BACHRACH v.

SEIFERT

ISSUE: WoN stock dividends are considered as fruits/income

If yes, it belongs to usufructuary. If it is considered part of the capital or part of the estate, then it
belongs to the remainderman.
Remainderman - a person entitled to inherit property upon the termination of the estate

FACTS:
- When EM Bachrach died, he assigned his wife, the petitioner Mary Bachrach, as the
administrator of his estate through his last will. Additionally, he bequeathed all the remaining
fruits and usufructs of his estate to her, after payment of the legacies, bequests, and gifts
provided in his will.
- Included in his will was the provision that after Mary dies, half of the estate will be divided
between his legal heirs (except his brothers).
- As the owner of Atok Big Wedge Mining Co., EM Bachrach owned 108,000 shares of stock.
As such, his estate received half of these as stock dividends. (Dividend - when it is based
upon the earnings of the company, it is the income of the capital invested in it - Hite v. Hite)
- Mary Bachrach then asserted her claims to the dividends through a petition, claiming that
these are fruits and income, and should therefore belong to her as usufructuary of the estate.
- On the other hand, Sofie Seifert and Elisa Elianoff, legal heirs of the deceased, opposed the
said petition, claiming that the said shares are not income, but form part of the capital and
should therefore belong to the remainderman (legal heirs).
- Mary Bachrach's petition was granted by the courts, prompting Sofie and Elisa to appeal the
said decision to the Supreme Court.

ARGUMENT(S):
- Seifert & Elianoff - A stock dividend merely represents an addition to the invested capital. As per
the Massachusetts Rule, stock dividends are considered as capital, because it involves no
division or severance from the corporate assets of the subject dividend, it takes nothing from the
property of the corporation, and adds nothing to the interests of the shareholders. Therefore, it
should belong to the remainderman.

HELD:
The Supreme Court ruled in favor of Mary Bachrach.
- It held that the Pennsylvania Rule, and not the Massachusetts Rule, is more applicable with our
laws, citing Sec. 16 of the Corporation Law, which states that "no corporation may make or
declare any dividend except from the surplus profits arising from its businesses." The
 Pennsylvania Rule provides that all earnings of the testator stockholder (EM Bachrach), when
declared as dividends, and were made during the lifetime of the usufructuary or life tenant
(Mary) should be considered as income, and should therefore belong to the usufructuary/life
tenant.
- The Court also cited Art. 471, 474, and 475, which supports the view of Mary Bachrach that the
stock dividends are civil fruits of the original investment. The delivery of the stock dividends is
equivalent to the payment of profits, which can be sold independently of the original shares,
much like selling the offspring of a domestic animal independently from its mother.

LOWER COURT DECISION IS AFFIRMED. PETITION IS DENIED.