G.R. No. 46076 and 46077; June 12, 1939
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. JACOB ROSENTHAL and NICASIO OSMEÑA, defendants-appellants.

FACTS

The appellants, Jacob Rosenthal and Nicasio Osmeña, were charged in two separate cases (Nos. 52365 and 52366) before the Court of First Instance of Manila for violating Act No. 2581 , the Blue Sky Law. They were promoters and incorporators of two domestic corporations, O.R.O. Oil Co., Inc. and South Cebu Oil Co., Inc. The informations alleged that they subscribed to shares at P5 per share and subsequently sold these shares at prices ranging from P100 to P300 per share to various parties without first obtaining the required written permit or license from the Insular Treasurer. The shares were considered speculative securities as their value depended on the proposed future promotion of the oil business rather than on tangible assets. After a joint trial, the lower court found them guilty and imposed fines. They appealed, raising issues including the constitutionality of the Blue Sky Law.

ISSUE

The main issue is whether the appellants’ sales of their corporate shares without a permit from the Insular Treasurer constitute a violation of the Blue Sky Law ( Act No. 2581 ).

RULING

Yes. The Supreme Court affirmed the convictions but modified the penalties. The Court upheld the constitutionality of Act No. 2581 as a valid exercise of police power to regulate speculative securities and prevent fraud. The law applies to the appellants as promoters and incorporators who sold shares to promote the corporate enterprise, not as individuals selling in the ordinary course of business. The defense of good faith (e.g., acting on advice of a treasury officer) does not exempt from criminal liability but may mitigate the penalty. The fines were reduced: for Rosenthal, from P500 to P200 per case; for Osmeña, from P1,000 to P500 in case No. 52365 and from P2,000 to P1,000 in case No. 52366.

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