Condition Making Interest Determinable on Insolvency or Attempted Alienation
Introduction
Section 12 of the Transfer of Property Act, 1882 deals with conditions that attempt to end (terminate) a transfer if the transferee becomes insolvent or tries to transfer the property.
The law protects the transferee by declaring such conditions as void.
Meaning / Definition
A condition is said to make an interest determinable when it provides that the rights of the transferee will come to an end upon a specified event.
Under Section 12:
- If a condition states that the transfer will be defeated (cancelled) on:
- Insolvency of the transferee, or
- Attempt to transfer the property
Such condition is void.
The transfer itself remains valid.
Modes or Types
Condition Based on Insolvency
- Provides that if the transferee becomes insolvent (unable to pay debts), the property will revert to the transferor.
- Such condition is void.
Condition Based on Attempted Alienation
- Provides that if the transferee tries to transfer the property, his interest will end.
- Such condition is also void.
Effect of Section 12
- The condition becomes void.
- The transfer continues as if no such condition exists.
Distinction / Comparison
| Basis | Section 10 | Section 12 |
|---|---|---|
| Nature of restriction | Restricts transfer | Ends transfer on certain events |
| Validity | Absolute restraint void, partial valid | Such conditions entirely void |
| Effect | Condition ignored | Condition ignored |
| Focus | Limitation on transfer | Termination on insolvency or transfer |
Practical Example
- A transfers property to B with condition that if B becomes insolvent, property will return to A. This condition is void.
- A transfers property to B with condition that if B tries to sell it, the transfer will be cancelled. This is void.
- B continues to hold full rights despite such conditions.
Summary
- Section 12 deals with conditions defeating transfer on insolvency or alienation.
- Such conditions are void.
- Transfer remains valid despite the condition.
- Law protects free ownership and transfer of property.
- Insolvency or attempt to transfer cannot terminate ownership.