SUPREME COURT

REPORTS
ANNOTATED
Usufruct

ANNOTATION

USUFRUCT
By 
DOMINGO M. LIRA, JR.

§ 1. Usufruct in General, p. 318

§ 2. Rights of theUsufructuary, p. 320
§ 3. Right of widow to sell her usufructuary right, p. 323
§ 4. Obligations of theUsufructuary, p. 323
§ 5. Payment of Land Tax, p. 324
§ 6. Extinguishment ofUsufruct, p. 324
§ 7. When  usufructover lot and building  was  not
extinguished bythe destruction ofthe latter, p. 324
§ 8. Usufruct cannot be proven by parol evidence, p. 325

________________

§ 1. Usufruct in general.

Usufruct,  which  is a real right, is one  of  thelimitations on  the  right  ofdominion because
“Usufructgives a right to enjoy theproperty of another with theobligation of preserving its form
and substance, unless  the  title constituting  it  or  the  law otherwise provides.” (Art. 562, taken
from Art. 467 of the Spanish Civil Code).
Usufruct was recognized in Roman Law and it wastherein defined as “ius alienis rebus utendi
fruendi salva rerum substantia.” (Justinian’ Institutes, II.4.) From this  it  may be seen that
traditionally  it  wasrequired in  usufruct  that there must be no detriment
to the substance of theproperty. Under our law, however,
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it  is as in  the  article above quoted that  the  form and substance  of  the  property held
in  usufruct  must be preserved, unless  the  title constituting  it  or  the  law otherwise provides.
Manresa explains this feature  of  thelaw permitting impairment  of  the  property held
in  usufruct  in certain cases  bystating that  the  essential requisite  of  usufruct  is  theright to
enjoy  the  property  of  another, that  theobligation to preserve its form and substance is only
accidental. Hence, in this respect there are two kinds  of  usufruct: normal and abnormal,
depending on whether or not impairment  of  the  property held in  usufruct  is allowed. (Sec. 4
Manresa 364-368).
Usufruct  must be distinguished from  thecontract  of  lease  of  things whereby
“one of the parties binds himself to give to another the  enjoyment or use  of  a thing  for  a price
certain, and for a  periodwhich  may be definite or indefinite. However, no lease  for  more than
ninety-nine years shall be valid.” (Art. 1643). In a lease  of  things, as in  usufruct,  the  right is
given to enjoy another person’s property. Here, similarity ends and we note several differences.
Thus:  Usufruct  is always a real right whereas a lease  ofthings is generally a personal right
only;  thenaked owner in  usufructallows  the  usufructuary to enjoy  the  property
whereas  the  lessor in a lease  ofthings makes  the  lessee enjoy  the  property leased;
and usufruct refers to all uses  of  the  property whereas a lease  of  things refers to certain uses
only, to those stipulated. (See 10 Manresa 458). Other distinctions between these two juridical
devices can be given such as,  for  instance,  the  fact that a lease  ofthings can be created
only by agreement or contract whereas—
“Usufruct is constituted by law, by thewill of private persons expressed in acts inter vivos or
in a last will and testament, and  byprescription.” (Art. 563, taken from Art. 468  of  theSpanish
Civil Code).
An example  of  a  legalusufruct  or that  which  is  constituted  by  law
is  theusufruct  of  the  parents over  the  property  of  thechild. In a sense also,  theconjugal
partnership is a usufructuary over  theseparate property  of  thespouses. (See Report  of  theCode
Commission, p. 98). Those created by the will ofprivate persons expressed in acts inter vivos or in
a last will and testament are called voluntary. (See 4 Manresa 370). In the Philippines we can say
that voluntary usufructs are very rare because they do not go with the grain of our native attitude
that ownership be in complete form
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rather than in segments  ofnaked or beneficial ownership. And

usufructs constituted by prescription are called mixed because both volition and law participate
in creating them (See 4 Manresa 370, 374-375).
“Usufruct may be constituted on the whole or a part of the fruits of thing, in favor of one or
more persons, simultaneously or successively, and in every case from or to a certain day, purely or
conditionally.  Itmay also be  constituted  on a right provided  it  is not strictly personal or
intransmissible.” (Art. 564, taken from Art. 469 of theSpanish Civil Code).
Commenting on  theabove article, Manresa states that  usufruct  may also be classified as
follows:

