G.R. No.

L-19190 November 29, 1922

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs. VENANCIO CONCEPCION, defendant-appellant.

FACTS:

Venancio Concepcion, President of the Philippine National Bank, sent telegrams and a confirmation letter to the
manager of the Aparri branch of PNB, authorizing an extension of credit in favour of Puno y Concepcion, S. en C. in
the amount of P300,000.00. This special authorization limited the discretional power of the local manager of the
Aparri branch to grant loans and discount negotiable documents to P5,000, which in certain cases, could be
increased to P10,000. Pursuant to this authorization, credit aggregating P300,000 was granted to Puno y
Concepcion, S. en C., the only security required consisting of six demand notes. This Puno y Concepcion, S. en C., in
reality is a copartnership capitalized at P100,000 wherein, Venancio Concepcion’s wife owns half of the
copartnership. Venancio Concepcion was found guilty by the CFI for violation of Section 354 of Act 2747 which
provides that: : "The National Bank shall not, directly or indirectly, grant loans to any of the members of the board
of directors of the bank nor to agents of the branch banks."

ISSUES:

1. Whether or not the granting of a credit of P300,000 to the copartnership was a “loan” within the meaning
of Section 35 of Act No. 2747.

YES. The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust reposed by
a lender that he will pay what he may promise. A "loan" means the delivery by one party and the receipt by the
other party of a given sum of money, upon an agreement, express or implied, to repay the sum loaned, with or
without interest. The concession of a "credit" necessarily involves the granting of "loans" up to the limit of the
amount fixed in the "credit,"

2. Whether or not the granting of a credit of P300,000 to the copartnership was a “loan” or a “discount”.

LOAN. Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an actual, live,
transaction. But in its last analysis, to discount a paper is only a mode of loaning money, with, however, these
distinctions: (1) In a discount, interest is deducted in advance, while in a loan, interest is taken at the expiration of
a credit; (2) a discount is always on double-name paper; a loan is generally on single-name paper.

Conceding, without deciding, the law covers loans and not discounts, yet the conclusion is inevitable that the
demand notes signed by the firm "Puno y Concepcion, S. en C." were not discount paper but were mere evidences
of indebtedness, because (1) interest was not deducted from the face of the notes, but was paid when the notes
fell due; and (2) they were single-name and not double-name paper.

3. Whether or not the granting of a credit of P300,000 to the copartnershop was an “indirect loan” within
the meaning of Section 35 of Act 2747.

YES. In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to the
intention of the Legislature. In this instance, the purpose of the Legislature is plainly to erect a wall of safety
against temptation for a director of the bank. The prohibition against indirect loans is a recognition of the familiar
maxim that no man may serve two masters — that where personal interest clashes with fidelity to duty the latter
almost always suffers. If, therefore, it is shown that the husband is financially interested in the success or failure of
his wife's business venture, a loan to partnership of which the wife of a director is a member, falls within the
prohibition.
Various provisions of the Civil serve to establish the familiar relationship called a conjugal partnership. (Articles
1315, 1393, 1401, 1407, 1408, and 1412 can be specially noted.) A loan, therefore, to a partnership of which the
wife of a director of a bank is a member, is an indirect loan to such director.

That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the acknowledged
fact that in this instance the defendant was tempted to mingle his personal and family affairs with his official
duties, and to permit the loan P300,000 to a partnership of no established reputation and without asking for
collateral security.