Name: MASANGKAY Class: Credit Transactions

Case Citation: PEOPLE v VENANCIO CONCEPCION Topic: Credit and Loan

GR No 19190, 29 November 1922

Facts:
By telegrams and a letter of confirmation given by Venancio Concepcion, then President and member of the board of
directors of the Philippine National Bank, to the branch manager of PNB in Aparri between April 10-May 7, 1919,
Concepcion authorized an extension of credit in favor of partnership, Puno y Concepcion, S. en C., of which the wife of
Concepcion is a partner. The credit amounted to P300,000. A special authorization had to be given because of an earlier
memorandum order of Concepcion dated May 17, 1918, which limits the discretional power of the local manager to grant
loans and discount negotiable documents to P5,000.

Pursuant to the authorization by Concepcion, the partnership was granted credit of P300,000 of which the ONLY security
required consisting of six demand notes. The notes, together with the interest, were taken up and paid two months later.

Under Section 35 of Act No.2747, the PNB “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”.

Concepcion was charged in the Court of First Instance of Cagayan with a violation of Sec.35 and was found guilty by
Judge Filamor; and was given a sentence of imprisonment. The counsel for Concepcion argues that— (1) the documents
presented do not prove that an authority to make a loan was given, but only show the concession of a credit; (2) the
demand notes signed by the partnership Puno y Concepcion, S. en C, were discount papers and not loans; and that (3)
assuming arguendo that is was a loan, it was not an indirect loan to hold Concepcion liable for a violation of Sec.35 of Act
No 2747.

Issue(s):
(1) W/N the granting of a credit of 300,000 to the partnership firm by Concepcion amounts to a “loan” within the meaning
of Sec.35 of Act no 2747? [YES]
(2) W/N the demand notes signed by the partnership firm Puno y Concepcion, S. en C, were discount papers? [NO]
(3) W/N the granting of the credit of P300,000 was an indirect loan within the meaning of Sec.35 of Act No 2747? [YES]

Held:
(1) A credit refers to an individual’s 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, on the other hand, 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 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) In a discount, interest is deducted in advance, while in a loan, interest is taken at the expiration of a credit. A discount
is always on double-name paper; a loan is generally on single-name paper. The demand notes signed by the partnership
firm “Puno y Concepcion, S. en C.” were not discount paper but were mere evidences of indebtedness because (1) the
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. A double-name paper is one on which two signature appear with both parties liable
for payment, while a single-name paper is a promissory note with no indorsement other than the signature of the
maker.
(3) The purpose of the law is 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 a partnership of which the wife of a director
is a member, falls within the prohibition. Various provisions of the Civil Code serve to establish the familiar
relationship called a conjugal partnership. (Articles 1315, 1393, 1401, 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.