1.Yong Chan Kim v.

People
G.R. No. 84719, Jan. 25, 1991

Facts: Petitioner Yong Chan Kim was employed as a Researcher at the

Aquaculture Department of the Southeast Asian Fisheries Development Center
(SEAFDEC) with head station at Tigbauan, Province of Iloilo. As Head of the
Economics Unit of the Research Division, he conducted prawn surveys which
required him to travel to various selected provinces in the country where there
are potentials for prawn culture.

On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered
his travels to different places in Luzon from 16 June to 21 July 1982, a period of
thirty five (35) days. Under this travel order, he received P6,438.00 as cash
advance to defray his travel expenses.

Within the same period, petitioner was issued another travel order, T.O.
2268, requiring him to travel from the Head Station at Tigbauan, Iloilo to Roxas
City from 30 June to 4 July 1982, a period of five (5) days. For this travel order,
petitioner received a cash advance of P495.00.

On 14 January 1983, petitioner presented both travel orders for liquidation,

submitting Travel Expense Reports to the Accounting Section. When the Travel
Expense Reports were audited, it was discovered that there was an overlap of four (4)
days (30 June to 3 July 1982) in the two (2) travel orders for which petitioner collected
per diems twice. In sum, the total
amount in the form of per diems and allowances charged and collected by
petitioner under Travel Order No. 2222, when he did not actually and physically
travel as represented by his liquidation papers, was P1,230.00.

For the alleged failure of petitioner to return the amount of P1,230.00, he was
charged with the crime of Estafa under Article 315, par. 1(b) of the Revised
Penal Code, which reads as follows:

"Art. 315. Swindling (Estafa). Any person who shall defraud another by
any of the means mentioned herein below shall be punished by:

xxx xxx xxx

"1. With unfaithfulness or abuse of confidence, namely:

(a) . . .

(b) By misappropriating or converting, to the prejudice of another,

money, goods, or any other personal property received by the offender in
trust or on commission, or for administration, or under any other
obligation involving the duty to make delivery of; or to return, the same,
even though such obligation be totally or partially guaranteed by a bond; or
by denying having received such money, goods, or other property."
 In order that a person can be convicted under the abovequoted provision, it
must be proven that he had the obligation to deliver or return the same money,
goods or personal property that he had received.

Was petitioner under obligation to return the same money (cash advance)
which he had received? We believe not. Executive Order No. 10, dated 12
February 1980 provides as follows:

"B. Cash Advance for Travel.

xxx xxx xxx

"4. All cash advances must be liquidated within 30 days after date of
projected return of the person. Otherwise, corresponding salary deduction
shall be made immediately following the expiration day."

Liquidation simply means the settling of an indebtedness. An employee, such

as herein petitioner, who liquidates a cash advance is in fact paying back his
debt in the form of a loan of money advanced to him by his employer, as per
diems and allowances. Similarly, as stated in the assailed decision of the lower
court, "if the amount of the cash advance he received is less than the amount he
spent for actual travel . . . he has the right to demand reimbursement from his
employer the amount he spent coming from his personal funds." In other words,
the money advanced by either party is actually a loan to the other. Hence,
petitioner was under no legal obligation to return the same cash or money, i.e.,
the bills or coins, which he received from the private respondent.

Article 1933 and Article 1953 of the Civil Code define the nature of a simple
loan.

"Art. 1933. By the contract of loan, one of the parties delivers to another,
either something not consumable so that the latter may use the same for a
certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition
that the same amount of the same kind and quality shall be paid, in which
case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum the bailor retains the ownership of the thing loaned,

while in simple loan, ownership passes to the borrower."

"Art. 1953. — A person who receives a loan of money or any other

fungible thing acquires the ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and quality."

The ruling of the trial judge that ownership of the cash advanced to the
petitioner by private respondent was not transferred to the latter is erroneous.
Ownership of the money was transferred to the petitioner. Even the prosecution
witness, Virgilio Hierro, testified thus:

"Q When you gave cash advance to the accused in this Travel Order No.
2222 subject to liquidation, who owns the funds, accused or SEAFDEC?
How do you consider the funds in the possession of the accused at the time
when there is an actual transfer of cash? . . .

