G.R. No.

L-25532 February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.

WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete and
Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.

A. S. Monzon, Gutierrez, Farrales and Ong for respondents.

REYES, J.B.L., J.:

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September 1947
by herein respondent William J. Suter as the general partner, and Julia Spirig and Gustav Carlson, as the
limited partners. The partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to the
partnership. On 1 October 1947, the limited partnership was registered with the Securities and
Exchange Commission. The firm engaged, among other activities, in the importation, marketing,
distribution and operation of automatic phonographs, radios, television sets and amusement machines,
their parts and accessories. It had an office and held itself out as a limited partnership, handling and
carrying merchandise, using invoices, bills and letterheads bearing its trade-name, maintaining its own
books of accounts and bank accounts, and had a quota allocation with the Central Bank.

In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18
December 1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The sale
was duly recorded with the Securities and Exchange Commission on 20 December 1948.

The limited partnership had been filing its income tax returns as a corporation, without objection by the
herein petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the individual incomes of the partners-spouses Suter and Spirig
resulting in a determination of a deficiency income tax against respondent Suter in the amount of
P2,678.06 for 1954 and P4,567.00 for 1955.

Respondent Suter protested the assessment, and requested its cancellation and withdrawal, as not in
accordance with law, but his request was denied. Unable to secure a reconsideration, he appealed to
the Court of Tax Appeals, which court, after trial, rendered a decision, on 11 November 1965, reversing
that of the Commissioner of Internal Revenue.

The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the tax
court's aforesaid decision. It raises these issues:

(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be
disregarded for income tax purposes, considering that respondent William J. Suter and his wife, Julia
Spirig Suter actually formed a single taxable unit; and

(b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William
J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav Carlson,
of his participation of P2,000.00 in the partnership for a nominal amount of P1.00.

The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter and Spirig
and their subsequent acquisition of the interests of remaining partner Carlson in the partnership
dissolved the limited partnership, and if they did not, the fiction of juridical personality of the
partnership should be disregarded for income tax purposes because the spouses have exclusive
ownership and control of the business; consequently the income tax return of respondent Suter for the
years in question should have included his and his wife's individual incomes and that of the limited
partnership, in accordance with Section 45 (d) of the National Internal Revenue Code, which provides as
follows:
(d) Husband and wife. — In the case of married persons, whether citizens, residents or non-residents,
only one consolidated return for the taxable year shall be filed by either spouse to cover the income of
both spouses; ....

In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that his
marriage with limited partner Spirig and their acquisition of Carlson's interests in the partnership in
1948 is not a ground for dissolution of the partnership, either in the Code of Commerce or in the New
Civil Code, and that since its juridical personality had not been affected and since, as a limited
partnership, as contra distinguished from a duly registered general partnership, it is taxable on its
income similarly with corporations, Suter was not bound to include in his individual return the income of
the limited partnership.

We find the Commissioner's appeal unmeritorious.

The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved by
operation of law because of the marriage of the only general partner, William J. Suter to the originally
limited partner, Julia Spirig one year after the partnership was organized is rested by the appellant upon
the opinion of now Senator Tolentino in Commentaries and Jurisprudence on Commercial Laws of the
Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:

A husband and a wife may not enter into a contract of general copartnership, because under the Civil
Code, which applies in the absence of express provision in the Code of Commerce, persons prohibited
from making donations to each other are prohibited from entering into universal partnerships. (2
Echaverri 196) It follows that the marriage of partners necessarily brings about the dissolution of a pre-
existing partnership. (1 Guy de Montella 58)

The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin" Co., Ltd.
was not a universal partnership, but a particular one. As appears from Articles 1674 and 1675 of the
Spanish Civil Code, of 1889 (which was the law in force when the subject firm was organized in 1947), a
universal partnership requires either that the object of the association be all the present property of the
partners, as contributed by them to the common fund, or else "all that the partners may acquire by their
industry or work during the existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was not
such a universal partnership, since the contributions of the partners were fixed sums of money,
P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them was an industrial
partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses were
forbidden to enter by Article 1677 of the Civil Code of 1889.

