Bachrach v. Seifert [G.R. No. L-2659. October 12, 1950.

]

Facts:
The deceased E. M. Bachrach, who left no forced heir except his widow Mary
McDonald Bachrach, in his last will and testament made various legacies in cash
and willed the remainder of his estate. The estate of E. M. Bachrach, as owner of
108,000 shares of stock of the Atok-Big Wedge Mining Co., Inc., received from
the latter 54,000 shares representing 50 per cent stock dividend on the said 108,000
shares. On J une 10, 1948, Mary McDonald Bachrach, as usufructuary or life tenant
of the estate, petitioned the lower court to authorize the Peoples Bank and Trust
Company, as administrator of the estate of E. M. Bachrach, to transfer to her the
said 54,000 shares of stock dividend by indorsing and delivering to her the
corresponding certificate of stock, claiming that said dividend, although paid out in
the form of stock, is fruit or income and therefore belonged to her as usufructuary
or life tenant. Sophie Siefert and Elisa Elianoff, legal heirs of the deceased,
opposed said petition on the ground that the stock dividend in question was not
income but formed part of the capital and therefore belonged not to the
usufructuary but to the remainderman. While appellants admit that a cash dividend
is an income, they contend that a stock dividend is not, but merely represents an
addition to the invested capital.
Issue:
Whether or not a dividend is an income and whether it should go to the
usufructuary.
Held:
The usufructuary shall be entitled to receive all the natural, industrial, and civil
fruits of the property in usufruct. The 108,000 shares of stock are part of the
property in usufruct. The 54,000 shares of stock dividend are civil fruits of the
original investment. They represent profits, and the delivery of the certificate of
stock covering said dividend is equivalent to the payment of said profits. Said
shares may be sold independently of the original shares, just as the offspring of a
domestic animal may be sold independently of its mother. If the dividend be in fact
a profit, although declared in stock, it should be held to be income. A dividend,
whether in the form of cash or stock, is income and, consequently, should go to the
usufructuary, taking into consideration that a stock dividend as well as a cash
dividend can be declared only out of profits of the corporation, for if it were
declared out of the capital it would be a serious violation of the law.
Under the Massachusetts rule, a stock dividend is considered part of the capital and
belongs to the remainderman; while under the Pennsylvania rule, all earnings of a
corporation, when declared as dividends in whatever form, made during the
lifetime of the usufructuary, belong to the latter. The Pennsylvania rule is more in
accord with our statutory laws than the Massachusetts rule.

USUFRUCT (ART. 562-612)

MRAM
NHA v. CA
G.R. No. 148830

DOCTRINE: A usufruct gives a right to enjoy the property of another with
the obligation of preserving its form and substance, unless the title
constituting it or the law otherwise provides.

FACTS:
By virtue of Proclamation No. 481 issued by then Pres. Marcos, a portion of
land in Quezon City owned by NHA was reserved for the site of National
Government Center (NGC).Subsequently, President Marcos issued
Proclamation No. 1670, which removed a seven-hectare portion from the
coverage of the NGC. Proclamation No. 1670 gave Manila Seedling Bank
Foundation, Inc. (MSBF) usufructuary rights over this segregated portion.

MSBF occupied the area granted by Proclamation No. 1670. However,
over the years, MSBFs occupancy exceeded the seven-hectare area
subject to its usufructuary rights; it occupied approximately 16 hectares by
1987. By then the land occupied by MSBF was bounded by Epifanio de los
Santos Avenue (EDSA) to the west, Agham Road to the east, Quezon
Avenue to the south and a creek to the north.

On 18 August 1987, MSBF leased a portion of the area it occupied to
Bulacan Garden Corporation (BGC) and other stallholders. BGC leased
the portion facing EDSA, which occupies 4,590 sq. m. of the 16-hectare
area.

On 11 November 1987, President Corazon Aquino issued Memorandum
Order No. 127 (MO 127). This revoked the reserved status of the 50
hectares, more or less, remaining out of the 120 hectares of the NHA
property reserved as site of the NGC. MO 127 also authorized the NHA to
commercialize the area and to sell it to the public.

Acting on the power granted under MO 127, the NHA gave BGC 10 days to
vacate its occupied area. Any structure left behind after the expiration of
the 10-day period will be demolished by NHA.

ISSUE:
Whether or not the premises leased by BGC from MSBF is within the 7-
hectare area that Proclamation No. 1670 granted to MSBF by way of
usufruct?

HELD:
The Court held that MSBF abused their usufruct rights. Clearly, in the
present case, Proclamation No. 1670 is the title constituting the usufruct.
Proclamation No. 1670 categorically states that the 7-hectare area shall be
determined by future survey under the administration of the Foundation
subject to private rights if there be any. MSBF, then, has the latitude to
determine the location of its 7-hectare usufruct portion within the 16-
hectare area.

Although MSBF has the discretion to determine its 7-hectare usufruct,
MSBF abused its right when it exceeded the 7-hectare portion granted to it
by Proclamation No. 1670. The Court said that a usufruct is not simply
about rights and privileges. A usufructuary has the duty to protect the
owners interests. One such duty is found in Article 601 of the Civil Code
which states:

ART. 601. The usufructuary shall be obliged to notify the owner of
any act of a third person, of which he may have knowledge, that may
be prejudicial to the rights of ownership, and he shall be liable should
he not do so, for damages, as if they had been caused through his
own fault.

A usufruct gives a right to enjoy the property of another with the obligation
of preserving its form and substance, unless the title constituting it or the
law otherwise provides.

The Court further said that at this point, the determination of the seven-
hectare portion cannot be made to rely on a choice between the NHAs and
MSBFs survey. There is a need for a new survey, one conducted jointly by
the NHA and MSBF, to remove all doubts on the exact location of the
seven-hectare area and thus avoid future controversies. This new survey
should consider existing structures of MSBF. It should as much as
possible include all of the facilities of MSBF within the seven-hectare
portion without sacrificing contiguity.

It must be noted however that based on Art. 605, MSBF has only 22 years
to exercise its usufruct since the Civil Code provides that the right can be
exercised only within 50 years.