1.

People vs Venancio
G.R. No. L-19190, November 29, 1922
Topics:

a. Discounting of Papers i.e., check, cashes, 3rd persons;

b. item of loan/credit;

c. rediscounting

FACTS:

By telegrams and a letter of confirmation to the manager of the Aparri branch of the Philippine
National Bank, Venancio Concepcion, President of the Philippine National Bank, between April 10,
1919, and May 7, 1919, authorized an extension of credit in favor of "Puno y Concepcion, S. en C." in
the amount of P300,000.

This special authorization was essential in view of the memorandum order of President
Concepcion dated May 17, 1918, limiting the discretional power of the local manager at Aparri,
Cagayan, 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
the firm of "Puno y Concepcion, S. en C.," the only security required consisting of six demand notes.
The notes, together with the interest, were taken up and paid by July 17, 1919.

"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto

Concepcion contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion, P20,000;
Clemente Puno, P20,000; and Rosario San Agustin, "casada con Gral. Venancio Concepcion,"
P50,000. Member Miguel S. Concepcion was the administrator of the company.

On the facts recounted, Venancio Concepcion, as President of the PNB and as member of
the board of directors, was charged in the Court of First Instance of Cagayan with a violation of
section 35 of Act No. 2747. He was found guilty and was sentenced to imprisonment for one year and
six months, to pay a fine of P3,000, with subsidiary imprisonment in case of insolvency, and the costs.

Section 35 of Act No. 2747, effective on February 20, 1918reads as follows:

"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."

Section 49 of the same Act provides:

"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."

These two sections were in effect in 1919 when the alleged unlawful acts took place, but were
repealed by Act No. 2938, approved on January 30, 1921.

ISSUES:

1. Was the granting of a credit of P300,000 to the co-partnership a "loan" within the meaning of
section 35 of Act No. 2747?

2. Was the granting of a credit of P300,000 to the co-partnership a "loan" or a "discount"?

3. Was the granting of a credit of P300,000 to the co-partnership an "indirect loan" within the
meaning of section 35 of Act No. 2747?

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4. Could Venancio Concepcion be convicted of a violation of Section 35 of Act No. 2747 in relation
with section 49 of the same Act, when these portions of Act No. 2747 were repealed by Act No.
2938, prior to the finding of the information and the rendition of the judgment?

5. Was the granting of a credit of P300,000 to the co-partnership in violation of section 35 of Act
No. 2747, penalized by this law?

6. Does the alleged good faith of Venancio Concepcion in extending the credit of P300,000 to the
constitute a legal defense?

RULING:

1. YES, the granting of a credit of P300,000 to the co-partnership a "loan" within the meaning of
section 35 of Act No. 2747 because the exhibits speak of of a "credito" (credit) and not of a
" prestamo" (loan).

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. (Donnell vs. Jones [1848], 13 Ala., 490;
Bouvier's Law Dictionary.)

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.
(Payne vs. Gardiner [1864], 29 N. Y., 146, 167.)

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

2. The granting of a credit of P300,000 to the co-partnership IS a "loan", NOT a discount.

In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank, inquired of
the Insular Auditor whether section 37 of Act No. 2612 was intended to apply to discounts as well as
to loans. The ruling of the Acting Insular Auditor, dated August 11, 1916, was to the effect that said
section referred to loans alone, and placed no restriction upon discount transactions. It becomes
material, therefore, to discover the distinction between a "loan" and a "discount," and to ascertain if
the instant transaction comes under the first or the latter denomination.

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, that, as ruled by the Insular Auditor, 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.

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 The facts of the instant case having relation to this phase of the argument are not essentially
different from the facts in the Binalbagan Estate case. Just as there it was declared that the
operations constituted a loan and not a discount, so should we here lay down the same ruling.

3. YES, the granting of a credit of P300,000 to the co-partnership an "indirect loan" within the
meaning of section 35 of Act No. 2747.

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.

4. YES, Venancio Concepcion, President of the Philippine National Bank, be convicted of a violation
of Section 35 of Act No. 2747 in relation with section 49 of the same Act, when these portions of
Act No. 2747 were repealed by Act No. 2938, prior to the finding of the information and the
rendition of the judgment.

As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation to
section 35 of the same Act, provides a punishment for any person who shall violate any of the
provisions of the Act. It is contended, however, by the appellant, that the repeal of these sections of
Act No. 2747 by Act No. 2938 has served to take away the basis for criminal prosecution.

This same question has been previously submitted and has received an answer adverse to such
contention in the cases of United Stated vs. Cuna ([1908], 12 Phil., 241); People vs.
Concepcion ([1922], 43 Phil., 653); and Ong Chang Wing and Kwong Fok vs. United States ([1910],
218 U. S., 272; 40 Phil., 1046).

In other words, it has been the holding, and it must again be the holding, that 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.

5. YES, the granting of a credit of P300,000 to the co-partnership "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine National Bank, in violation of section 35 of Act
No. 2747, penalized by this law.

Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank,
and since section 49 of said Act 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.

The answer is that 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 vs. Concepcion, supra.)

