Case Digest (G.R. No. L-2659)
Facts:
The case involves Mary McDonald Bachrach as the petitioner and appellee, and Sophie Seifert and Elisa Elianoff as the oppositors and appellants. The case was decided on October 12, 1950, concerning the testate estate of Emil Maurice Bachrach, who passed away leaving no forced heirs except for his widow, Mary. In his last will and testament, Bachrach bequeathed various legacies and specifically granted his wife the usufruct of the remainder of his estate after the payment of legacies. The will stated that Mary was entitled to enjoy the usufruct and use or spend the fruits as she wished. Upon her death, half of the estate was to be divided among his legal heirs, excluding his brothers.
Bachrach's estate included 103,000 shares of stock in the Atok-Big Wedge Mining Co., Inc., which declared a stock dividend of 54,000 shares, representing a 50% stock dividend on the original shares. On June 10, 1948, Mary, as the usufructuary, petitioned the lower court to authorize the tra...
Case Digest (G.R. No. L-2659)
Facts:
Testator and Will Provisions:
- Emil Maurice Bachrach, the deceased, left a will that provided his widow, Mary McDonald Bachrach, with a life usufruct over the remainder of his estate after specific legacies were paid.
- The will stated: "Sixth: It is my will and do herewith bequeath and devise to my beloved wife Mary McDonald Bachrach for life all the fruits and usufruct of the remainder of all my estate after payment of the legacies, bequests, and gifts provided for above; and she may enjoy said usufruct and use or spend such fruits as she may in any manner wish."
- Upon Mary McDonald Bachrach's death, one-half of the estate was to be divided among his legal heirs, excluding his brothers.
Stock Dividend Dispute:
- The estate owned 103,000 shares of stock in the Atok-Big Wedge Mining Co., Inc.
- The company issued a 50% stock dividend, resulting in 54,000 additional shares.
- Mary McDonald Bachrach, as the usufructuary, petitioned the court to transfer the 54,000 stock dividend shares to her, claiming they were income or fruits of the estate and thus belonged to her as the life tenant.
- Sophie Seifert and Elisa Elianoff, legal heirs of the deceased, opposed the petition, arguing that the stock dividend was part of the capital and should belong to the remaindermen.
Legal Arguments:
- Appellants (Seifert and Elianoff) relied on the Massachusetts rule, which treats stock dividends as capital, not income.
- Appellee (Mary McDonald Bachrach) relied on the Pennsylvania rule, which treats all dividends, whether cash or stock, as income if derived from earnings during the usufructuary's lifetime.
Issue:
- Whether the 54,000 stock dividend shares are considered income (fruits) belonging to the usufructuary (Mary McDonald Bachrach) or capital (corpus) belonging to the remaindermen (Seifert and Elianoff).
Ruling:
- The Supreme Court ruled in favor of Mary McDonald Bachrach, holding that the 54,000 stock dividend shares are income (civil fruits) and belong to the usufructuary. The Court affirmed the lower court's order authorizing the transfer of the stock dividend shares to her.
Ratio:
Application of the Pennsylvania Rule:
- The Court adopted the Pennsylvania rule, which treats all dividends, whether cash or stock, as income if they represent earnings made during the usufructuary's lifetime.
- The Court rejected the Massachusetts rule, which treats stock dividends as capital, as it found the Pennsylvania rule more consistent with Philippine statutory law.
Statutory Basis:
- Under Section 16 of the Corporation Law, dividends (cash or stock) must be declared from surplus profits. Thus, the stock dividend represented surplus profits, which are considered income.
- Articles 471, 474, and 475 of the Civil Code support the usufructuary's right to all civil fruits, including stock dividends, as they are deemed to accrue day by day and belong to the usufructuary.
Nature of Stock Dividends:
- The Court held that the stock dividend, being derived from profits, is equivalent to civil fruits and should be treated as income.
- The delivery of the stock dividend certificate is akin to the payment of profits, and the shares can be sold independently of the original shares, similar to how the offspring of an animal can be sold separately from its mother.
Testator's Intent:
- The Court emphasized that the testator intended for the usufructuary to enjoy all fruits of the estate, including stock dividends, as part of her life usufruct.
Conclusion:
- The Supreme Court affirmed the lower court's decision, ruling that the 54,000 stock dividend shares are income and belong to the usufructuary, Mary McDonald Bachrach. The Court applied the Pennsylvania rule and relied on the Civil Code provisions governing usufruct and civil fruits.