A The one drawing cash advance already owns the money but subject to
liquidation. If he will not liquidate, he is obliged to return the amount.

Q...

So why do you treat the itinerary of travel temporary when in fact as of

that time the accused owned already the cash advance. You said the cash
advance given to the accused is his own money. In other words, at the time
you departed with the money it belongs already to the accused?

A Yes, but subject for liquidation. He will be only entitled for that
credence if he liquidates.

Q If other words, it is a transfer of ownership subject to a suspensive

condition that he liquidates the amount of cash advance upon return to
station and completion of the travel?

A Yes, sir."

Since ownership of the money (cash advance) was transferred to petitioner, no

fiduciary relationship was created. Absent this fiduciary relationship between
petitioner and private respondent, which is an essential element of the crime of
estafa by misappropriation or conversion, petitioner could not have committed
estafa.

3.Spouses Ong v. BPI Family Savings Bank, Inc.

G.R. No. 208638, Jan. 24, 2018

Fact: Spouses Francisco Ong and Betty Lim Ong and Spouses Joseph Ong
Chuan and Esperanza Ong Chuan (collectively referred to as the petitioners) are
engaged in the business of printing under the name and style "MELBROS
PRINTING CENTER."

Sometime in December 1996, Bank of Southeast Asia's (BSA) managers,

Ronnie Denila and Rommel Nayve, visited petitioners' office and discussed the
various loan and credit facilities offered by their bank. In view of petitioners'
business expansion plans and the assurances made by BSA's managers, they
applied for the credit facilities offered by the latter.

Sometime in April 1997, they executed a real estate mortgage (REM) over
their property situated in Paco, Manila, covered by Transfer Certificate of Title
 No. 143457, in favor of BSA as security for a P15,000,000.00 term loan and
P5,000,000.00 credit line or a total of P20,000,000.00.

With regard to the term loan, only P10,444,271.49 was released by BSA (the
amount needed by the petitioners to pay out their loan with Ayala life
assurance, the balance was credited to their account with BSA).

With regard to the P5,000,000.00 credit line, only P3,000,000.00 was

released. BSA promised to release the remaining P2,000,000.00 conditioned
upon the payment of the P3,000,000.00 initially released to petitioners.

Petitioners acceded to the condition and paid the P3,000,000.00 in full.

However, BSA still refused to release the P2,000,000.00. Petitioners then
refused to pay the amortizations due on their term loan.

Later on, BPI Family Savings Bank (BPI) merged with BSA, thus, acquired all
the latter's rights and assumed its obligations. BPI filed a petition for
extrajudicial foreclosure of the REM for petitioners' default in the payment of
their term loan.

Issue: Whether or not there was already an existing and binding contract
between petitioners and BSA with regard to the omnibus credit line

Held: As a rule, a contract is perfected upon the meeting of the minds of

the two parties. It is perfected by mere consent, that is, from the moment that
there is a meeting of the offer and acceptance upon the thing and the cause that
constitute the contract.1

In the case of Spouses Palada v. Solidbank Corporation, et al.,2 this Court held
that under Article 1934 of the Civil Code, a loan contract is perfected only upon
the delivery of the object of the contract. In that case, although therein
petitioners applied for a P3,000,000.00 loan, only the amount of P1,000,000.00
was approved by therein respondent bank because petitioners became
collaterally deficient. Nonetheless, the loan contract was deemed perfected on
March 17, 1997, the date when petitioners received the P1,000,000.00 loan,
which was the object of the contract and the date when the REM was
constituted over the property.3

Applying this to the case at bench, there is no iota of doubt that when BSA
approved and released the P3,000,000.00 out of the original P5,000,000.00
credit facility, the contract was perfected.

