THE RULE AGAINST PERPETUITIES AND THE NEED FOR REFORM
INTRODUCTION The rules of law affecting perpetuities are based upon considerations of public policy. Although the principle of private ownership requires that an owner of property is to have power to dispose as he thinks fit, either during life or on death, of his whole interest in the property he owns, public policy requires that the power should not be abused. Accordingly from early times, the law has discouraged dispositions of property, which either impose restrictions on future alienations of that property, or fetter to an unreasonable extent its future devolution or enjoyment.
1
The rule against perpetuity has been dealt with in the Section 14
2
of the Transfer of
Property Act, 1882 (henceforth re ferred to as ―the Act‖). Act‖). Sections 10 to 17 of the Transfer of Property Act have been enacted to encourage free alienation and circulation 3
of property. The object of the rule against perpetuity as embodied in the Section 14 is to restrain the creation of future conditional interest in the property. It concerns rights of property only and does not concern the making of contracts which do not create the rights of property. It does not therefore apply to personal contracts which in effect do not create 4
interest in any property. An ordinary contract for purchase entered into after the Transfer of Property does not by itself create any interest in land but the obligation can be enforced against a subsequent gratuitous transferee from the vendor of a transferee of value but with notice. The rule against perpetuity has no application to contracts which create no interest in land.
5
The provision of Section 14 shall not apply to any case
This Article has been written by Punarva Gera, Semester V of Hidayatullah National Law University, Raipur, C.G.(INDIA). 1 Refer Halsbury‘s Laws of England, 4 th Edition(Reissue), vol. 35, p. 605. 2 Section 14 of the Act states: ―No transfer of Property can operate to cr eate cr eate 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 created created is to belong.‖ 3 Vencatachellum v. Kabalamurthy AIR 1955 Mad 350(358); K. Muniswamy v. K. Venkataswamy AIR 2001 Kant 246 (248). 4 South Eastern Railway Co. v. Associated Portland Cement Manufactures Ltd., (1910) I Ch. 12. 5 Jagar nath v. Chhedi Dhobi AIR 1973 All 307(309).
wherein there is no transfer of property as is very clear from the language of the section itself. The rule against perpetuity would come into operation where the transfer of property creates an interest, which is to take effect after the lifetime of one or more persons living at the date of the transfer.
6
From times immemorial, the owner of the property has a vested right in him to deal with it in accordance with his discretion. The right of disposition or alienation, which is coexistent with a right of ownership, is so absolute that it is easy to comprehend the potential force of that right. But equally salient and time honoured is the well-known rule against perpetuity which is based on public policy which necessarily had to make certain dents on the exercise of such absolute power in case it is sought to be abused.
7
GENESIS OF THE RULE AND ITS GROWTH The Rule against Perpetuity has its roots in early English common law, in a 1682 opinion crafted by Lord Nottingham — The Duke of Norfolk’s Case.
8
Most empires, as history
readers know, have a way of putting up a strong front for a considerable time after decay has set in. This observation conveniently fits the empire called the Rule against Perpetuities. The Rule began three centuries ago by laying claim to a vague, undefined territory. "Where will you stop?" asked Lord Nottingham of himself in the Duke of Norfolk's Case. "I will tell you where I will stop: I will stop where-ever any visible Inconvenience doth appear..," he replied. The Rule then grew in a manner typical of the common law, by judges finding inconvenience here and no inconvenience there, invoking for support, often imprecisely, a host of policies, taboos, and doctrines.
9
In this case,
Henry Frederick Howard, a member of one of the most prominent families in England and Earl of Arundel and Surrey, was faced with trying to figure out how to provide for his youngest son. 6
10
The problem stemmed from the fact that Mr. Howard‘s eldest son,
Kannamal v. Rajeswar AIR 2004 NOC 8. M. Kesava Grounder v. D.C. Rajan AIR 1976 Mad 102(109). 8 The Duke of Norfolk’s Case, 3 Ch. Cas. 1, 22 Eng. Rep. 931 (1682); see also Haskins, supra note 1, at 20 (noting that The Duke of Norfolk’s Case is famous for first announcing the elements of the Rule Against Perpetuity). Note, however, that an attempt had been made earlier to restrict the creation of certain executory interests in Child v. Baylie. 9 Lynn, Robert J., ―PERPETUITIES: THE NEW EMPIRE‖, the Modern Rule Against Perpetuities.77 Yale L.J. 159. 10 Haskins, supra note 1, at 19. 7
Thomas, was insane.