6. NO, the alleged good faith of Venancio Concepcion in extending the credit of P300,000 to the co-
partnership cannot constitute a legal defense.

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 Counsel argue that if defendant committed the acts of which he was convicted, it was because he
was misled by rulings coming from the Insular Auditor. It is furthermore stated that since the loans
made to the copartnership "Puno y Concepcion, S. en C." have been paid, no loss has been suffered
by the Philippine National Bank.

Neither argument, even if conceded to be true, is conclusive. Under the statute which the
defendant has violated, criminal intent is not necessarily material. The doing of the inhibited act,
inhibited on account of public policy and public interest, constitutes the crime. And, in this instance, as
previously demonstrated, the acts of the President of the Philippine National Bank do not fall within
the purview of the rulings of the Insular Auditor, even conceding that such rulings have controlling
effect.

Morse, in his work, Banks and Banking, section 125, says:

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, and will not listen to
any proof of honest intent.

2.
Naguiat vs CA
G.R. No. 118375. October 3, 2003
Topic:

a. Characteristics of Credit Transactions;

b. Types of Contracts;

c. Characteristics of Mutuum and Commodatum.

FACTS:

Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos
(P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed to Queao Associated
Bank Check No. 090990 (dated 11 August 1980) for the amount of Ninety Five Thousand Pesos
(P95,000.00), which was earlier issued to Naguiat by the Corporate Resources Financing
Corporation. She also issued her own Filmanbank Check No. 065314, to the order of Queao, also
dated 11 August 1980 and for the amount of Ninety Five Thousand Pesos (P95,000.00). The
proceeds of these checks were to constitute the loan granted by Naguiat to Queao.[3]
To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 August 1980 in
favor of Naguiat, and surrendered to the latter the owners duplicates of the titles covering the
mortgaged properties.[4] On the same day, the mortgage deed was notarized, and Queao issued to
Naguiat a promissory note for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00),
with interest at 12% per annum, payable on 11 September 1980.[5] Queao also issued a Security Bank
and Trust Company check, postdated 11 September 1980, for the amount of TWO HUNDRED
THOUSAND PESOS (P200,000.00) and payable to the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency
of funds. On the following day, 12 September 1980, Queao requested Security Bank to stop payment
of her postdated check, but the bank rejected the request pursuant to its policy not to honor such
requests if the check is drawn against insufficient funds.[6]
On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding settlement of the
loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the
meeting, Queao told Naguiat that she did not receive the proceeds of the loan, adding that the checks
were retained by Ruebenfeldt, who purportedly was Naguiats agent.[7]
Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal
Province, who then scheduled the foreclosure sale on 14 August 1981. Three days before the
scheduled sale, Queao filed the case before the Pasay City RTC, [8] seeking the annulment of the
mortgage deed. The trial court eventually stopped the auction sale.[9]

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 On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate
Mortgage null and void, and ordering Naguiat to return to Queao the owners duplicates of her titles
to the mortgaged lots.[10] Naguiat appealed the decision before the Court of Appeals, making no
less than eleven assignments of error. The Court of Appeals promulgated the decision now
assailed before us that affirmed in toto the RTC decision.

ISSUES:

1. Was there a loan transaction between Queao and Naguiat?

2. Are the acts of Ruebenfeldt binding between Queao and Naguiat?

3. Was the mortgage executed by Queao in favour to Naguiat binding?

RULING:

1. NO, there is no loan transaction between Queao and Naguiat.

The Supreme Court said that the mere issuance of the checks did not result in the
perfection of the contract of loan.

Art. 1249 of the Civil Code provides that:

...The delivery of promissory notes payable to order, or bills of exchange or other

mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired.

Art. 1934 of the Civil Code provides:

An accepted promise to deliver something by way of commodatum or simple loan is

binding upon the parties, but the commodatum or simple loan itself shall not be
perfected until the delivery of the object of the contract.

In the case of BPI Investment Corporation v. Court of Appeals, G.R. No. 133632, February
15, 2002, the Supreme Court held that:

A loan contract is a real contract, not consensual, and, as such, is perfected only upon the
delivery of the object of the contract.

IN THE CASE AT BAR, the objects of the contract are the loan proceeds which Queao
would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. If indeed the
checks were encashed or deposited, Naguiat would have certainly presented the corresponding
documentary evidence, such as the returned checks and the pertinent bank records. Since Naguiat
presented no such proof, it follows that the checks were not encashed or credited to Queaos
account.

THEREFORE, there is no loan transaction between Queao and Naguiat.

2. YES, the acts of Ruebenfeldt binding between Queao and Naguiat because Ruebenfeldt is
actually an agent of Naguiat.

In this case, the Supreme Court affirms the ruling of the Court of Appeals when the latter cited Art.
1873 in holding that there exist an agency relationship between Ruebenfeldt and Naguit by
estoppel.

Art. 1843 of the New Civil Code provides that:

If a person specially informs another or states by public advertisement that he has given a power of
attorney to a third person, the latter thereby becomes a duly authorized agent, in the former case
with respect to the person who received the special information, and in the latter case with regard to
any person.

