PEOPLE v. VENANCIO CONCEPCION 1922 / Malcolm FACTS Puno y Concepcion, S. en C.

. was a co-partnership capitalized at 100k; PNB President Concepcions wife held 50% of the partnerships capital Concepcion authorized an extension of credit in its favor for 300k (via telegram + confirmation letter to Aparri branch manager) between 10 Apr 7 May 1919. o Authorization essential in view of his memo order dated 17 May 1918, limiting the discretional power of the Aparri local manager to grant loans and discount negotiable documents to 5k (which could be increased to 10k) o Only security required: 6 demand notes Notes + interest taken up and paid by 17 Jul 1919 Concepcion was charged in the CFI with a violation of section 35 of Act No. 2747, and was found guilty (sentenced to imprisonment for 1 year and 6 months, to pay 3k with subsidiary imprisonment in case of insolvency, and costs) o Sec. 35 [effective 20 Feb 1918]. "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." o Sec. 49. "Any person who shall violate any of the provisions of this Act shall be punished by a fine not to exceed ten thousand pesos, or by imprisonment not to exceed five years, or by both such fine and imprisonment." o Both sections were in effect in 1919 when the alleged unlawful acts took place, but were repealed by Act No. 2938, approved on 30 Jan 1921 ISSUES 1. 2. 3. 4. WON the granting of a 300k credit is a "loan" within the meaning of section 35. YES WON it is a "loan" or a "discount." LOAN WON it was an "indirect loan" within the meaning of section 35. YES WON Concepcion could be convicted of a violation of section 35 in relation with section 49, when these portions were repealed by Act No. 2938, prior to the finding of the information and the rendition of the judgment. YES WON the granting of a 300k credit is penalized by this law . WON the alleged good faith of Concepcion constitutes a legal defense. NO

5. 6.

ISSUE #1 WON the granting of a 300k credit is a "loan" within the meaning of section 35 of Act No. 2747. YES ARGUMENT: The documents of record only show the concession of a credit (does not prove that authority to make a loan was given) o SC: Correct, for the exhibits in question speak of a "credito" (credit) and not of a " prestamo" (loan). CREDIT Ability to borrow money by virtue of the confidence or trust reposed by a lender that he will pay what he may promise (Donnell v. Jones; Bouvier's Law Dictionary) LOAN 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. (Payne v. Gardiner)

The concession of a "credit" necessarily involves the granting of "loans" up to the limit of the amount fixed in the "credit."

ISSUE #2 WON it is a "loan" or a "discount." LOAN ARGUMENT: While section 35 prohibits the granting of a "loan," it does not prohibit what is commonly known as a "discount." o Former PNB President H. Parker Willis, in a letter dated 7 Aug 1916, inquired of the Insular Auditor whether section 37 of Act No. 2612 was intended to apply to discounts and loans. Acting Insular Auditor: Said section referred to loans alone, and placed no restriction upon discount transactions o Discounts are favored by bankers because of their liquid nature, growing out of an actual, live, transaction

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But to discount a paper is only a mode of loaning money, with these distinctions DISCOUNT LOAN Interest is deducted in advance Interest is taken at the expiration of a credit Always on double-name paper Generally on single-name paper SC: The demand notes signed by the firm "Puno y Concepcion, S. en C." were mere evidences of indebtedness (not discount paper) for the aforementioned reasons [Interest was paid when the notes fell due (not deducted from the face of the notes; Single-name paper] The Binalbagan Estate case (the facts of which are not essentially different from the case at hand), which held that the operations constituted a loan, was also made as a basis

ISSUE #3 WON it was an "indirect loan" within the meaning of section 35. YES ARGUMENT: A loan to the partnership was not an "indirect loan" o Recall: Concepcions wife held 50% of the partnerships capital. Purpose is to erect a wall of safety against temptation for a bank director o No man may serve two masters 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 serve to establish a conjugal partnership. A loan, therefore, to a partnership of which the wife of a bank director is a member, is an indirect loan to such director. Concepcion was tempted to mingle his personal and family affairs with his official duties, and to permit the 300k loan to a partnership of no established reputation and without asking for collateral security. Lester and Wife vs. Howard Bank To protect stockholders, depositors and creditors against the temptation to which the directors and officers might be exposed, and the power which they must necessarily possess in the banks control and management, and the legislature unwilling to rely upon the implied understanding that they would not acquire any interest hostile or adverse to the most exact and faithful discharge of duty People vs. Knapp (cited by the Binalbagan Estate decision) The statute forbade the loan to his copartnership firm as well as to himself directly. The loan was made indirectly to him through his firm. ISSUE #4 WON Concepcion could be convicted of a violation of section 35 in relation with section 49, when these portions were repealed by Act No. 2938, prior to the finding of the information and the rendition of the judgment. YES SC, citing jurisprudence: Where an Act of the Legislature which penalizes an offense, such repeals a former Act which penalized the same offense, such repeal does not have the effect of thereafter depriving the courts of jurisdiction to try, convict, and sentenced offenders charged with violations of the old law. ISSUE #5 WON the granting of a 300k credit is penalized by this law . ARGUMENT: Since the prohibition contained in section 35 is on the bank, and since section 49 provides a punishment not on the bank when it violates any provisions of the law, but on a person violating any provisions of the same, and imposing imprisonment as a part of the penalty, the prohibition contained in said section 35 is without penal sanction. SC: When the corporation itself is forbidden to do an act, the prohibition extends to the board of directors, and to each director separately and individually. (People v. Concepcion, supra.) ISSUE #6 WON the alleged good faith of Concepcion constitutes a legal defense. NO ARGUMENTS o If Concepcion committed such acts, it was because he was misled by rulings coming from the Insular Auditor o Since the loans made to the co-partnership have been paid, no loss has been suffered by PNB. SC: Under the statute, criminal intent is not necessarily material. The doing of the inhibited act, inhibited on account of public policy and public interest, constitutes the crime. Concepcions acts do not fall within the purview of the rulings of the Insular Auditor, even conceding that such rulings have controlling effect. Morse, Banks and Banking, section 125 It is fraud for directors to secure by means of their trust, and advantage not common to the other stockholders. The law will not allow private profit from a trust. HOLDING Concepcion is GUILTY. #