aBachrach v.

Seifeort and Elianoff

G.R. No. L-2659, October 12, 1950, 87 Phil. 483
Ozaeta, J .

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 June
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 Seifert 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: Yes. 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.




Bachrach Motor Co., Inc. v. Talisay Silay Milling Co.
G.R. No. 35223, September 17, 1931, 56 Phil. 117
Romualdez, J .

FACTS: On December 22, 1923, the Talisay-Silay Milling Co., Inc., was indebted to the
Philippine National Bank. To secure the payment of its debt, it succeeded in inducing its
planters, among whom, was Mariano Lacson Ledesma, to mortgage their land to the
creditor bank. And in order to compensate those planters for the risk they were running
with their property under the mortgage, the aforesaid central, by a resolution passed on
that same date, i.e., December 22, 1923, undertook to credit the owners of the
plantation thus mortgaged every year with a sum equal to two per centum of the debt
secured according to yearly balance, the payment of the bonus being made at once, or
in part from time to time, as soon as the central became free of its obligations to the
aforesaid bank, and of those contracted by virtue of the contract of supervision, and had
funds which might be so used, or as soon as it obtained from said bank authority to
make such payment.

Bachrach Motor Co., Inc. filed a complaint against the Talisay-Silay Milling Co., Inc., for
the delivery of the amount P13,850 or promissory notes or other instruments or credit
for that sum payable on June 30, 1930, as bonus in favor of Mariano Lacson Ledesma.

The Philippine National Bank filed a third party claim alleging a preferential right to
receive any amount which Mariano Lacson Ledesma might be entitled to from the
Talisay-Silay Milling Co. as bonus, because that would be civil fruits of the land
mortgaged to said bank by said debtor for the benefit of the central referred to, and by
virtue of a deed of assignment, and praying that said central be ordered to delivered
directly to the intervening bank said sum on account of the latter's credit against the
aforesaid Mariano Lacson Ledesma.

ISSUE: Whether or not the bonus in question is civil fruits

HELD: No. The said bonus bears no immediate, but only a remote accidental relation to
the land mentioned, having been granted as compensation for the risk of having
subjected one's land to a lien in favor of the bank, for the benefit of the entity granting
said bonus. If this bonus be income or civil fruits of anything, it is income arising from
said risk, or, if one chooses, from Mariano Lacson Ledesma's generosity in facing the
danger for the protection of the central, but certainly it is not civil fruits or income from
the mortgaged property. Hence, the amount of the bonus, according to the resolution of
the central granting it, is not based upon the value, importance or any other
circumstance of the mortgaged property, but upon the total value of the debt thereby
secured, according to the annual balance, which is something quite distinct from and
independent of the property referred to.