7/27/25, 9:01 PM Santiago vs.
Spouses Garcia
Title
Santiago vs. Spouses Garcia
Case Decision Date
G.R. No. 228356 Mar 9, 2020
Merian invested P1.569M in Edna's lending business, expecting principal return upon
demand. Edna defaulted; SC ruled it as an investment, not a partnership or loan, obliging
Edna to return the principal with interest.
Jur.ph - Case Digest (G.R. No. 228356)
Core Legal Reasoning Model
Facts:
In November 2000, petitioner Merian B. Santiago was enticed by respondent Edna L.
Garcia to place funds in Edna’s informal lending business with the promise of monthly
interest payments of 5% to 8% and the return of her principal “upon demand.” No written
agreement was executed. Between November 15, 2000 and June 30, 2003, Merian
advanced a total of ₱1,569,000.00. Edna remitted ₱877,000.00 as interest but defaulted in
December 2003. Merian’s counsel sent a demand letter on January 20, 2004 for the return
of the full principal, and Edna personally paid a ₱20,000.00 partial amount that same day,
acknowledging it as “partial payment from the principal.” On February 12, 2004, Merian
filed a complaint for sum of money with a prayer for preliminary attachment against
spouses Edna L. and Bayani Garcia. The Regional Trial Court (RTC) found that a
partnership had been formed and dismissed Merian’s claim, awarding moral damages and
attorney’s fees in favor of the Garcias. On appeal, the Court of Appeals (CA) held that the
contract was not a partnership nor a loan but an investment entailing business risk,
affirmed the dismissal of the complaint, and deleted the award of damages. Merian’s
motion for reconsideration was denied, prompting this Rule 45 petition.
Issues:
Whether the Court of Appeals erred in characterizing the transaction between Merian and
Edna as an investment contract with inherent business risk, thereby denying Merian’s
right to recover her principal on demand.
Ruling:
The Supreme Court granted the petition, reversed and set aside both the CA decision and
the RTC judgment. It held that Edna is contractually bound to return Merian’s principal and
ordered spouses Edna L. and Bayani Garcia to pay Merian the principal amount of
₱1,549,000.00 (₱1,569,000.00 less the ₱20,000.00 partial payment) with interest at 12% per
annum from January 20, 2004 to June 30, 2013, and at 6% per annum from July 1, 2013
until full payment.
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7/27/25, 9:01 PM Santiago vs. Spouses Garcia
Ratio:
The Court observed that the transaction was neither a partnership—since there was no
agreement to share profits and no mutual agency (Civil Code Arts. 1767, 1769)—nor a simple
loan—because Merian consistently described her advances as an investment, and Edna
used the funds to lend to third parties (Civil Code Arts. 1933, 1953). Rather, it was an
investment contract governed by the parties’ stipulations (Civil Code, Art. 1306). The
contemporaneous acknowledgment receipt, drafted by Edna and signed by Merian,
unequivocally recognized an obligation to return the principal on demand, demonstrating
that the parties did not intend Merian to assume business risk. In the absence of any
evidence that Edna’s lending business suffered losses, there was no factual or legal basis to
deny the return of the capital.
Doctrine:
An investment contract is governed by the express stipulations of the parties and will be
enforced as written so long as it does not violate law, morals, public order, or policy (1987
Constitution; Civil Code, Art. 1306). The mere sharing of profits or expectation of income
does not create a partnership (Civil Code, Art. 1769). A party who assumes risk under an
investment contract must provide proof of actual business losses before capital may be
deemed forfeited. Where an investor obtains an acknowledgment receipt evidencing the
return of principal “upon demand,” the obligor is bound to honor that promise regardless
of business performance.
Note: AI summaries may not capture all details. Please refer to full text for complete accuracy.
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