The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil, 7th Edition,
1952, Volume 4, page 546, footnote 1, says with regard to the prohibition contained in the aforesaid
Article 1677:

Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal, pero o podran
constituir sociedad particular? Aunque el punto ha sido muy debatido, nos inclinamos a la tesis
permisiva de los contratos de sociedad particular entre esposos, ya que ningun precepto de nuestro
Codigo los prohibe, y hay que estar a la norma general segun la que toda persona es capaz para
contratar mientras no sea declarado incapaz por la ley. La jurisprudencia de la Direccion de los Registros
fue favorable a esta misma tesis en su resolution de 3 de febrero de 1936, mas parece cambiar de
rumbo en la de 9 de marzo de 1943.

Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one
of the causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce.

The appellant's view, that by the marriage of both partners the company became a single
proprietorship, is equally erroneous. The capital contributions of partners William J. Suter and Julia
Spirig were separately owned and contributed by them before their marriage; and after they were
joined in wedlock, such contributions remained their respective separate property under the Spanish
Civil Code (Article 1396):

The following shall be the exclusive property of each spouse:

(a) That which is brought to the marriage as his or her own; ....

Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not become
common property of both after their marriage in 1948.

It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of
its own, distinct and separate from that of its partners (unlike American and English law that does not
recognize such separate juridical personality), the bypassing of the existence of the limited partnership
as a taxpayer can only be done by ignoring or disregarding clear statutory mandates and basic principles
of our law. The limited partnership's separate individuality makes it impossible to equate its income with
that of the component members. True, section 24 of the Internal Revenue Code merges registered
general co-partnerships (compañias colectivas) with the personality of the individual partners for
income tax purposes. But this rule is exceptional in its disregard of a cardinal tenet of our partnership
laws, and can not be extended by mere implication to limited partnerships.

The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554,
Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for
disregarding the fiction of legal personality of the corporations involved therein are not applicable to the
present case. In the cited cases, the corporations were already subject to tax when the fiction of their
corporate personality was pierced; in the present case, to do so would exempt the limited partnership
from income taxation but would throw the tax burden upon the partners-spouses in their individual
capacities. The corporations, in the cases cited, merely served as business conduits or alter egos of the
stockholders, a factor that justified a disregard of their corporate personalities for tax purposes. This is
not true in the present case. Here, the limited partnership is not a mere business conduit of the partner-
spouses; it was organized for legitimate business purposes; it conducted its own dealings with its
customers prior to appellee's marriage, and had been filing its own income tax returns as such
independent entity. The change in its membership, brought about by the marriage of the partners and
their subsequent acquisition of all interest therein, is no ground for withdrawing the partnership from
the coverage of Section 24 of the tax code, requiring it to pay income tax. As far as the records show,
the partners did not enter into matrimony and thereafter buy the interests of the remaining partner
with the premeditated scheme or design to use the partnership as a business conduit to dodge the tax
laws. Regularity, not otherwise, is presumed.

As the limited partnership under consideration is taxable on its income, to require that income to be
included in the individual tax return of respondent Suter is to overstretch the letter and intent of the
law. In fact, it would even conflict with what it specifically provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, tax wise, of a general copartnership (compañia
colectiva) and a limited partnership, when the code plainly differentiates the two. Thus, the code taxes
the latter on its income, but not the former, because it is in the case of compañias colectivas that the
members, and not the firm, are taxable in their individual capacities for any dividend or share of the
profit derived from the duly registered general partnership (Section 26, N.I.R.C.; Arañas, Anno. & Juris.
on the N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nêt

But it is argued that the income of the limited partnership is actually or constructively the income of the
spouses and forms part of the conjugal partnership of gains. This is not wholly correct. As pointed out in
Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60 Phil. 167, the fruits
of the wife's parapherna become conjugal only when no longer needed to defray the expenses for the
administration and preservation of the paraphernal capital of the wife. Then again, the appellant's
argument erroneously confines itself to the question of the legal personality of the limited partnership,
which is not essential to the income taxability of the partnership since the law taxes the income of even
joint accounts that have no personality of their own. 1 Appellant is, likewise, mistaken in that it assumes
that the conjugal partnership of gains is a taxable unit, which it is not. What is taxable is the "income of
both spouses" (Section 45 [d] in their individual capacities. Though the amount of income (income of the
conjugal partnership vis-a-vis the joint income of husband and wife) may be the same for a given taxable
year, their consequences would be different, as their contributions in the business partnership are not
the same.
The difference in tax rates between the income of the limited partnership being consolidated with, and
when split from the income of the spouses, is not a justification for requiring consolidation; the revenue
code, as it presently stands, does not authorize it, and even bars it by requiring the limited partnership
to pay tax on its own income.

FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.
G.R. No. L-35469 March 17, 1932

E. S. LYONS, plaintiff-appellant,

vs.