11
Under English law, however, his eldest son was entitled to
succeed to his wealth, which consisted basically of real property. Mr. Howard, through his attorney, Sir Orlando Bridgman, attempted to devise a way in which he could provide for his youngest son at the expense of his eldest son. The two chose to accomplish this through the use of a trust instrument, which ―became the basis for the celebrated legal battle between‖ the two sons. The issue in The Duke of Norfolk’s Case was deceivingly simple: Which of the two brothers was entitled to the property in question? The case, however, became infamous as the first to provide a foundation for the common law Rule against Perpetuity.
12
The origin and the growth of the rule of law against perpetuities based as it is upon public 13
14
policy, is described in Cadell v. Palmer and Thelluson v. Woodford . According to the rule every estate or interest must vest, if at all, not later than 21 years after the determination of some life in being at the time of the creation of such estate or interest and not only must the person to take be ascertained but the amount of his interest must be ascertained within the prescribed period.
15
―Perpetuity‖, in the primary sense of the word, is a disposition which makes the property inalienable for an indefinite period.
16
In this sense it is concerned with certain interests
created in proesenti which are sought to be made inalienable for an indefinite period. In its modern sense it is concerned with interest created in futuro and not with interest created in presenti. This legal word or term of an art, is limiting an estate either of inheritance or for years, in such manner as would render it inalienable longer than for a life or lives in being at the same time and some short or reasonable time thereafter. The 21 years are allowed because the law considers that time reasonable.
11
See id . See id . 13 (1883)1 Cl. & Fin. 372: 6 ER 956. 14 (1805) 11 Ves. 112:32 ER 1030. 15 Re Thompson, Thompson v. Thompson, (1906) 2 Ch 199. th 16 Jarman on Wills, 8 Edition, Vol. I, p.284;Bharuka, G.C., “MULLA THE TRANSFER OF PROPERTY ACT th 1882”, (10 edition, LexisNexis Butterworths), p.167. 12
After property in future estates begun to be recognized, and the limitations of estates in remainder to the unborn children, as well as the creation of future estates by way of shifting use and executory devise began to be permitted, it was felt that, unless some rules restraining the creation of such estates were devised, property may, by a single transfer be tied up in perpetuity.
17
Basically, the law does not recognize dispositions which would practically make the property inalienable forever.
18
This is the rule against perpetuities. It started with limiting alienations to a life or lives in being,
and
later
stretched
to
include
the
period
of
gestation.
Further,
in
19
Stephens v. Stephens , the court extended it still further to 21 years, saying that this
would not create ―perpetuity‖. The traditional common law Rule against Perpetuities limiting the time period within which contingent interests must vest is currently in effect either by statute or by judicial adoption in only a few states. Some of those states have a general constitutional prohibition against perpetuities.
20
The large majority of states, however, have either
abolished the rule, thus permitting perpetual trusts, or modified it, for example, by adopting a wait-and-see rule, or by giving the courts a cy pres power to reform the offending language, or by imposing an absolute limit on the number of years by which time an interest must vest, or by excepting trusts where the trustee has the power of sale.
21
Rule against perpetuity in its primary sense:
Examples of such rules interest in proesenti which have been held void under the name of 22
perpetuity or as tending to perpetuity are classified as follows :
17
Dr. Gour, Hari Singh, ―DR. H.S. GOUR‘S COMMENTARY ON THE TRANSFER OF PROPERTY ACT‖,(11th Edition,2008, Vol. I, Delhi Law House), p.237. 18 Sorabjee, Soli J, ―DARASHAW J. VAKIL‘S COMMENTARIES ON THE TRANSFER OF PROPERTY ACT‖ (2nd Edition, 2004, Wadhwa Nagpur),p. 242. 19 (1736)Cas. Temp. Talb. 228: 25 ER 751. 20 Dukeminier Jesse, ―A MODERN GUIDE TO PERPETUITIES‖, 74 Cal. L. Rev. 1867 (1968). 21 Leach, W. Barton, ―PERPETUITIES IN A NUTSHELL‖, 51 Harv. L. Rev. 638 (1938). 22 Bharuka, G.C.,“MULLA THE TRANSFER OF PROPERTY ACT 1882”, (10th edition, LexisNexis Butterworths), p.168.