1. By  the  quality  ofthe  object  whichmay be  things  or  rights;  things may be movable or
immovable,  the  first may be fungibles or non-fungibles, and non-fungibles may be
susceptible or not ofdeterioration.
2. By  the  quantity  ofthe  object,  usufructmay be total or partial, depending on
whether it involves all or only some ofthe use of the thing.
3. By reason, of thepersons and forms ofthe use, usufructmay be constitutedin favor of a
single person or of many, and in case of thelatter it may be simultaneous or successive.
 4.  By  the  manner  ofits constitution,  usufruct  may be established purely, subject to a
condition or a term (from or to a certain day).
5. By  the  nature  of  thetitle constituting  it,  usufruct  may be singular or universal (See 4
Manresa 376). (Abad Santos, J. Property, 1962 Ed., pp. 267-269).

§ 2. Rights of theUsufructuary.

The usufructuary has theright to enjoy the  property, to  the  same extent as  theowner, but only
with respect to its use and  the  receipt  ofits fruits. He has a right to administer  the  property
in usufruct. With respect to the use of the property, he has the right to receive from the  thing
all  the  service or benefit that  it  can give. This is recognized  by  Article
571,  which  gives  theusufructuary  the  right to enjoy all  the  benefits inherent in  the  thing. He
cannot, however, extract products  which  do not constitute fruits, because he is bound to
preserve theforms and substance of thething. Thus, he cannot
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convert an orchard into a grazing field nor can he convert a ricefield into a fishpond (Tolentino,
Property, 1972 ed., p. 306).
But dividends from shares  of  a corporation are fruits, whether in form  ofcash or  of  stock
dividends, and therefore belong to  theusufructuary. This is  thedoctrine laid down
in thecase of Bachrach vs. Seifert and Elianoff, 87 Phil. 483and reiterated in the later case of Del
Saz Orozco and Araneta, et al., 90 Phil. 399. In the former case theCourt said:
“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.  The  so-called Massachusetts
rule,  whichprevails in certain jurisdictions in  the  United States, supports appellants
contention.  It  regards cash dividends, however large as income, and stock dividends, however
made, as capital (Minot vs. Paine, 99 Mass. 101; 96 Am. Dec. 705). Itholds that a stock dividend is
not in any true sense any dividend at all since  itinvolves no division or severance
from thecorporate assets  of  thesubject  of  the  dividend; that  it  does not distribute property but
simply dilutes  the  shares as they existed before; and that  it  takes nothing
from the property ofthe corporation and adds nothing to the interests ofthe shareholders.
On  the  other hand,  theso-called Pennsylvania rule,  which  prevails in various other
jurisdictions in  theUnited States, supports appellee’s contention. This rule declares that all
earnings  of  the  corporation made prior to  the  death  ofthe  testator stockholder belong
to the corpus of theestate, and that all earnings, when declared as dividends in whatever form,
made during  the  lifetime  of  theusufructuary or life tenant are income and belong
to theusufructuary or life tenant (Earp’s Appeal, 28 Pa., 368).
“* * * It is clear that testator intended the remaindermen should have only the corpus ofthe estate he left in
trust, and that all dividends should go to the life tenants.  It  is true that profits realized are not dividends
until declared  by  theproper officials  of  thecorporation, but distribution  ofprofits, however, made, is
dividends, and the form of thedistribution is immaterial.’ (In re Thompson’s Estate, 262 Pa., 278; 105 Atl.
273, 274).
In Hite vs. Hite (93 Ky., 257; 20 S.W. 778, 780), the Court of Appeals of Kentucky, speaking thru
its Chief Justice said:
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“* * * Where a dividend, although declared in stock, is based upon  the  earnings  of  thecompany,  it  is in
reality, whether called  by  one name or another,  the  income  of  thecapital invested in  it.  It  is but a
mode  of  distributing  the  profit. If  it  be not income, what is  it? If  it  is, then  it  is rightfully and
equitably the property of thelife tenant. If it is really profit, then he should have it, whether paid in stock or
money. A stock dividend proper is the issue ofnew shares paid for by thetransfer of a sum equal to their par
value from the profit and loss account to that representing capital stock; and really a corporation has no right
to declare a dividend, either in cash or stock, except from its earnings; and a singular state of case—it seems
to us, an unreasonable one-is presented if the company, although it  rests with  it  whether  it  will declare a
dividend, can bind the courts as to the proper ownership of it, and by the  mode  of  payment substitute its
will for that ofthe testator, and favor the life tenants or the remainder-men, as it may desire. It cannot, in
reason, be considered that thetestator contemplated such a result. The law regards substance, and not form,
and such a rule might result not only in a violation of  thetestator’s intention, but  itwould give  the  power
to  thecorporation to beggar  the  life tenants, who, in this case, are  the  wife and
children of thetestator, for the benefit of theremainder-men, who may perhaps be unknown to thetestator,
being unborn when the will was executed. We are unwilling to adopt a rule whichto us seems so arbitrary,
and devoid of reason and justice. If the dividend be in fact a profit, although declared in stock, itshould be
held to be income. Ithas been so held in Pennyslvania and many other states, and we think it thecorrect rule.
Earp’s Appeal, 29 Pa. St. 368; Cook, Stocks & S. Sec. 544. * * *”

