loss to society because when property is tied up from one generation to another in one family, the society as such would be deprived of any benefit out of it. Free and frequent disposal ensures wholesome circulation of property in society. Rule against perpetuity is, therefore, based on broad principles of public policy.

ELUCIDATION

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 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 a 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. Accordingly, where the property is transferred of A for life and then to unborn when he attains the age of 19 years, the transfer of unborn is void under Section 14.

MAXIMUM REMOTENESS OF VESTING

Under Section 14, maximum permissible remoteness of vesting is the life of the last preceding interest plus minority of the ultimate beneficiary. Accordingly property may be transferred to A for life and then to B for life and then to the unborn when he attains the age of majority. A and B hold property successively for their life, therefore, the property is tied up for their lives one after the other. After the death of B (the last preceding interest) although it should vest in the ultimate beneficiary unborn immediately but, under this section the property may be allowed to vest in the unborn when he attains the age of majority.

ULTIMATE BENEFICIARY IN MOTHER’S WOMB

When the ultimate beneficiary is in the mother’s womb i.e. it is a child en ventre sa mere, the latest period upto 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.

EXCEPTIONS TO THE RULE AGAINST PERPETUITY

  1. Vested interest are not affected by the rule, for when an interest has once existed, it cannot be bad for remoteness.
  2. Gifts to charity do not fall within the rule, thus, in case of a transfer for the benefit of the public in advancement of religion, knowledge, health, commerce etc., the rule does not apply (Section 18)
  3. Property settled upon individuals for memorable public services may be extended from the operation of this rule.
  4. The rule against perpetuity applies when interest in property is created and has no application to personal contracts. A contract of sale of property does not of itself create any interest in such property.(Section 54)
  5. The rule also does not apply to contracts for perpetual renwal of leases
  6. The rule also does not apply where only a charge is created, which does not amount to a transfer of any interest e.g. when property is made merely security for payment of money.
  7. A covenant of redemption in a mortgage does not offend the rule.
  8. Covenants for pre-emption in respect of land, unrestricted in point of time do not offend the rule against perpetuity.