C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser, deceased, defendant-appellee.

Harvey & O'Brien for appellant.

DeWitt, Perkins & Brandy for appellee.

STREET, J.:

This action was institute in the Court of First Instance of the City of Manila, by E. S. Lyons against C. W.
Rosenstock, as executor of the estate of H. W. Elser, deceased, consequent upon the taking of an appeal
by the executor from the allowance of the claim sued upon by the committee on claims in said estate.
The purpose of the action is to recover four hundred forty-six and two thirds shares of the stock of J. K.
Pickering & Co., Ltd., together with the sum of about P125,000, representing the dividends which
accrued on said stock prior to October 21, 1926, with lawful interest. Upon hearing the cause the trial
court absolved the defendant executor from the complaint, and the plaintiff appealed.

Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the City of Manila where he
was engaged during the years with which we are here concerned in buying, selling, and administering
real estate. In several ventures which he had made in buying and selling property of this kind the
plaintiff, E. S. Lyons, had joined with him, the profits being shared by the two in equal parts. In April,
1919, Lyons, whose regular vocation was that of a missionary, or missionary agent, of the Methodist
Episcopal Church, went on leave to the United States and was gone for nearly a year and a half,
returning on September 21, 1920. On the eve of his departure Elser made a written statements showing
that Lyons was, at that time, half owner with Elser of three particular pieces of real property.
Concurrently with this act Lyons execute in favor of Elser a general power of attorney empowering him
to manage and dispose of said properties at will and to represent Lyons fully and amply, to the mutual
advantage of both. During the absence of Lyons two of the pieces of property above referred to were
sold by Elser, leaving in his hands a single piece of property located at 616-618 Carried Street, in the City
of Manila, containing about 282 square meters of land, with the improvements thereon.

In the spring of 1920 the attention of Elser was drawn to a piece of land, containing about 1,500,000
square meters, near the City of Manila, and he discerned therein a fine opportunity for the promotion
and development of a suburban improvement. This property, which will be herein referred to as the San
Juan Estate, was offered by its owners for P570,000. To afford a little time for maturing his plans, Elser
purchased an option on this property for P5,000, and when this option was about to expire without his
having been able to raise the necessary funds, he paid P15,000 more for an extension of the option, with
the understanding in both cases that, in case the option should be exercised, the amounts thus paid
should be credited as part of the first payment. The amounts paid for this option and its extension were
supplied by Elser entirely from his own funds. In the end he was able from his own means, and with the
assistance which he obtained from others, to acquire said estate. The amount required for the first
payment was P150,000, and as Elser had available only about P120,000, including the P20,000 advanced
upon the option, it was necessary to raise the remainder by obtaining a loan for P50,000. This amount
was finally obtained from a Chinese merchant of the city named Uy Siuliong. This loan was secured
through Uy Cho Yee, a son of the lender; and in order to get the money it was necessary for Elser not
only to give a personal note signed by himself and his two associates in the projected enterprise, but
also by the Fidelity & Surety Company. The money thus raised was delivered to Elser by Uy Siuliong on
June 24, 1920. With this money and what he already had in bank Elser purchased the San Juan Estate on
or about June 28, 1920. For the purpose of the further development of the property a limited
partnership had, about this time, been organized by Elser and three associates, under the name of J. K.
Pickering & Company; and when the transfer of the property was effected the deed was made directly
to this company. As Elser was the principal capitalist in the enterprise he received by far the greater
number of the shares issued, his portion amount in the beginning to 3,290 shares.
While these negotiations were coming to a head, Elser contemplated and hoped that Lyons might be
induced to come in with him and supply part of the means necessary to carry the enterprise through. In
this connection it appears that on May 20, 1920, Elser wrote Lyons a letter, informing him that he had
made an offer for a big subdivision and that, if it should be acquired and Lyons would come in, the two
would be well fixed. (Exhibit M-5.) On June 3, 1920, eight days before the first option expired, Elser
cabled Lyons that he had bought the San Juan Estate and thought it advisable for Lyons to resign (Exhibit
M-13), meaning that he should resign his position with the mission board in New York. On the same date
he wrote Lyons a letter explaining some details of the purchase, and added "have advised in my cable
that you resign and I hope you can do so immediately and will come and join me on the lines we have so
often spoken about. . . . There is plenty of business for us all now and I believe we have started
something that will keep us going for some time." In one or more communications prior to this, Elser
had sought to impress Lyons with the idea that he should raise all the money he could for the purpose of
giving the necessary assistance in future deals in real estate.

