Rosario Grey Vda. de Albar and Jose M. Grey vs. Josefa Fabie de Carangdang

A life usufruct constituted on "fincas" or immovable property with a building is not extinguished by the destruction of the building alone, because the usufruct attaches to both the land and the building; under Article 517 of the old Civil Code, the usufructuary may use the land and materials until the property is reconstructed or replaced. The usufructuary is entitled to administer the property and receive rents, and a usufructuary who has agreed to pay real estate taxes cannot claim reimbursement from the naked owners.

Doña Rosario Fabie y Grey owned a lot in the City of Manila with a building and improvements at 950-956 Ongpin, covered by Original Certificate of Title No. 5030. By a duly probated will, she devised the naked ownership of the property to Rosario Grey Vda. de Albar, et al., and the usufruct to Josefa Fabie for life. The will's ninth clause prohibited the usufructuary from selling, mortgaging, or transferring her usufructuary right during her minority. The property was registered in the naked owners' names with the usufruct noted on the title.

Doña Rosario Fabie y Grey owned a lot in the City of Manila with a building and improvements at 950-956 Ongpin, evidenced by Original Certificate of Title No. 5030. By a will left upon her death, which was duly probated, she devised the naked ownership of the whole property to Rosario Grey Vda. de Albar, et al., but its usufruct to Josefa Fabie for life. The pertinent provision of the will read: "Lego a mi ahijada menor de edad, Maria Josefa de la Paz Fabie, en usufructo vitalicio las rentas de las fincas . . . en calle Ongpin, Numeros 950 al 956 del Distrito de Santa Cruz, Manila, . . . y prohibio enjane, hipoteque, permuta o transfiera de algun modo mientras que ella sea menor de edad." The property was registered in the name of Rosario Grey Vda. de Albar, et al. as naked owners, and the right of Josefa Fabie as life usufructuary was expressly noted on the new title. Pursuant to the ninth clause of the will, an encumbrance was likewise noted on the title prohibiting the usufructuary from selling, mortgaging, or transferring her right to usufruct during her minority.

During liberation, as a consequence of the fire that gutted the building in many portions of Manila, the building on the Ongpin lot was burned, leaving only the walls and other improvements that were not destroyed by the fire.

One Au Pit, a Chinaman, offered to lease the property for a period of five years at a monthly rental of P500.00, at the same time agreeing to construct on the lot a new building worth P30,000.00 provided the naked owners as well as the usufructuary signed the agreement of lease. The usufructuary maintained that she had the exclusive right to cede the property by lease and to receive the full rental value by virtue of her right to usufruct, while the naked owners maintained that the right of usufruct was extinguished when the building was destroyed, the right of the usufructuary being limited to the legal interest on the value of the lot and the materials. In order that the agreement of lease may be effected, the parties agreed on a temporary compromise whereby the naked owners would receive P100.00, or 20% of the monthly rental of P500.00, and the usufructuary the balance of 80% or P400.00 of said monthly rental. It was likewise stipulated that the title to the building to be constructed would accrue to the land upon its completion as an integral part of the lot covered by the transfer certificate of title issued in the name of the naked owners but subject to the right of usufruct of Josefa Fabie. The parties expressly reserved the right to litigate their respective claims after the termination of the contract of lease to determine which of said claims was legally correct.

By reason of the destruction of the building on the Ongpin property, the United States War Damage Commission approved the claim that was presented for the damage caused to the property in the amount of P8,574.00, which was paid to and received by the naked owners. In the meantime, the usufructuary paid the real estate taxes due on the property at Ongpin for the years 1945 to 1952 in the total amount of P1,989.27, as well as the real estate taxes for the years 1953 and 1954 in the annual sum of P295.80.

On October 2, 1952, Rosario Grey Vda. de Albar, et al. commenced the present action to settle the dispute and conflicting views entertained by the parties in line with their agreement and prayed that judgment be rendered declaring that the usufruct in favor of Josefa Fabie is now only limited to receiving the legal interest on the value of the land, and that her right to receive any rental under the contract entered into between the parties has already ceased.

• Interpretation of the Will: Petitioners contended that the provision of the will devising "las rentas de las fincas" should be interpreted as constituting only a life usufruct on the rentals of the buildings erected on the lands, and that once these buildings are destroyed the usufruct is extinguished.
• War Damage Payment: Petitioners contended that the Court of Appeals erred in ruling that the damages paid by the War Damage Commission to petitioners was intended to be an indemnity for the destruction of the building in question and in ordering them to pay respondent 6% interest per annum on the amount of damage paid. They argued that war damage payments were a mere gesture of appreciation of the People of the United States, not an indemnity for damaged property.
• Reimbursement of Taxes: Petitioners contended that they should not be made to reimburse respondent for real estate taxes she paid, because she paid them in her capacity as usufructuary.