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The power shall continue to be in full force until the notice is rescinded in the same manner in which it
was given. (n)

IN THE CASE AT BAR, Ruebenfeldt was not a stranger or an unauthorized

person. Naguiat instructed Ruebenfeldt to withhold from Queao the checks she issued or
indorsed to Queao, pending delivery by the latter of additional collateral. Ruebenfeldt served
as agent of Naguiat on the loan application of Queaos friend, Marilou Farralese, and it was in
connection with that transaction that Queao came to know Naguiat.

It was also Ruebenfeldt who accompanied Queao in her meeting with Naguiat and on
that occasion, on her own and without Queao asking for it, Reubenfeldt actually drew a check
for the sum of P220,000.00 payable to Naguiat, to cover for Queaos alleged liability to Naguiat
under the loan agreement.

As a consequence of the interaction between Naguiat and Ruebenfeldt, Queao got the
impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to correct
Queaos impression.

In that situation, the rule is clear. One who clothes another with apparent authority as
his agent, and holds him out to the public as such, cannot be permitted to deny the authority of
such person to act as his agent, to the prejudice of innocent third parties dealing with such
person in good faith, and in the honest belief that he is what he appears to be.

3. NO, the mortgage executed by Queao in favour to Naguiat is not binding.

IN THIS CASE, the Supreme Court said that since the checks issued by Naguiat in favour
to Queao were never encashed, it follows that no loan transaction existed between the parties.

As a consequence, the mortgage which is supposed to secure the loan is null and void.
The consideration of the mortgage contract is the same as that of the principal contract from
which it receives life, and without which it cannot exist as an independent contract.[28] China
Banking Corporation v. Lichauco, 46 Phil. 460 (1926).

A mortgage contract being a mere accessory contract, its validity would depend on the
validity of the loan secured by it. Filipinas Marble Corp. v. Intermediate Appellate Court, 226 Phil.
109, 119 (1986).

3.
Producers Bank vs CA
G.R. No. 115324. February 19, 2003
Topics:

a. Distinction between mutuum and commodatum

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 months time. Private respondent asked Sanchez to bring Doronilla to their
house so that they could discuss Sanchezs request.[3]
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi,
Doronillas private secretary, met and discussed the matter. 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. However, only
Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the check. They had with them an
authorization letter from Doronilla authorizing Sanchez and her companions, in coordination with Mr.

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Rufo Atienza, to open an account for Sterela Marketing Services in the amount of P200,000.00. 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.[4]
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 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.[5]
Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he
received a letter from Doronilla, assuring him that his money was intact and would be returned to
him. On August 13, 1979, Doronilla issued a post-dated check for Two Hundred Twelve Thousand
Pesos (P212,000.00) in favor of private respondent. However, upon presentment thereof by private
respondent to the drawee bank, the check was dishonored. Doronilla requested private respondent to
present the same check on September 15, 1979 but when the latter presented the check, it was again
dishonored.[6]
Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla
for the return of his clients money. Doronilla issued another check for P212,000.00 in private
respondents favor but the check was again dishonored for insufficiency of funds.[7]

Private respondent instituted an action for recovery of sum of money in the Regional Trial
Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner.

ISSUE:

1. Was the transaction between Sps. Vives and Col. Doronilla mutuum or commodatum?
2. Is the bank solidarily liable for the return of Sps. Vives money?

RULING:

1. The transaction between Sps. Vives and Col. Doronilla is one of COMMODATUM, not
mutuum?

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.

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 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.

In the case of Tanguilig v. Court of Appeals, 266 SCRA 78, 83-84 (1997, the Supreme Court
held that 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.

IN THE CASE AT BAR, 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.[29] 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 Sterelas savings account and
would be returned to private respondent after thirty (30) days.

Doronillas attempts to return to private respondent the amount of P200,000.00 which the
latter deposited in Sterelas 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 latters money deposited with petitioner.

2. YES, the bank is solidarily liable for the loss of Sps. Vives money.

THE SUPREME COURT SAID THAT the nature of said transaction, that is, whether it is
a mutuum or a commodatum, has no bearing on the question of petitioners liability for the return of
private respondents money because the factual circumstances of the case clearly show that
petitioner, through its employee Mr. Atienza, was partly responsible for the loss of private respondents
money and is liable for its restitution.
Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of
Sterela for Savings Account No. 10-1567 expressly states that

2. Deposits and withdrawals must be made by the depositor personally or upon his written authority duly
authenticated, and neither a deposit nor a withdrawal will be permitted except upon the production of the
depositor savings bank book in which will be entered by the Bank the amount deposited or withdrawn. [30]

Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the
Assistant Branch Manager for the Buendia Branch of petitioner, to withdraw therefrom even without
presenting the passbook (which Atienza very well knew was in the possession of Mrs. Vives), not
just once, but several times. Both the Court of Appeals and the trial court found that Atienza
allowed said withdrawals because he was party to Doronillas scheme of defrauding private
respondent.`

THEREFORE, the bank is solidarily liable for the loss of Sps. Vives money.

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