The enthusiasm of Elser did not communicate itself in any marked degree to Lyons, and found him
averse from joining in the purchase of the San Juan Estate. In fact upon this visit of Lyons to the United
States a grave doubt had arisen as to whether he would ever return to Manila, and it was only in the
summer of 1920 that the board of missions of his church prevailed upon him to return to Manila and
resume his position as managing treasurer and one of its trustees. Accordingly, on June 21, 1920, Lyons
wrote a letter from New York thanking Elser for his offer to take Lyons into his new project and adding
that from the standpoint of making money, he had passed up a good thing.

One source of embarrassment which had operated on Lyson to bring him to the resolution to stay out of
this venture, was that the board of mission was averse to his engaging in business activities other than
those in which the church was concerned; and some of Lyons' missionary associates had apparently
been criticizing his independent commercial activities. This fact was dwelt upon in the letter above-
mentioned. Upon receipt of this letter Elser was of course informed that it would be out of the question
to expect assistance from Lyons in carrying out the San Juan project. No further efforts to this end were
therefore made by Elser.

When Elser was concluding the transaction for the purchase of the San Juan Estate, his book showed
that 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; and 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. It seems to be supposed in the appellant's brief that the transfer of these shares to Lyons by
Elser supplies some sort of basis for the present action, or at least strengthens the considerations
involved in a feature of the case to be presently explained. This view is manifestly untenable, since the
ratification of the transaction by Lyons and the appropriation by him of the shares which were issued to
him leaves no ground whatever for treating the transaction as a source of further equitable rights in
Lyons. We should perhaps add that after Lyons' return to the Philippine Islands he acted for a time as
one of the members of the board of directors of the J. K. Pickering & Company, his qualification for this
office being derived precisely from the ownership of these shares.

We now turn to the incident which supplies the main basis of this action. It will be remembered that,
when Elser obtained the loan of P50,000 to complete the amount needed for the first payment on the
San Juan Estate, the lender, Uy Siuliong, insisted that he should procure the signature of the Fidelity &
Surety Co. on the note to be given for said loan. But before signing the note with Elser and his
associates, the Fidelity & Surety Co. insisted upon having security for the liability thus assumed by it. To
meet this requirements Elser mortgaged to the Fidelity & Surety Co. the equity of redemption in the
property owned by himself and Lyons on Carriedo Street. This mortgage was executed on June 30, 1920,
at which time Elser expected that Lyons would come in on the purchase of the San Juan Estate. But
when he learned from the letter from Lyons of July 21, 1920, that the latter had determined not to come
into this deal, Elser began to cast around for means to relieve the Carriedo property of the encumbrance
which he had placed upon it. For this purpose, on September 9, 1920, he addressed a letter to the
Fidelity & Surety Co., asking it to permit him to substitute a property owned by himself at 644 M. H. del
Pilar Street, Manila, and 1,000 shares of the J. K. Pickering & Company, in lieu of the Carriedo property,
as security. The Fidelity & Surety Co. agreed to the proposition; and on September 15, 1920, Elser
executed in favor of the Fidelity & Surety Co. a new mortgage on the M. H. del Pillar property and
delivered the same, with 1,000 shares of J. K. Pickering & Company, to said company. The latter
thereupon in turn executed a cancellation of the mortgage on the Carriedo property and delivered it to
Elser. But notwithstanding the fact that these documents were executed and delivered, the new
mortgage and the release of the old were never registered; and on September 25, 1920, thereafter,
Elser returned the cancellation of the mortgage on the Carriedo property and took back from the
Fidelity & Surety Co. the new mortgage on the M. H. del Pilar property, together with the 1,000 shares
of the J. K. Pickering & Company which he had delivered to it.

The explanation of this change of purpose is undoubtedly to be found in the fact that Lyons had arrived
in Manila on September 21, 1920, and shortly thereafter, in the course of a conversation with Elser told
him to let the Carriedo mortgage remain on the property ("Let the Carriedo mortgage ride"). Mrs. Elser
testified to the conversation in which Lyons used the words above quoted, and as that conversation
supplies the most reasonable explanation of Elser's recession from his purpose of relieving the Carriedo
property, the trial court was, in our opinion, well justified in accepting as a proven fact the consent of
Lyons for the mortgage to remain on the Carriedo property. This concession was not only reasonable
under the circumstances, in view of the abundant solvency of Elser, but in view of the further fact that
Elser had given to Lyons 200 shares of the stock of the J. K. Pickering & Co., having a value of nearly
P8,000 in excess of the indebtedness which Elser had owed to Lyons upon statement of account. 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. Whether the agreement was reached exactly upon
this precise line of thought is of little moment, but the relations of the parties had been such that it was
to be expected that Elser would be generous; and he could scarcely have failed to take account of the
use he had made of the joint property of the two.