We think the Pennsylvania rule is more in accord with the statutory laws than theMassachusetts

rule. Under section 16 of our Corporation Law, no corporation may make or declare any dividend
except from the surplus profits arising from its business. Any dividend, therefore, whether cash or
stock, represents surplus profits. Article 471 of the Civil Code provides that theusufructuary shall
be entitled to receive all thenatural, industrial, and civil fruits of the property in  usufruct. And
Articles 474 and 475 provide as follows:
“Art. 474. Civil fruits are deemed to accrue day  by  day, and belong to  the  usufructuary in proportion
to the time theusufruct may last. “Art. 475. When a usufruct is created on the right to receive an income or
periodical revenue, either in money or fruits, or the interest on bonds or securities payable to bearer, each
matured payment shall be considered as the proceeds or fruits of such right.

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“When it consists  of  theenjoyment  of  the  benefits arising from an interest in an industrial or commercial
enterprise,  the  profits  ofwhich  are not distributed at fixed periods, such profits shall have  the  same
consideration.
“In either case, they shall be distributed as civil fruits, and shall be applied in accordance with rules
prescribed by thenext preceding article.”
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  ofthe  certificate  of  stock covering said shares may be sold
independently  of  theoriginal shares, just as  theoffspring  of  a domestic animal may be sold
independently of its mother.”

§ 3. Right of widow to sell her usufructuary right.

“We notice, however, that  the  lower court overlooked  the  fact that Marcela Checano is also an
heir  ofher late husband to  theextent  of  the  usufructassigned to her  by  law
over  the  property,  whichusufruct  she can transfer, assign or otherwise dispose  of  as she may
please, like any other hereditary property, as she has done in this case, for which reason we opine
that  the  sale may still be considered valid insofar as such  usufruct  is concerned.” (Guantia vs.
Tatoy, 88 Phil. 329).

§ 4. Obligations of theUsufructuary.

The usufructuary, before entering upon theenjoyment of the property is obliged: (1) to make, after

notice to the owner or his legitimate representative, an inventory of all theproperty, which shall
contain an appraisal of themovables and a description of the condition of  theimmovables; (2) to
give security, binding himself to fulfill  the  obligations imposed upon him (Art. 583
NCC).  The  security may be a personal bond, a pledge, or a mortgage. (Tolentino,  Property,
supra,  p. 318). However,  the  usufructuary, whatever, maybe  the  title  ofthe  usufruct, may be
excused from  the  obligation  of  making an inventory or  ofgiving security, when no one will be
injured thereby. (Art. 585 NCC). Once  the  security has been given,  theusufructuary will be
entitled to all the benefits accruing from the time when he should have begun to receive them.
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The usufructuary shall take care of the things given in  usufruct  as a good father  ofthe  family
(Art. 589 NCC).

§ 5. Payment of Land Tax.

According to Manresa, land taxes, being payable annually, are chargeable

against  the  usufructuary.  The  same view held  by  our court  of  appeals,  whichruled
that  the  payment  ofland taxes  by  a usufructuary is not proof  of  adverse possession
against  theowner because such payment is an obligation  of  theusufructuary. In a decision
rendered  by  the  Supreme Court a little earlier than  the  court  of  appeals’ decision,
however,  it  washeld that a land tax is a burden upon  the  capital, that is, upon  the  real
value  of  the  property, and under  the  present article  it  should be paid  by  the  owner. This last
view is, to our mind,  thecorrect construction  of  thelaw, and conforms to  thestand  of  Sanchez
Roman that annual charges and taxes are chargeable against  the  usufructuary only when they
may be considered as a lien upon the fruits (Tolentino, Property, supra,p. 327).
§ 6. Extinguishment ofUsufruct.

