E. S. LYONS, plaintiff-appellant, v. C. W. ROSENSTOCK, Executor of the Estate of Henry W.

Elser, deceased,
defendant-appellee.
G.R. No. L-35469 March 17, 1932 Street, J.

DOCTRINE OF THE CASE:

Under the law prevailing in this jurisdiction a trust does not ordinarily attach with respect to property
acquired by a person who uses money belonging to another. Of course, if an actual relation of
partnership had existed in the money used, the case might be different; and much emphasis is laid in the
appellant's brief upon the relation of partnership which, it is claimed, existed.

FACTS:
Henry Elser was engaged in the business of buying, selling, and administering real estate. Plaintiff Lyons
had joined him in several ventures with the profits being shared by them equally. Lyons, on the other
hand, was a missionary of the Methodist Episcopal Church, went on leave to the United States and was
gone for nearly a year and a half.

Before he left, Elser made written statements showing that Lyons was at that time half owner with Elser
of three pieces of real property. Lyons executed in favor of Elser a general power of attorney empowering
him to manage and dispose of said properties at will to the mutual advantage of both. During the absence
of Lyons two of the pieces of property were sold by Elser, leaving a single piece of property located at
Carriedo.

Later, Elser became interested in a piece of property referred to as San Juan Estate which he planned to
develop, in order to acquire the property, Elser obtained a loan from the Chinese merchant Uy Siuliong
with Fidelity & Surety Co. as surety. This surety agreement is then secured by a mortgage on the equity
of redemption in the Carriedo property which Elser and Lyons co-own. Elser together with three
associates organized a limited partnership under the name of J. K. Pickering & Company for the purpose
further developing the recently-bought San Juan estate.

While in the process of closing the negotiations with the San Juan estate, Elser wrote several letters to
Lyons inviting him to join in the new business. Lyons, however, was not inclined to join Elser
particularly because the board of missions of his church was averse to his engaging in business activities
other than those in which the church was concerned. Moreover, some of Lyons' missionary associates had
apparently been criticizing his independent commercial activities. Upon receipt of the letter, it was clear
to Elser that he can no longer expect assistance from Lyons so sought to release the Carriedo property
from the mortgage by substituting his own property in M. H. del Pilar Street, Manila, and 1,000 shares of
the J. K. Pickering & Company as security. However, Elser took back the new mortgage and retained the
Carriedo property as mortgaged property after Lyons gave his consent.

When Elser was concluding the transaction for the purchase of the San Juan Estate, he was indebted to
Lyons to the extent of, possibly, P11,669.72, which had accrued to Lyons from profits and earnings
derived from other properties. When the J. K. Pickering & Company was organized and stock issued,
Elser indorsed to Lyons 200 of the shares allocated to himself, as he then believed that Lyons would be
one of his associates in the deal. It will be noted that the par value of these 200 shares was more than
P8,000 in excess of the amount which Elser in fact owed to Lyons; and when the latter returned to the
Philippine Islands, he accepted these shares and sold them for his own benefit.

The trial court found in effect that the excess value of these shares over Elser's actual indebtedness was
conceded by Elser to Lyons in consideration of the assistance that had been derived from the mortgage
placed upon Lyon's interest in the Carriedo property. As the development of the San Juan Estate was a
success, Elser paid the loan to Uy Siuliong.
Upon Elser’s death, Lyons filed an action against Rosenstock, as executor of the estate of Elser, to
recover 446 and two-thirds shares of the stock of J. K. Pickering & Co., together with the sum of about
P125,000, representing the dividends which accrued on said stock. Lyons alleged that when Elser placed a
mortgage upon the equity of redemption in the Carriedo property, Lyons, as half-owner of said property,
became, involuntarily the owner of an undivided interest in the property acquired partly by that money.

ISSUE:
Whether or not there was a general relation of partnership between the parties

RULING:
NO. The position of the appellant is, in our opinion, untenable. If Elser had used any money actually
belonging to Lyons in this deal, he would under Art. 1724 of the Civil Code and Art. 264 of the Code of
Commerce, be obligated to pay interest upon the money so applied to his own use. Under the law
prevailing in this jurisdiction a trust does not ordinarily attach with respect to property acquired by a
person who uses money belonging to another. Of course, if an actual relation of partnership had existed in
the money used, the case might be different; and much emphasis is laid in the appellant's brief upon the
relation of partnership which, it is claimed, existed. But there was clearly no general relation of
partnership, under Art. 1678 of the Civil Code. It is clear that Elser, in buying the San Juan Estate, was
not acting for any partnership composed of himself and Lyons, and the law cannot be distorted into a
proposition which would make Lyons a participant in this deal contrary to his express determination.

It seems to be supposed that the doctrines of equity worked out in the jurisprudence of England and the
United States with reference to trust supply a basis for this action. The doctrines referred to operate,
however, only where money belonging to one person is used by another for the acquisition of property
which should belong to both; and it takes but little discernment to see that the situation here involved is
not one for the application of that doctrine, for no money belonging to Lyons or any partnership
composed of Elser and Lyons was in fact used by Elser in the purchase of the San Juan Estate. Of course,
if any damage had been caused to Lyons by the placing of the mortgage upon the equity of redemption in
the Carriedo property, Elser's estate would be liable for such damage. But it is evident that Lyons was not
prejudice by that act.