As the development of the San Juan Estate was a success from the start, Elser paid the note of P50,000
to Uy Siuliong on January 18, 1921, although it was not due until more than five months later. It will thus
be seen that the mortgaging of the Carriedo property never resulted in damage to Lyons to the extent of
a single cent; and although the court refused to allow the defendant to prove the Elser was solvent at
this time in an amount much greater than the entire encumbrance placed upon the property, it is
evident that the risk imposed upon Lyons was negligible. It is also plain that no money actually deriving
from this mortgage was ever applied to the purchase of the San Juan Estate. What really happened was
the Elser merely subjected the property to a contingent liability, and no actual liability ever resulted
therefrom. The financing of the purchase of the San Juan Estate, apart from the modest financial
participation of his three associates in the San Juan deal, was the work of Elser accomplished entirely
upon his own account.

The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000 upon the equity of
redemption in the Carriedo property, Lyons, as half owner of said property, became, as it were,
involuntarily the owner of an undivided interest in the property acquired partly by that money; and it is
insisted for him that, in consideration of this fact, he is entitled to the four hundred forty-six and two-
thirds shares of J. K. Pickering & Company, with the earnings thereon, as claimed in his complaint.

Lyons tells us that he did not know until after Elser's death that the money obtained from Uy Siuliong in
the manner already explained had been used to held finance the purchase of the San Juan Estate. He
seems to have supposed that the Carried property had been mortgaged to aid in putting through
another deal, namely, the purchase of a property referred to in the correspondence as the "Ronquillo
property"; and in this connection a letter of Elser of the latter part of May, 1920, can be quoted in which
he uses this language:
As stated in cablegram I have arranged for P50,000 loan on Carriedo property. Will use part of the
money for Ronquillo buy (P60,000) if the owner comes through.

Other correspondence shows that Elser had apparently been trying to buy the Ronquillo property, and
Lyons leads us to infer that he thought that the money obtained by mortgaging the Carriedo property
had been used in the purchase of this property. It doubtedless appeared so to him in the retrospect, but
certain consideration show that he was inattentive to the contents of the quotation from the letter
above given. He had already been informed that, although Elser was angling for the Ronquillo property,
its price had gone up, thus introducing a doubt as to whether he could get it; and the quotation above
given shows that the intended use of the money obtained by mortgaging the Carriedo property was that
only part of the P50,000 thus obtained would be used in this way, if the deal went through. Naturally,
upon the arrival of Lyons in September, 1920, one of his first inquiries would have been, if he did not
know before, what was the status of the proposed trade for the Ronquillo property.

Elser's widow and one of his clerks testified that about June 15, 1920, Elser cabled Lyons something to
this effect;: "I have mortgaged the property on Carriedo Street, secured by my personal note. You are
amply protected. I wish you to join me in the San Juan Subdivision. Borrow all money you can." Lyons
says that no such cablegram was received by him, and we consider this point of fact of little moment,
since the proof shows that Lyons knew that the Carriedo mortgage had been executed, and after his
arrival in Manila he consented for the mortgage to remain on the property until it was paid off, as
shortly occurred. It may well be that Lyons did not at first clearly understand all the ramifications of the
situation, but he knew enough, we think, to apprise him of the material factors in the situation, and we
concur in the conclusion of the trial court that Elser did not act in bad faith and was guilty of no fraud.

In the purely legal aspect of the case, 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 article 1724 of the Civil
Code and article 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 (Martinez vs. Martinez,
1 Phil., 647; Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an actual relation of partnership had
existed in the money used, the case might be difference; 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 article 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.

The appellee insist that the trial court committed error in admitting the testimony of Lyons upon
matters that passed between him and Elser while the latter was still alive. While the admission of this
testimony was of questionable propriety, any error made by the trial court on this point was error
without injury, and the determination of the question is not necessary to this decision. We therefore
pass the point without further discussion.

The judgment appealed from will be affirmed, and it is so ordered, with costs against the appellant.