Orozco v. Araneta
REITERATIONFacts
The Antecedents: Eugenio del Saz Orozco died on February 7, 1922, leaving a will executed on March 5, 1921, which was admitted to probate. The will provided that certain properties, including 5,714 shares of stock of the Benguet Consolidated Mining Company, were to be given in life usufruct to his son, Jacinto del Saz Orozco y Mortera, with the obligation to preserve them for the other heirs who were declared the naked owners. Pursuant to the will and project of partition, the plaintiff received his usufructuary rights over these shares. On September 11, 1934, the Benguet Consolidated Mining Company declared stock dividends, and the plaintiff received 11,428 shares. On November 17, 1939, the company again declared stock dividends, and the plaintiff received an additional 17,142 shares, totaling 28,570 shares. Procedural History: The core issue presented to the court was whether the stock dividends received by the plaintiff constituted part of the capital to be preserved for the naked owners or income/fruits belonging to the usufructuary. The court referred to the case of In re Testate Estate of Emil Maurice Bachrach, G.R. No. L-2659, promulgated on October 12, 1950, which addressed a similar question regarding stock dividends. The Petition: The plaintiffs-appellants sought a declaration that the stock dividends belonged exclusively to the usufructuary, Jacinto del Saz Orozco y Mortera.
Issue(s)
Whether stock dividends declared out of surplus profits constitute income belonging to the usufructuary or capital belonging to the naked owners. Whether the doctrine established in In re Testate Estate of Emil Maurice Bachrach should be applied to the present case. Whether the alleged receipt of P3,428.40 by the plaintiff from the Benguet Consolidated Mining Company due to a capital reduction warrants its delivery to the defendants.
Ruling
The judgment appealed from is reversed. It is declared that the stock dividends amounting to 28,570 shares belong to the plaintiff-appellant Jacinto del Saz Orozco y Mortera exclusively and in absolute ownership.
Ratio Decidendi
On the nature of stock dividends: The Court reiterated the doctrine established in In re Testate Estate of Emil Maurice Bachrach that a dividend, whether in the form of cash or stock, is considered income. This is because stock dividends can only be declared out of the profits of a corporation; declaring them out of capital would constitute a serious violation of the law. Therefore, stock dividends, being derived from profits, rightfully belong to the usufructuary as fruits or income, to be enjoyed as their own exclusive property. The obligation of the usufructuary is to preserve the original capital, not the income generated from it. On the application of the Bachrach doctrine: The Court found no material difference between the present case and the Bachrach case that would justify a reversal or modification of the established doctrine. The defendants' contention that applying the doctrine would cause injustice was examined, but the Court maintained that abstract propositions do not decide concrete cases and that the principle in Bachrach was applicable here. The Court specifically addressed the argument regarding the diminution of voting power, stating that in cases with a large number of shares, such diminution is unlikely to affect corporate control and is not a sufficient reason to modify the doctrine. On the alleged receipt of P3,428.40: The Court found that it had not been proven that the plaintiff received the sum of P3,428.40, which was alleged to have resulted from a reduction in the company's capital. The plaintiff had denied receiving such a sum upon his arrival from Spain. Consequently, there was no legal basis to order the plaintiff to deliver this amount to the defendants.
Main Doctrine
Stock dividends declared out of surplus profits belong to the usufructuary as income, not to the naked owners as part of the capital, unless otherwise provided by law or the will.