The conclusion reached by the appellate court that only the term loan of
P15,000,000.00 was proved to have materialized into an actual contract while
the P5,000,000.00 omnibus line credit remained non-existent is ludicrous. A
careful perusal of the records reveal that the credit facility that BSA extended to
1
668 Phil. 172 (2011).
2
Id. at 182.
3
IV Tolentino, The Civil Code of the Philippines, p. 175 (1999).
 petitioners was a credit line of P20,000,000.00 consisting of a term loan in the
sum of P15,000,000.00 and a revolving omnibus line of P3,000,000.00 to be
used in the petitioner's printing business. In separate Letters both dated
January 31, 1997, BSA approved the term loan and the credit line. Such
approval and subsequent release of the amounts, albeit delayed, perfected the
contract between the parties.

Loan is a reciprocal obligation, as it arises from the same cause where one
party is the creditor and the other the debtor. 4 The obligation of one party in a
reciprocal obligation is dependent upon the obligation of the other, and the
performance should ideally be simultaneous. This means that in a loan, the
creditor should release the full loan amount and the debtor repays it when it
becomes due and demandable.

In this case, BSA did not only incur delay in releasing the pre-agreed credit
line of P5,000,000.00 but likewise violated the terms of its agreement with
petitioners when it deliberately failed to release the amount of P2,000,000.00
after petitioners complied with their terms and paid the first P3,000,000.00 in
full. The default attributed to petitioners when they stopped paying their
amortizations on the term loan cannot be sustained by this Court because long
before they sent a Letter to BSA informing the latter of their refusal to continue
paying amortizations, BSA had already reneged on its obligation to release the
amount previously agreed upon, i.e., the P5,000,000.00 covered by the credit
line.

5.Producers Bank of the Philippines v. Court of Appeals

G.R. No. 115324, Feb. 19, 2003

Facts: Sometime in 1979, private respondent Franklin Vives was asked by his
neighbor and friend Angeles Sanchez to help her friend and townmate, Col.
Arturo Doronilla, in incorporating his business, the Sterela Marketing and
Services ("Sterela" for brevity). Specifically, Sanchez asked private respondent to
deposit in a bank a certain amount of money in the bank account of Sterela for
purposes of its incorporation. She assured private respondent that he could
withdraw his money from said account within a month's time.

Thereafter, relying on the assurances and representations of Sanchez and

Doronilla, private respondent issued a check in the amount of Two Hundred
Thousand Pesos (P200,000.00) in favor of Sterela. Private respondent instructed
his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in opening
a savings account in the name of Sterela in the Buendia, Makati branch of
Producers Bank of the Philippines. In opening the account, the authorized
signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for
Savings Account No. 10-1567 was thereafter issued to Mrs. Vives.

Subsequently, private respondent learned that Sterela was no longer holding

office in the address previously given to him. Alarmed, he and his wife went to

4
Subic Bay Metropolitan Authority v. Court of Appeals, et al., 690 Phil. 336, 344 (2012).
the Bank to verify if their money was still intact. The bank manager referred
them to Mr. Rufo Atienza, the assistant manager, who informed them that part
of the money in Savings Account No. 10-1567 had been withdrawn by Doronilla,
and that only P90,000.00 remained therein. He likewise told them that Mrs.
Vives could not withdraw said remaining amount because it had to answer for
some postdated checks issued by Doronilla. According to Atienza, after Mrs.
Vives and Sanchez opened Savings Account No. 10-1567, Doronilla opened
Current Account No. 10-0320 for Sterela and authorized the Bank to debit
Savings; Account No. 10-1567 for the amounts necessary to cover overdrawings
in Current Account No. 10-0320. In opening said current account, Sterela,
through Doronilla, obtained a loan of P175,000.00 from the Bank. To cover
payment thereof, Doronilla issued three postdated checks, all of which were
dishonored. Atienza also said that Doronilla could assign or withdraw the money
in Savings Account No. 10-1567 because he was the sole proprietor of Sterela.

