ROSARIO GREY VDA. DE ALBAR AND JOSE M. GREY, PETITIONERS, VS. JOSEPA FABIE DE CARANGDANG, RESPONDENT.

Rosario Grey Vda. de Albar versus Josefa Fabie de Carangdang

The Case

This is a petition for review of a decision of the Court of Appeals in a suit to settle the conflicting claims of the naked owners and the life usufructuary of an Ongpin Street property in Manila after the building on it was destroyed by fire during liberation. Rosario Grey Vda. de Albar and Jose M. Grey, the naked owners, sued Josefa Fabie de Carangdang, the usufructuary, asking the court to declare that her usufruct had been reduced to the legal interest on the value of the land and materials. The case matters because it fixes the rule that a usufruct constituted on an immovable of which a building forms part is not extinguished by the mere destruction of the building; the usufructuary keeps the right to use the land and materials, and the usufruct survives on the land and on whatever new building is erected on it.

Procedural History

The naked owners commenced the action in the Court of First Instance of Manila to settle the dispute and to obtain a declaration that the usufruct was now limited to the legal interest on the value of the land and materials. The trial court rendered judgment in favor of the usufructuary, declaring that her life usufruct continues over the Ongpin property with the exclusive right to receive all its rents, that she is entitled to six percent interest on the war damage payment from January 11, 1950, that she is entitled to reimbursement of real estate taxes paid, and awarding attorney's fees and costs against the plaintiffs. On appeal by the plaintiffs, the Court of Appeals affirmed the ruling that the life usufruct subsists in full force upon the Ongpin lot and the building now existing thereon, and that she is entitled to six percent interest per annum on the amount received from the Philippine War Damage Commission for the whole period of the usufruct, with sufficient security; but it reversed the trial court by deferring reimbursement of real estate taxes until the termination of the usufruct and by deleting the award of attorney's fees. The plaintiffs then interposed the present petition for review before the Supreme Court.

Facts

Dona Rosario Fabie y Grey owned a lot in the City of Manila with a building and improvements at Ongpin, covered by a certificate of title. By her will, duly probated, she devised the naked ownership of the whole property to Rosario Grey Vda. de Albar and others, but left the usufruct to Josefa Fabie for life. The will devised to her goddaughter, then a minor, the life usufruct of the rents of the properties on Ongpin Street, numbers 950 to 956, and prohibited her from selling, mortgaging, exchanging, or transferring her right while she was a minor. The new title was registered in the name of the naked owners, with the usufruct and the prohibition expressly annotated.

During liberation, a fire that gutted buildings in many portions of Manila burned the building on the Ongpin lot, leaving only the walls and improvements not destroyed. One Au Pit offered to lease the property for five years at a monthly rental of 500 pesos and to construct a new building worth 30,000 pesos, provided both the naked owners and the usufructuary signed the lease. Because the usufructuary claimed the exclusive right to lease the property and to receive the full rentals, while the naked owners claimed the usufruct was extinguished by the destruction of the building, the parties entered a temporary compromise: the naked owners would receive 100 pesos, or twenty percent of the monthly rental, and the usufructuary the balance of 400 pesos. They stipulated that title to the new building would accrue to the land upon completion as an integral part of the lot, subject to the usufruct, and expressly reserved the right to litigate their respective claims after the lease ended.

The United States War Damage Commission approved a claim of 8,574 pesos for the damage to the property, which the naked owners received. The usufructuary, for her part, paid the real estate taxes on the property for the years 1945 to 1952 in the total amount of 1,989 pesos and 27 centavos, and the taxes for 1953 and 1954 at 295 pesos and 80 centavos annually.

Issues

• Whether or not the life usufruct devised by the will covers both the land and the building, such that it is not extinguished by the destruction of the building.
• Whether or not the usufructuary is entitled to six percent interest per annum on the war damage payment received by the naked owners for the whole period of the usufruct.
• Whether or not the naked owners must reimburse the usufructuary for the real estate taxes she paid on the property.

Applicable Provisions

Article 517 of the old Civil Code provides:

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 the provision the Court applies to hold that the usufruct survives the burning of the building and continues over the land and the new improvement.

Article 603 of the old Civil Code, as discussed in the decision, provides that usufruct is extinguished only by the total loss of the thing subject of the encumbrance; since only the building was destroyed and the usufruct covers the land as well, the usufruct is not extinguished.

Ruling

On the first issue, the Court held that the usufruct subsists and remains in full force upon the Ongpin lot and the building existing thereon. The will devised the life usufruct of the rents of the properties, and in the Spanish language the term used for those properties has a broad scope, including not only the building but the land as well. The Court adopted its earlier teaching that when both land and building belong to the same owner, the rents constitute an earning of the capital invested in both, and that the land, being an indispensable part of the rented premises, cannot be considered as having no rental value whatsoever. Since only the building was destroyed, and usufruct is extinguished only by the total loss of the thing, the usufruct was not extinguished. Article 517 keeps the usufruct alive: the usufructuary may use the land and materials until the destroyed thing is reconstructed or replaced, and the compromise lease, under which the new building accrues to the land subject to the usufruct, fits the purpose of that article.

On the second issue, the Court held that the war damage payment is intended to replace part of the capital invested in the building destroyed, and so the usufructuary is entitled to six percent interest per annum on that amount for the whole period of the usufruct, with sufficient security. The Court noted that the naked owners may instead turn over the money to the usufructuary for her use during her lifetime, subject to its return after her death.

On the third issue, the Court held that the usufructuary must bear the real estate taxes she paid, and the naked owners need not reimburse her. She is the only recipient of all the benefits of the property, and she had bound herself to pay such taxes in a formal agreement approved by the court in the earlier case between the same parties, which agreement was to be in effect during the term of the usufruct and binding on the successors and assigns of the parties.

Doctrine

A usufruct constituted on an immovable property of which a building forms part is not extinguished by the destruction of the building; under Article 517 of the old Civil Code, the usufructuary has the right to make use of the land and materials, and the usufruct continues over the land and over any new building erected on it. Usufruct is extinguished only by the total loss of the thing subject of the encumbrance. Where the will devises the usufruct of the rents of the properties, the usufruct covers both land and building, because the land is an indispensable part of the rented premises and has rental value. A war damage payment replaces part of the capital invested in the destroyed building, and the usufructuary is entitled to the legal interest on it for the period of the usufruct. The usufructuary, as administrator, bears the real estate taxes when she has bound herself to pay them.

Disposition

The Supreme Court affirmed the decision of the Court of Appeals in all other respects, with the modification that the naked owners should not be made to reimburse the real estate taxes paid by the usufructuary, without pronouncement as to costs.

Remember This

Memorize the rule of Article 517 of the old Civil Code: destroy the building, and the usufruct does not die, for the usufructuary may use the land and materials and the usufruct continues over the land and the new building. Examiners use this case to test the effect of the loss of the building on a usufruct of an immovable, and the treatment of war damage payments and real estate taxes as between naked owner and usufructuary.