GR 45655; (June, 1938) (Digest)
G.R. No. 45655 ; June 15, 1938
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. VICENTE T. FERNANDEZ and JOAQUIN TRINIDAD, defendants-appellants.
FACTS
Defendants Vicente T. Fernandez and Joaquin Trinidad, as president and general manager, respectively, organized the Philippine Mutual Cooperative Society, Inc. The corporation sold membership certificates in two classes (O and S), entitling members to receive “benefit aids” (P40 or P20) upon the admission of specified numbers of new members. Members who recruited others received commissions. The corporation operated without obtaining the required license from the Insular Treasurer under Act No. 2581 (the Blue Sky Law). Defendants were convicted in the Court of First Instance of Manila for violating the said law.
ISSUE
Whether the membership certificates issued by the Philippine Mutual Cooperative Society, Inc. constitute “speculative securities” under Act No. 2581 , thereby requiring a license from the Insular Treasurer.
RULING
Yes. The Supreme Court held that the membership certificates are speculative securities under Act No. 2581 . The scheme promised profit or gain unusual in the ordinary course of legitimate business, as the payment of benefits depended primarily on the continuous admission of new members rather than on tangible assets or legitimate business operations. The Court rejected the constitutional challenges against the law, finding it neither vague nor an invalid delegation of legislative or judicial power to the Insular Treasurer. However, considering the defendants’ good faith in seeking prior legal opinion, the penalty was reduced. The appealed judgment was modified, sentencing each accused to pay a fine of P100.
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