Usufruct  is extinguished: (1)  By  the  death  of  theusufructuary, unless a contrary intention
clearly appears; (2)  By  theexpiration  of  the  periodfor  which  it  wasconstituted,
or  by  thefulfillment  of  any resolutory condition provided in  thetitle creating  the  usufruct;
(3)  By  merger  of  theusufruct  and ownerhsip in  the  same person;
(4)  Byrenunciation  of  theusufructuary; (5)  By  thetotal loss  of  the  thing in  usufruct;
(6) By thetermination of the right ofthe person constituting theusufruct; and (7) Byprescription
(Art. 603 NCC). Besides those mentioned thefollowing are causes forextinguishment of usufructs:
non-fulfillment  of  theconditions, any cause agreed upon  by  the  parties as a
ground  for  terminating  theusufruct,  the  rescission or annulment  of  the  act
constituting  the  usufruct, and  the  special causes  forextinguishment  of  legal usufructs
(Tolentino, Property, supra, p. 332).

§ 7.  When  usufruct  over lot and building  was  not

extinguished by thedestruction of the latter.

Transfer Certificate of Title No. 63956 covering theOngpin

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property provides on theface thereof that  the  lot with a building and improvements thereon are
subject to  the  right  ofappellee “in  usufruct”. This being  the  case, and a usufructuary being
entitled to all the fruits of theproperty in usufruct(Article 566, New Civil Code), the  conclusion
is inescapable that appellee as a life usufructuary has  theright to enjoy
all  the  rentals  of  the  realty at Ongpin consisting  of  the  lot and building erected thereon. And
in  the  event  the  latter is destroyed in whatever manner, as in fact  it  wasburned
during  the  liberation  of  Manila,  the  usufruct  is not thereby extinguished but appellee as
“theusufructuary shall have a right to make use of theland and the materials” (Art. 607, par. 1,
NCC). In this regard, Manresa says:
“Si el usufructo estuviera constituido sobre una fina de la que forma parte un edificio, y este llegare a perecer,
de cualquier modo que sea, el usufructuario tendra derecho a disfrutar del suelo u de los materialies. “Si se
tratese de un edificio construido en suelo ajeno, aun cabria hablar de la utilizacion de los materiales. El
derrumbamiento de un edificio no produce, pues, nunca formalmente la extincion del usufructo. El titulo
constuido puede determinar distintas reglas.” (Manresa, Tomo IV, pp. 476-477).

And inasmuch as appellee  was  made  the  usufructuary during her

lifetime  of  therentals  of  the  realty in question, her right as such life usufructuary being a real
right it cannot be deemed extinguished as long as she lives and so long as the lot exists. Appellee’s
right did not cease to exist after  the  building  wasdestroyed but continued on  the  lot  which  in
itself has a rental value (Lopez vs. Constantino,  74 Phil. 160, 163), and after  the  new building
erected on the same lot by the lessee Au Pit wascompleted the income derived therefrom became
due to appellee during her lifetime (Grey Vda. de Albarvs. Carandang, CA-G.R. No. 11917-R, Oct.
11, 1957, 23 Velayo’s Digest p. 96).
§ 8. Usufruct cannot be proven by parol evidence.

“The  usufruct  that  wassaid to have been created  byCamila Ramos, plaintiff’s predecessor-in-
interest, and after her death  bythemselves,  was  not sufficiently proved. There  was  no
writing of any sort to show such fact whichplaintiffs tried to prove bywords of mouth when they
presented a certain Atty. Domingo Goce who
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is the father of their counsel. But the rule is quite stringent and itrequires more than mere parol
evidence, considering that a usufruct is an interest affecting realty. Thus, it has been said that—
“It is not only every agreement relating to thesale of lands that is within the statute of frauds,
but also such agreements as are intended to create interest in lands.” (Byres vs. Locke, 29 Pac.
Reporter, p. 119). (Goce vs. Rosales, CA-G.R. No. 23581-R, May 11, 1976, 23 Velayo’s Digest, p. 96).