Jacinto Del Saz Orozco y Mortera and Maria Paz Alcantara vs. Salvador Araneta, Francisco Del Saz Orozco y Lopez, et. al. (G.R. No. L-3691, November 21, 1951, 90 Phil. 399)

FACTS: 
Eugenio del Saz Orozco died on February 7, 1922, leaving a will which he had executed on March 5, 1921. That said will provided that certain properties should be given in life usufruct to his son Jacinto del Saz Orozco y Mortera, with the obligation on his part to preserve said properties in favor of the other heirs who were declared the naked owners thereof. On September 11, 1934, the Benguet Consolidated Mining Company declared and distributed stock dividends out of its surplus profits, the plaintiff receiving his proportionate portion of 11,428 shares. On November 17, 1939, said Mining Company again declared stock dividends out of its surplus profits, of which the plaintiff received 17,142 shares, making a total of 28,570 shares.

ISSUE: 
Whether the stock dividend is part of the capital which should be preserved in favor of the owners or an income of fruits of the capital which should be given to and enjoyed by the life usufructuary, the plaintiff herein, as his own exclusive property.

HELD:
The Court ruled based on a previous case decided some time in 1950, where they ruled that:

... 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 it were declared out of the capital it would be a serious violation of the law.
(in the Matter of the Testate Estate of Emil Maurice Bachrach, October 12, 1950)

With regard to the sum of P3,428.40 which is alleged to have been received by the plaintiff from the Benguet Consolidated Mining Company, as a result of the reduction of its capital in January, 1926, it appears that it has not been proven that the plaintiff has received said sum; on the contrary, it was denied by him as soon as he arrived in the Philippines from Spain. There is no ground, therefore, for ordering the plaintiff to deliver such sum to the defendants.

The Court declares that the stock dividends amounting to 28,570 shares, above mentioned, belongs to the plaintiff-appellant Jacinto del Saz Orozco y Mortera exclusively and in absolute ownership.