G.R. No. L-2659; October 12, 1950
In the matter of the testate estate of Emil Maurice Bachrach, deceased. MARY McDONALD BACHRACH, petitioner-appellee, vs. SOPHIE SEIFERT and ELISA ELIANOFF, oppositors-appellants.

FACTS

Emil Maurice Bachrach died, leaving a will that gave his widow, Mary McDonald Bachrach, a usufruct (life estate) over the remainder of his estate after specific legacies, with the naked ownership going to his legal heirs upon her death. Part of the estate consisted of 108,000 shares of stock in Atok-Big Wedge Mining Co., Inc. The corporation declared a 50% stock dividend, issuing 54,000 additional shares to the estate. The usufructuary, Mary McDonald Bachrach, petitioned the court to have these stock dividend shares delivered to her as income, arguing they constituted civil fruits of the usufruct. The legal heirs (remaindermen) opposed, contending the stock dividend was an addition to the capital of the estate and thus part of the corpus.

ISSUE

Whether a stock dividend, declared from corporate surplus profits, constitutes income (civil fruits) belonging to the usufructuary, or capital (corpus) belonging to the remainderman.

RULING

The Supreme Court ruled in favor of the usufructuary, Mary McDonald Bachrach. It adopted the “Pennsylvania rule” over the “Massachusetts rule.” Under the Pennsylvania rule, all dividends declared from earnings during the usufructuary’s lifetime, whether in cash or stock, are considered income. The Court held that, pursuant to the Corporation Law and the Civil Code, a stock dividend declared from surplus profits represents civil fruits (fructos civiles) of the investment. Since the usufructuary is entitled to all fruits under Articles 471, 474, and 475 of the Civil Code, the stock dividend belongs to her. The order directing delivery of the stock dividend certificates to the usufructuary was affirmed.

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