GR 228356; (March, 2020) (Digest)
G.R. No. 228356 , March 09, 2020
MERIAN B. SANTIAGO, PETITIONER, VS. SPOUSES EDNA L. GARCIA AND BAYANI GARCIA, RESPONDENTS.
FACTS
In November 2000, respondent Edna L. Garcia enticed petitioner Merian B. Santiago to invest money in Edna’s lending business with a promise of a high monthly interest return of 5% to 8%. It was agreed that the monthly interest would be remitted to Merian and the principal amount would be returned upon demand. No written evidence of this agreement was presented. From November 15, 2000, to June 30, 2003, Merian invested an aggregate amount of P1,569,000.00 and received P877,000.00 in interest remittances. In December 2003, Edna defaulted on the interest payments. After a demand letter and a meeting, Edna paid Merian P20,000.00, which was acknowledged in a receipt as “partial payment from [the] principal” of P1,569,000.00. Merian filed a complaint for sum of money. The Regional Trial Court (RTC) dismissed the complaint, ruling that a partnership was formed between Merian and Edna, and an investor cannot convert an investment into a loan upon loss. The Court of Appeals (CA) disagreed with the partnership finding but affirmed the dismissal, holding the transaction was an investment entailing business risk, and thus Merian had no cause of action for the return of her investment.
ISSUE
Whether the Court of Appeals erred in finding that the contractual relation between Merian and Edna is one of investment which entails the assumption of business risk, thereby precluding Merian from demanding the return of her principal.
RULING
The Supreme Court GRANTED the petition. It held that the transaction was neither a partnership nor a simple loan but an investment contract in a lending business. The Court found that the parties’ agreement, as evidenced by their acts and the acknowledgment receipt, included the obligation to return the principal amount upon demand. The receipt, prepared by Edna, explicitly acknowledged the P20,000.00 as “partial payment from the principal,” confirming Edna’s obligation to return the capital. There was no allegation or proof that Edna’s lending business suffered losses, so the assumption of risk had no factual basis. The Court reversed the CA and ordered respondents to pay Merian the principal amount of P1,549,000.00 (after deducting the P20,000.00 partial payment) with legal interest.