Case Summary (G.R. No. 237721)
Petitioner
Merian B. Santiago advanced a total of ₱1,569,000 from November 15, 2000 to June 30, 2003, receiving ₱877,000 in interest until Edna defaulted in December 2003.
Respondents
Edna L. Garcia operated an unlicensed lending enterprise, soliciting Merian’s funds to grant loans to others. Bayani Garcia was impleaded but did not actively participate at trial.
Key Dates
• Investment period: November 15, 2000–June 30, 2003
• Default on interest: December 2003
• Extrajudicial demand: January 20, 2004
• Complaint filed: February 12, 2004
• RTC decision: dismissed complaint, awarded damages to respondents
• CA decision: affirmed dismissal, deleted damages award
• SC decision: March 9, 2020
Applicable Law
• 1987 Constitution (decision rendered post-1990)
• Civil Code (Arts. 1767–1769 on partnership; Arts. 1933, 1953 on loan; Art. 1306 on freedom of contract)
• Lending Company Act (R.A. 9474) — regulatory context (enacted 2007; inapplicable to 2000–2003 transactions)
Facts
Merian was induced to place her capital in Edna’s lending business at a promised monthly interest rate of 5–8% and with the principal repayable on demand. No written contract existed. Merian invested ₱1,569,000; received interest payments totaling ₱877,000 until Edna’s default. Upon demand, Merian received only ₱20,000 and signed an acknowledgment receipt of “partial payment from the principal.” Discovering similar investor complaints, Merian sued for recovery of her funds.
Procedural History
• RTC: Characterized the transaction as a partnership, held that losses could not convert an investment into a loan, dismissed the complaint, and awarded moral damages, attorney’s fees, and costs to respondents.
• CA: Rejected partnership finding but deemed the contract an investment entailing business risk, affirmed dismissal, and deleted the award of damages.
• Merian’s motions for reconsideration were denied at both levels. She filed a Rule 45 petition.
Issue
Whether the contract between Merian and Edna was an investment agreement implying assumption of business risk and thus barred Merian’s demand for return of principal.
Ruling
The Supreme Court granted the petition, holding that:
- No partnership existed—there was no agreement to share profits or mutual agency.
- No simple loan existed—Merian consistently treated her contributions as investments, and Edna used the funds in her lending
Case Syllabus (G.R. No. 237721)
Facts
- In November 2000, petitioner Merian B. Santiago (“Merian”) was induced by respondent Edna L. Garcia (“Edna”) to invest in Edna’s lending business, with a promised monthly return of 5%–8%.
- The parties agreed that Edna would remit monthly interest to Merian and return the principal investment upon demand, but no written contract was executed.
- From November 15, 2000 to June 30, 2003, Merian invested a total of ₱1,569,000.00 in multiple tranches.
- Edna paid Merian ₱877,000.00 in interest until December 2003, when she ceased remittances and defaulted on her promise.
- On January 20, 2004, through counsel, Merian demanded return of her ₱1,569,000.00 principal; on the same day Edna paid ₱20,000.00 (₱15,000 cash, ₱5,000 gift cheque) as “partial payment from the principal.”
- Edna prepared and Merian signed an acknowledgment receipt dated January 18, 2004, recognizing the ₱20,000.00 as partial principal payment and stating the total principal as ₱1,569,000.00.
- Learning that other investors were similarly defrauded, Merian filed on February 12, 2004 a complaint for money demand with a prayer for writ of preliminary attachment against spouses Edna and Bayani Garcia.
Procedural History
- The Regional Trial Court (RTC) held that Merian and Edna formed a partnership (Merian as capitalist partner, Edna as industrial partner) and ruled that investors cannot convert a losing partnership share into a loan; it dismissed the complaint and awarded moral damages, attorney’s fees, and costs in favor of spouses Garcia.
- On Merian’s motion for reconsideration, the RTC denied relief. She appealed to the Court of Appeals (CA).
- The CA disagreed with the partner