Petitioner contends that the transaction between private respondent and

Doronilla is a simple loan (mutuum) since all the elements of a mutuum are
present: first, what was delivered by private respondent to Doronilla was money,
a consumable thing; and second, the transaction was onerous as Doronilla was
obliged to pay interest, as evidenced by the check issued by Doronilla in the
amount of P212,000.00, or P12,000 more than what private respondent
deposited in Sterela's bank account. Moreover, the fact that private respondent
sued his good friend Sanchez for his failure to recover his money from Doronilla
shows that the transaction was not merely gratuitous but "had a business
angle" to it. Hence, petitioner argues that it cannot be held liable for the return
of private respondent's P200,000.00 because it is not privy to the transaction
between the latter and Doronilla.

Held: A circumspect examination of the records reveals that the transaction

between them was a commodatum. Article 1933 of the Civil Code distinguishes
between the two kinds of loans in this wise:

By the contract of loan, one of the parties delivers to another, either

something not consumable so that the latter may use the same for a
certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition
that the same amount of the same kind and quality shall be paid, in which
case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum, the bailor retains the ownership of the thing loaned,

while in simple loan, ownership passes to the borrower.

The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However,
there are some instances where a commodatum may have for its object a
consumable thing. Article 1936 of the Civil Code provides:
 Consumable goods may be the subject of commodatum if the purpose of the
contract is not the consumption of the object, as when it is merely for exhibition.

Thus, if consumable goods are loaned only for purposes of exhibition, or

when the intention of the parties is to lend consumable goods and to have the
very same goods returned at the end of the period agreed upon, the loan is a
commodatum and not a mutuum.

The rule is that the intention of the parties thereto shall be accorded
primordial consideration in determining the actual character of a contract. In
case of doubt, the contemporaneous and subsequent acts of the parties shall be
considered in such determination.

As correctly pointed out by both the Court of Appeals and the trial court, the
evidence shows that private respondent agreed to deposit his money in the
savings account of Sterela specifically for the purpose of making it appear "that
said firm had sufficient capitalization for incorporation, with the promise that
the amount shall be returned within thirty (30) days. Private respondent merely
"accommodated" Doronilla by lending his money without consideration, as a
favor to his good friend Sanchez. It was however clear to the parties to the
transaction that the money would not be removed from Sterela's savings
account and would be returned to private respondent after thirty (30) days.

Doronilla's attempts to return to private respondent the amount of

P200,000.00 which the latter deposited in Sterela's account together with an
additional P12,000.00, allegedly representing interest on the mutuum, did not
convert the transaction from a commodatum into a mutuum because such was
not the intent of the parties and because the additional P12,000.00 corresponds
to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code
expressly states that "[t]he bailee in commodatum acquires the use of the thing
loaned but not its fruits." Hence, it was only proper for Doronilla to remit to
private respondent the interest accruing to the latter's money deposited with
petitioner.

6.Republic v. Bagtas
G.R. No. L-17474, Oct. 25, 1962

Facts: On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the
Philippines through the Bureau of Animal Industry three bulls: a Red Sindhi
with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of
P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding
purposes subject to a government charge of breeding fee of 10% of the book
value of the bulls. Upon the expiration on 7 May 1949 of the contract, the
borrower asked for a renewal for another period of one year. However, the
Secretary of Agriculture and Natural Resources approved a renewal thereof of
only one bull for another year from 8 May 1949 to 7 May 1950 and requested
the return of the other two.
 On 25 March 1950 Jose V. Bagtas wrote to the Director of Animal Industry
that he would pay the value of the three bulls. On 17 October 1950 he reiterated
his desire to buy them at a value with a deduction of yearly depreciation to be
approved by the Auditor General. On 19 October 1950 the Director of Animal
Industry advised him that the book value of the three bulls could not be reduced
and that they either be returned or their book value paid not later than 31
October 1950.

Jose V. Bagtas failed to pay the book value of the three bulls or to return
them. So, on 20 December 1950 in the Court of First Instance of Manila the
Republic of the Philippines commenced an action against him praying that he be
ordered to return the three bulls loaned to him or to pay their book value in the
total sum of P3,241.45 and the unpaid breeding fee in the sum of P199.62, both
with interests, and costs; and that other just and equitable relief be granted in
(civil No. 12818).