• Interpretation of the Will: Respondent contended that the provision should be interpreted as constituting a life usufruct both on the buildings and the lands because the former cannot be separated from the latter.
• Right to Lease and Rentals: Respondent maintained that she has the exclusive right to cede the property by lease and to receive the full rental value by virtue of her right to usufruct.

• Nature of Usufruct: Whether the will's provision devising "las rentas de las fincas" constitutes a life usufruct on both the buildings and the land, such that the usufruct survives the destruction of the building.
• War Damage Payment: Whether the war damage payment received by the naked owners is subject to the usufruct, and whether petitioners must pay respondent 6% interest per annum thereon.
• Reimbursement of Real Estate Taxes: Whether petitioners must reimburse respondent for real estate taxes she paid on the property.
• Administration of the Property: Whether the usufructuary has the right to administer the property and receive the rents.

• Nature of Usufruct: No. The usufruct was not extinguished by the destruction of the building alone; it was constituted on both the land and the building, and under Article 517 of the old Civil Code the usufructuary may use the land and materials until reconstruction or replacement.
• War Damage Payment: The war damage payment was intended to replace the destroyed building and is subject to the usufruct; the Court of Appeals' award of 6% interest per annum thereon was affirmed in all other respects.
• Reimbursement of Real Estate Taxes: No. The usufructuary had bound herself in an approved agreement to pay real estate taxes, special assessments, and insurance premiums, so petitioners need not reimburse her.
• Administration of the Property: Yes. The usufructuary is deemed the administrator and has the right to collect rents and conserve the property.

• Nature of Usufruct: The will devised "en usufructo vitalicio las rentas de las fincas situadas" in Ongpin and Sto. Cristo. The term "fincas" in Spanish has a broad scope; it includes not only building but land as well. When both land and building belong to the same owner, the rents on the building constitute an earning of the capital invested in the acquisition of both land and building. There can be a land without a building, but there can be no building without land. The land, being an indispensable part of the rented premises, cannot be considered as having no rental value whatsoever. Thus, the deceased meant to impose the encumbrance on both the building and the land on which it is erected. Since only the building was destroyed and the usufruct is constituted not only on the building but on the land as well, the usufruct is not deemed extinguished by the destruction of the building, for under the law usufruct is extinguished only by the total loss of the thing subject of the encumbrance (Article 603, old Civil Code). Article 517 of the same Code provides that if the usufruct is constituted on immovable property of which a building forms part, and the latter should be destroyed in any manner whatsoever, the usufructuary shall have a right to make use of the land and materials. This is a temporary measure calculated to maintain the usufruct alive until the very thing that has been destroyed be reconstructed or replaced. The usufructuary is deemed the administrator of the property, as clarified in Fabie vs. Gutierrez David, and has the right to administer the property, collect the rents, conserve it, and pay taxes, special assessments, and insurance premiums. The compromise lease with Au Pit, where the new building would become an integral part of the land, fits Article 517: the usufruct continues on the land and the new improvement.

• War Damage Payment: The contention that the Court of Appeals erred in ruling that the war damage payment was intended as an indemnity for the destruction of the building and in ordering petitioners to pay respondent 6% interest per annum on the amount paid is untenable. A war damage payment is intended to replace part of the capital invested in the building destroyed or to assuage somewhat the material loss of its owner. It cannot be maintained that war damage payments are intended to be a mere gesture of appreciation of the People of the United States, for countless countrymen who suffered in the last war, whose kin-folks lost their lives, did not receive any war damage payment because they had no damaged property that could be indemnified. The ponente expressed the view that the 6% interest per annum should be valid only up to the date the new building was constructed by the Chinaman who leased the property, but the majority was of the opinion that the payment should remain subject to the usufruct for life because it had not been used in construction; the naked owners could turn over the money to the usufructuary for use during her lifetime, subject to return after her death if they desired to be relieved of the encumbrance. The Court of Appeals' award of 6% interest per annum on the war damage payment was affirmed in all other respects.

• Reimbursement of Real Estate Taxes: The contention that the real estate taxes paid by respondent in her capacity as usufructuary for several years previous to the present litigation should be paid by her, as she did, instead of by petitioners, has merit. She bound herself to pay such taxes in a formal agreement approved by the court in Civil Case No. 1569 of the Court of First Instance of Manila (Fabie vs. Gutierrez David). In that case, involving the same parties and the same properties subject to usufruct, the parties submitted an amicable agreement approved by the court wherein the usufructuary bound herself to pay all real estate taxes, special assessments, and insurance premiums, and to make all necessary repairs on each of the properties covered by the usufruct. Pursuant to that agreement, respondent paid all the taxes for the years 1945 to 1954. The agreement stipulated that it "shall be in effect during the term of the usufruct of each of the parties." There is therefore no valid reason why petitioners should be ordered to reimburse respondent for all the real estate taxes she had paid. The Court of Appeals' decision should be modified in this respect.