1. Estates and interests limited in proesenti with an unauthorized mode of devolution, for example an estate of inheritance, not known to the common law; an unbarrable entail; an estate in which successive heirs take life estates only; the attempted entail of a chattel made prior to 1926. 2. Interest held on perpetual non-charitable trust, where no person or persons, can take any benefit, example trusts to keep in repair a tom not part of the fabric of a church. 3. Gifts to trustees for non charitable indefinite objects or for non charitable unincorporated institutions or societies which may last for an indefinite time. As regards the first class, it will suffice to say that even under the Hindu Law no estate can be created which is unknown to Hindu Law. The principle on which the second class 23
is put has been applied in India in Administrator General v. Hushes . The cases from the third class require consideration. An Indian Case on the point is found in MAE Halfhyde 24
v. CA Saldanha .The life estate so created in favour of the wife does not offend the rule
of perpetuity as incorporated in Section 14.
Modern Rule against perpetuity:
The modern rue against perpetuities is thus enunciated by Jarman:
25
“Subject to the exceptions to be presently mentio ned, no contingent or executory interest in property can be validly created, unless it must necessarily vest within 26
the ma ximum period of one or more lives in being and 21 years afterwards.”*
So long as the transferees are living persons, any number of successive estates can be created. However, if the ultimate beneficiary is someone not in existence at the date of the transfer, section 13 requires that the whole residue of the estate shall be transferred to him. If he is born before the termination of the last prior estate, he takes a vested interest at birth and possession immediately on the last prior interest.
23
(1913) ILR 40 Cal. 192, 21 IC 183 . (1944)49 Cal WN 145. th 25 Jarman on Wills, 8 Edition,vol.I., p.304, Supra note 11. 26 * The exceptions shall be dealt in detail later. 24
The rule against perpetuities however does not require that the vesting shall take place at the birth of the ultimate beneficiary. What it does require is that the vesting cannot be delayed in any case beyond his minority. The result of the rule against perpetuity is that the minority of the ultimate beneficiary is the latest period at which an estate can be made to vest.
Justification of the rule:
The most convincing modern explanation of the functions of the Rule against perpetuities is the so-called Dead Hand Rationale.
27
According to this doctrine, the Rule is necessary
in order to strike a balance between on the one hand the freedom of the present generation and, on the other, that of future generations to deal as they wish with the property in which they have interests. If a settler or testator had total liberty to dispose of his property among future beneficiaries, the recipients, being fettered by his wishes, would never enjoy that same freedom in their turn. The liberty to make fresh rearrangements of assets is necessary not only in order to be rid of irksome conditions attached by earlier donors to the enjoyment of income but also in order to be able to maneuver in the light of new tax laws, changes in the nature of the property and in the personal circumstances of the beneficiaries, unforeseeable by the best intentioned and most perspicacious of donors.
28
SCOPE AND APPLICABILITY OF THE RULE The Section is a branch of law of property and not of the law of contract. The opening words of section 14 of the Act prohibit the creation of an interest which is to take effect after the lifetime of one or more persons living at the date of such transfer. If a contract
27
Refer The law commission (Item 7 of the sixth programme of law reform: the law of trusts),The rules against perpetuities and excessive accumulations. 28 Ruth Deech, ―Lives in Being Revived‖ (1981) 97 LQR 593, 594 (footnote in the original text omitted). The great advocate of the ―dead hand‖ rationale for the rule against perpetuities was Lewis M Simes: see his Public Policy and the Dead Hand (1955), pp 58 - 63. He went further than the view, expressed above, that the function of the rule was to maintain a balance between the living and the dead. He considered that it was desirable per se that wealth should be controlled by the living and not the dead. The thinking behind this was, of course, that the dead could not respond to changes in circumstances as they arose.This view has not escaped criticism, however.
does not create any interest in favour of an individual or any party, such a contract does not come within the purview of Section 14. Ordinarily a contract for sale does not create any interest in favour of the prospective purchaser. Any contract thereof which embodies a right of pre-emption, is nothing more than a contingent contract for sale which becomes enforceable when the party to the contract intends to dispose of certain property. It does not create any estate in favour of the party to whom the property is to be offered for sale in future. Such a contract thus does not come within the purview of Section 14 of 29
the Act. Like mentioned earlier, section 14 comes into play only when Section 14 can come into play only if there has been a transfer of interest in the property. The creation of a charge is not a transfer of interest in the property.