The appellant contends that the Sahiniwal bull was accidentally killed during
a raid by the Huk in November 1953 upon the surrounding barrios of Hacienda
Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such
death was due to force majeure she is relieved from the duty of returning the
bull or paying its value to the appellee.

Held: A contract of commodatum is essentially gratuitous. If the breeding

fee be considered a compensation, then the contract would be a lease of the bull.
Under article 1671 of the Civil Code the lessee would be subject to the
responsibilities of a possessor in bad faith, because she had continued
possession of the bull after the expiry of the contract. And even if the contract be
commodatum, still the appellant is liable, because article 1942 of the Civil Code
provides that a bailee in a contract of commodatum —

. . . is liable for loss of the things, even if it should be through a fortuitous

event:

(2) If he keeps it longer than the period stipulated . . .

(3) If the thing loaned has been delivered with appraisal of its value, unless
there is a stipulation exempting the bailee from responsibility in case of a
fortuitous event;

The original period of the loan was from 8 May 1948 to 7 May 1949. The loan
of one bull was renewed for another period of one year to end on 8 May 1950.
But the appellant kept and used the bull until November 1953 when during a
Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to
the deceased husband of the appellant the bulls had each an appraised book
value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the
Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to
fortuitous event the late husband of the appellant would be exempt from
liability.
 7.Santiago v. Spouses Garcia
G.R. No. 228356, Mar. 9, 2020

In November 2000, petitioner Merian B. Santiago (Merian) was enticed by

respondent Edna L. Garcia (Edna) to invest money in the latter's lending
business with a promise of a high return in terms of monthly inte rest ranging
from 5% to 8%. The parties agreed that monthly interest shall be remitted by
Edna to Merian and that the principal amount invested shall be returned to
Merian upon demand. Neither of the parties, however, presented evidence to
show that such agreement was reduced in writing.

Merian began investing several amounts from November 15, 2000 to June 30,
2003, reaching an aggregate amount of P1,569,000.00. Edna had remitted to
Merian the amount of P877,000.00 as interest on said amounts. However, in
December 2003, Edna defaulted in remitting to Merian the interest due from
said investments. Despite demands, Edna failed to remit the interest to Merian.

The Regional Trial Court (RTC) rendered its decision finding that a
partnership was formed between Merian and Edna — the former as capitalist
partner and the latter as industrial partner. It ruled that a person who invested
in a business which incurred losses cannot convert such investment into a loan.

The CA disagreed with the RTC in its finding that a partnership was formed
between Merian and Edna. The CA found that the money was given not as
Merian's contribution or share in Edna's capital in the lending business, but as
an investment that will earn interest in case of profit. Nevertheless, the CA
agreed with the RTC that the complaint lacked cause of action as Merian was
without legal right to recover her investment in case of losses, as to what
happened to Edna's lending business, since an investment entails business risk.

Issue: The sole issue raised for resolution is whether the CA erred in finding
that the contractual relation between Merian and Edna is one of investment
which entails the assumption of business risk.

Held: A partnership, a simple contract of loan, and an investment contract

carry peculiar definitions and are governed by pertinent laws. The existence of a
partnership, simple loan, or an investment contract should not, therefore, be
inferred lightly, especially where any of its requisite elements are lacking.

The Court cannot subscribe to the view that Merian and Edna formed a
partnership. By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common fund, with
 the intention of dividing the profits among themselves. 5 Partnership is
essentially a result of an agreement or a contract, either express or implied, oral
or in writing, between two or more persons. Here, there was neither allegation
nor proof that Merian and Edna agreed to enter into a partnership for purposes
of carrying out the lending business.