• Administration of the Property: The usufructuary has the right to administer the property. In Fabie vs. Gutierrez David, the Court construed the same will provision and held that the usufructuary has the right to administer the property; all acts of administration — to collect the rents for herself, to conserve the property by making all necessary repairs and paying all taxes, special assessments, and insurance premiums — were vested in the usufructuary. The pretension that another is the administrator with the right to choose tenants and dictate lease conditions is contrary to the letter and spirit of the will clause, the stipulation of the parties, and the judgment of the court.

• Usufruct on Land and Building — A usufruct constituted on "fincas" or immovable property with a building attaches to both the land and the building. The destruction of the building alone does not extinguish the usufruct because the land remains and the usufruct is extinguished only by total loss of the thing subject of the encumbrance. Under Article 517 of the old Civil Code, the usufructuary has the right to use the land and materials until reconstruction or replacement.
• Usufructuary as Administrator — The usufructuary has the right to administer the property, collect rents, conserve it, and pay taxes, special assessments, and insurance premiums, as held in Fabie vs. Gutierrez David.
• War Damage Payment as Capital Replacement — War damage payments are intended to replace part of the capital invested in the destroyed building or to assuage material loss, not a mere gesture of appreciation. Such payment is subject to the usufruct.
• Reimbursement of Taxes — A usufructuary who has bound herself in an approved agreement to pay real estate taxes, special assessments, and insurance premiums cannot later claim reimbursement from the naked owners; the obligation remains in effect during the term of the usufruct.

• "There can be a land without a building, but there can be no building without land. The land, being an indispensable part of the rented premises cannot be considered as having no rental value whatsoever." — Quoted from Lopez vs. Constantino and adopted by the Court to hold that the usufruct on "fincas" includes both land and building.
• "Since only the building was destroyed and the usufruct is constituted not only on the building but on the land as well, then the usufruct is not deemed extinguished by the destruction of the building for under the law usufruct is extinguished only by the total loss of the thing subject of the encumbrance (Article 603, old Civil Code)." — States the ratio on why the usufruct survived the fire.
• "If the usufruct is constituted on immovable property of which a building forms part, and the latter should be destroyed in any manner whatsoever, the usufractuary shall have a right to make use of the land and materials." — The Court's quotation of Article 517, the controlling rule allowing the usufructuary to use the land and materials until reconstruction.
• "The war damage payment is intended to replace part of the capital invested in the building destroyed or to assuage somewhat the material loss of its owner." — States the ratio on why the war damage payment was subject to the usufruct.

• Lopez vs. Constantino, 74 Phil. 160 — Cited for the rule that when both land and building belong to the same owner, the rents on the building constitute an earning of the capital invested in the acquisition of both land and building; the land cannot be considered as having no rental value. The Court adopted this reasoning to interpret the will's usufruct provision.
• Fabie vs. Gutierrez David, 75 Phil. 536 — Cited as a prior case between the same parties involving the same will provision. It held that the usufructuary has the right to administer the property, collect rents, conserve it, and pay taxes, special assessments, and insurance premiums. The Court relied on it to affirm the usufructuary's administration rights and to deny reimbursement of taxes.

• Article 603, old Civil Code — Provides that usufruct is extinguished only by the total loss of the thing subject of the encumbrance. Applied because only the building was destroyed; the land remained, so the usufruct was not extinguished.
• Article 517, old Civil Code — Provides that if the usufruct is constituted on immovable property of which a building forms part, and the building is destroyed, the usufructuary has the right to make use of the land and materials. Applied to allow the usufruct to continue on the land and the new improvement constructed by the lessee.

Labrador, Endencia, Barrera, and Gutierrez David, JJ., concur. Separate opinions were filed by Montemayor, J., concurring and dissenting; Paras, C.J., Bengzon and Concepcion, JJ., concurred with Montemayor; and Reyes, J.B.L., J., concurred.

• Justice Montemayor — Concurred with the majority except on the portion holding that payment of 6% interest per annum on the war damage payment should end on the date of construction of the new building. He argued it should continue during the lifetime of the usufruct because the war damage payment is the equivalent of the building destroyed; the usufructuary had a right to the use or fruits of the building, hence a right to the interest on the war damage payment during her lifetime. The construction of the new building by the Chinese lessee did not relieve the owners of the land who received the war damage payment from continuing the payment of interest. If the owners had used the payment to construct the building, they would be free from paying interest because the rent of the new building would correspond to the interest; but the new building was constructed by the lessee. He also noted that the double-benefit argument applies to both parties and there is nothing unfair in the arrangement.
• Justice Reyes, J.B.L. — Concurred with Justice Montemayor, specially because the usufructuary receives only part of the rent of the new building.
• Paras, C.J., Bengzon and Concepcion, JJ. — Concurred with Justice Montemayor's dissent.