30
31
In Raja Rajeswara Dorai v. Sundara Pondiyasami Tevar , it was held that the creation of an annuity in perpetuity with a charge on property would not offend Section 14 of the Transfer of Property Act. There the suit was to enforce a covenant to pay an annuity in perpetuity as the charge on property. Their lordships held that since there was no transfer of interest in any immovable property Section 14 of the act would not be applicable. 32
In Bhupati Bhusha Trivedi v. Birendra Moahn Singh Chauthari
it was held:
―The test to determine whether the rule against perpetuity as embodied in the Section 14 applies or not is whether the covenant creates or seeks to transfer an interest in land. That the rule applies to his right to property or any future limitation of such right and where, as in the present case, the covenant does not seek to create or limit any such right,
the rule has no application”. 33
To the same effect is the decision in Matlub Hasan v. Mst. Kalawati .In the case of an agreement for sale entered into prior to the passing of the Act, it was the accepted doctrine in India that the agreement created an interest in the land itself in the favour of 29
Mahmud Ali Majumdar v. Brikodar Nath, AIR 1960 Assam 178. Kurunjilikattil Appu alias Raman v. Mary, AIR 1965 Ker 27. 31 49 I.C. 704 32 ILR (1948) 1 Cal 492 33 AIR 1958 MP 246 30
the purchaser, and following this doctrine the view was that a covenant for pre-emption, contained in a deed of partition which was unlimited in point of time, was not enforceable in law.
34
But there has been a change in this proposition and the current proposition is:
35
1. A contract for sale does not create any interest in the land but is annexed to the ownership of the land. 2. The obligation can be enforced against a gratuitous transferee from the vendor aor a transferee from value with notice. An agreement to sell immovable property does not itself create any interest in or charge on such property. Therefore a bare agreement to sell immovable property in future on demand by a party to the agreement would not infringe the rule against perpetuities.
36
37 In Ram Newaz v. Nankoo it was held by the Court that the transfer of two bighas of land
to a person was void under Section 14.
EXCEPTIONS TO THE RULE This rule has no application: 38
i. To personal contracts , although there is some connection with a reference to the land.
39
ii. To a revocable license to enter and build up windows in default of the owner of the building doing so,
40
for it does not give the adjoining owner any interest in
land. If it did, such an interest would be void for perpetuity. iii. To covenants which run with the land because they are so annexed to the land as to create something in the nature of an interest in the land.
34
41
Allibhai Mahomed v. Dada Alli, AIR 1931 Bom 578. Ram Baran v. Ram Mohit, AIR 1967 SC 744. 36 R.S.Ghadge v. L.S. Ghadge, AIR 1960 Bom 105. 37 AIR 1986 All 283. 38 Mackenzie v. Himalaya Assurance Co. Ltd. AIR 1926 Cal 745. 39 South Eastern Rly. Co. v. Associated Portland Cement Manufacturers. ( 1990)I Ch 12. 40 Smith v. Colbourne (1914) 2 Ch. 533. 35
iv. To transfer for benefit for public.
42
v. To a covenant giving a mortgage a right of pre-emption.
43
vi. To equity of redemption which is a present interest in a property in exercise of which the property is sought to be redeemed.
44
vii. To a restrictive covenant or contract not being a limitation of property. viii. To general powers.
45
46
ix. To an agreement to sell or to recover a land.
47
x. To an easement acquired by the virtue of a local custom known as customary easement.
48
ENGLISH LAW AND INDIAN LAW COMPARED The following points of distinction may be noted between the Indian and the English 49
rules of perpetuity : a) The perpetuity period is different. Under the English law, the perpetuity period is a life or any number of lives when the instrument under which the interest arises takes effect, plus a term of 21years. Under the Indian law it is the life or lives in being at the time of the grant plus the period of minority of the beneficiary taking under the grant
41
Muller v. Trafford. (1901)1 Ch 54. Section 18 of the Act states: ―Transfer in perpetuity for benefit of public : The restrictions in sections 14, 16 and 17 shall not apply in the case of a transfer of property for the benefit of the public in the advancement of religion, knowledge, commerce, health, safety or any other object be neficial to mankind.‖ 43 Haris Paik v. Jahuruddi Gazi (1897)2 CWN 575. 44 Padmanappa v. Sitarama Ayyar, AIR 1928 Mad 28. 45 Mackenzie v. Childers. (1889) 43 Ch. D. 265 46 In Re Fane, Fane v. Fane (1913)I Ch. 54. 47 Supra Note 30. 48 Section 18 of the Easements Act states : An easement may be acquired in virtue of a local custom. Such easements are called customary easements. 49 See, Sarathi, Vepa P., ―G.C.V. SUBBARAO ‘S LAW OF TRANSFER OF PROPERTY‖, (4th Edition, 2004, Alt Publication), p.457. 42
b) Under the English rule the additional period of 21 years allowed after lives in being is a term in gross without reference to the infancy of the person. Under the Indian statutes the term is the period of the minority of the person to whom if he attains full age the interest created is so to belong. c) The period of gestation, where it actually exists may be added to the perpetuity period as above defined. In English law it admits of addition at both ends of the perpetuity period. But Indian law it may be added only at its commencement. d) The Law of Property Act, 1925, by Section 163 has validated certain remote gifts by allowing the substitution of the age of 21 years when the gift is to fail for remoteness on the ground that the ascertainment of the beneficiary or the class of the beneficiary is made to depend on the attainment by the beneficiary or members of the class of an age exceeding 21 years. There is no corresponding provision under the Indian law.