There was likewise no agreement for the sharing of profits, only that Merian
expects to receive remittance of monthly interest from the amount she invested.
At any rate, the receipt by a person of a share of the profits, or of a payment of a
contingent amount in case of profits earned, is not a conclusive evidence of
partnership. Article (Art.) 1769 (3) of the Civil Code provides that "the sharing of
gross returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property
from which the returns are derived."6 There must be an unmistakable intention
to form a partnership which is lacking in this case. 7 Most importantly, the facts
do not disclose that there is mutual agency between Merian and Edna, that is,
neither party alleged that she can bind by her acts the other, and can be bound
by the acts of the other in the ordinary course of business.

The facts of the instant case do not support the conclusion that the parties
entered into a contract of loan either. By a contract of simple loan, one of the
parties delivers to another money upon the condition that the same amount of
the same kind and quality shall be paid. 8 A person who receives a loan of money
acquires ownership thereof, and is bound to pay to the creditor an equal amount
of the same kind and quality. 9 Merian herself testified that Edna did not borrow
money from her and Merian consistently alleged that she invested money in
Edna's lending business. This is consistent with the fact that Merian gave to
Edna money in various amounts and on various dates, in a series of

5
Civil Code, Art. 1767.
6
Art. 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such-co-owners or co-possessors do or do not share
any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common
right or interest in any property from which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such
inference shall be drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord:
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.
7
Obillos, Jr. v. Commissioner of Internal Revenue, 223 Phil. 650, 654 (1985).
8
Civil Code, Art. 1933 provides:
Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the
same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the
condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower.
9
Civil Code, Art. 1953 provides:
Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and quality.
 transactions beginning November 15, 2000 to June 30, 2003, for which she
earned profits in the form of interest payments.

The facts therefore demonstrate that Edna was engaged in the business of
lending and that she solicited funds from Merian which Edna then used to grant
loans to other persons. The parties' contemporaneous and subsequent acts
reveal their intent to enter into an investment contract in a lending business. 10
Parenthetically, the lending activity conducted by Edna is what the law under
Republic Act (R.A.) No. 9474 11 or the Lending Company Act of 2007 presently
seeks to regulate. Under R.A. 9474, only corporations with a validly subsisting
authority from the Securities and Exchange Commission can engage in the
business of granting loans sourced from its own capital funds or from funds
coming from not more than nineteen (19) persons. Nevertheless, since R.A. No.
9474 was passed into law only on May 22, 2007, the lending activities of Edna
conducted from 2000 to 2003 cannot be considered unlawful.

Having established that the transaction between Merian and Edna is one of
investment in a lending business, the question to be addressed is whether Edna
is contractually bound to return Merian's capital. Investment is ordinarily
defined as the placement of capital or lay out of money in a way intended to
secure income or profit from its employment. As in all contractual relations, an
investment contract is largely governed by the stipulations, clauses, terms, and
conditions as the parties may deem convenient, which shall be respected as long
as it is not contrary to law, morals, good customs, public order, or public
policy.12 Thus, the parties are free to agree that the investment shall entail the
sharing of profits and losses, or otherwise.

In this case, Merian alleged that she and Edna agreed that Merian will be
investing capital on the lending business which shall earn a 5% monthly
interest; that the capital will be revolving; and that the capital shall be returned
upon demand. That Edna agreed to return the principal amount to Merian is
further supported by the acknowledgment receipt which Edna herself had
written. In said acknowledgment receipt, Edna paid the amount of P20,000.00
as "partial payment from the principal" — thus acknowledging her obligation to
return the principal amount invested. Notably as well, Edna failed to present
countervailing evidence to demonstrate the real agreement between the parties
as her husband, who solely participated at the trial, merely denied knowledge of
the agreement between Merian and Edna.

Even assuming that the agreement between the parties was that Merian shall
bear the risk of losing the principal amount she invested, in case of business
loss, there was no allegation nor proof presented that, indeed, Edna's lending
business suffered business loss. The ruling, therefore, that the principal amount
should no longer be returned because of Merian's assumption of risk lacks
factual basis.
10
Civil Code, Art. 1371.
11
AN ACT GOVERNING THE ESTABLISHMENT, OPERATION AND REGULATION OF LENDING COMPANIES.
12
Civil Code, Art. 1306.