THE NEED FOR REFORM AND RECOMMENDED SUGGESTIONS During the last forty years or so, the rule against perpetuity has come under fire in many parts of the world. While the Rule expresses a perfectly reasonable policy – a fair balance between the desire of members of the present generation, and a similar desires of succeeding generations to do what they wish with the property which they enjoy
50
- yet it
has inevitably become ‗encrusted with barnacles‘. The causes of dissatisfaction with the rule are mainly two: The requirement of absolute certainty that the interest will vest within the perpetuity period, and its consequent invalidity if any possible combination of events, however, improbable or fantastic, could it to vest outside the perpetuity period. And Secondly, The harsh consequences of violating the rule, whereby, the interest fails to vest completely instead of being cut down to size. There is widespread agreement that some form of reform is required. To illustrate the 51
point, a look at the case of Soundarjan v. Natarajan
would be useful. This case
illustrates the anomaly resulting from the fact that a slight excess over the legally
50 51
Simos, PUBLIC POLICY AND THE DEAD HANDS, 1955, p. 58 AIR 1925 PC 244.
permissible age may defeat the transfer. That case was no doubt a case relating to succession of death, but the position would be the same in respect of transfer during a person's lifetime. In this case, an estate was given to the testator's daughters for their lives with the remainder for the children on attaining the age of 21 years. The age of majority in India is 18 years, unless guardians are appointed or a Court of Wards takes charge. It was held that, as at the testator's death, it could not be certain that in the case of every child a guardian would necessarily be appointed so as to postpone the minority of the child to 21 years, there was a possibility that the bequest would be held beyond the lifetime of the daughters and the minority of some of the children of the daughters. Hence, by virtue of the operation of Section 102, Indian Succession Act, closely corresponding to its Section 114 and also by Section 14 Transfer of Property Act, 1882 the transfer was illegal and void. The Law Commission of India in its Seventieth Report has advocated that the reforms in India should be mainly spearheading in two directions: (i) Regard be had to actual events (ii) Mischief arising from conditions as to age should be remedied.
In Applying Section 14, to an interest in property-limited to take effect at or after the termination of one or more life interests of persons in being when the period mentioned in Section 14 commences to run or on or after the termination of lives of persons inbeing when such period commences to run the validity of the interest shall be determined on the basis of the facts existing at the termination of such one or more life estates or lives. It may be added that for the purposes of this proposition, an interest which must not terminate later than the death of one or more persons is a life interest, even though it may terminate at an earlier time. If such a provision is enacted, the Court will determine the validity of the gift by examining the actual facts as they appear at the end of the life interest.
52
If an interest in property is void under S.14, because it is contingent upon any
person attaining or failing to attain the age in excess of majority, the contingency shall be reduced to the age of majority as regards all persons subject to the same age contingency. The above two propositions shall not be constructed as invalidating or modifying the 52
P.B.Gajendrakar. Law Commission of India. 70thReport, August 1977 at 170.
term of any limitation which would have been under S.14 apart from these provisions. The above three propositions shall apply to transfer taking effect on or after the date on which those propositions become operative and to appointments made after that date in exercise of a power of appointment, including appointments made by an instrument under a power created before that date.
53
It seems apt to conclude that the rule against perpetuities were formulated in certain socio-economic conditions, which are valid today as well as and as relevant as they were at the beginning of the laissez faire economy, yet the era of the welfare economy had dawned and the rule against perpetuities needs to be for reform to be re-examined and mould afresh to suit newer and changed conditions. There is a need for reform to be built on the modern rule itself, but equipped to overcome its deficiencies.
53
Id.
