THE PEOPLE OF THE PHILIPPINE ISLANDS, PLAINTIFF AND APPELLEE, VS. THOMAS NIMROD MCKINNEY, DEFENDANT AND APPELLANT.

This appeal has been brought to reverse a judgment of the Court of
First Instance of the City of Manila, finding the appellant, Thomas N.
McKinney, guilty of a violation of section 7 of Act No. 2581 of the
Philippine Legislature, in that at the times stated in the information
he had sold in the City of Manila certain speculative securities, to
wit, shares of the Philippines-American Company, Inc., without having
previously obtained a written permit from the Treasurer of the
Philippine Islands, as required by section 2 of said Act. Upon hearing
the cause the trial judge found the accused guilty and imposed upon him
a fine of P2,500, with subsidiary imprisonment in case of insolvency
and required him to pay the costs.

It appears that the
appellant has been resident in the Philippine Islands for many years,
but in the year 1920 he was in the United States and upon the occasion
of said visit procured articles of incorporation to be taken out in the
County of Los Angeles, California, for a corporation to be known as the
Philippines-American Company, Inc. From the amended articles,
acknowledged on August 13, 1920, it appears that the capital stock
actually subscribed was $400, consisting of forty shares of the face
value of $10 each. The subscribers to these forty shares were: D. A.
Lobaton, twenty shares; A. Angelo, ten shares; and T. Nimrod McKinney,
ten shares. The idea apparently in the head of the promoters of the
enterprise was to engage in export and import trade between the
Philippine Islands and the United States, and the appellant soon came
to Manila to start the enterprise in the Philippine Islands, acting in
the character of vice-president and manager of the company.

Early in the year 1921, McKinney applied to the Bureau of Commerce and
Industry of the Philippine Government for a provisional license for the
Philippines-American Company to transact business in these Islands,
This license was granted. He then advertised in the papers that the
company needed employees, and Nemesio de la Peña applied for a job. He
was told by the appellant that the company needed an employee who could
put P10,000 into the business in the form of a subscription to five
hundred shares. Nemesio went away and consulted with his father,
Cornelio de la Peña, who returned with him to interview the appellant.
Upon this occasion the appellant was informed that the De la Peñas had
no ready money, but that the father, Cornelio, was prepared to
subscribe for P5,000 of the stock of the company and to secure his
subscription he proposed to execute a mortgage on real property. This
proposition was accepted, the mortgage was executed, and Cornelio de la
Peña was given a certificate for two hundred and fifty shares of the
company’s stock. Nemesio was thereupon admitted as an employee of the
company in the capacity of clerk and bookkeeper. At the same time
Nemesio himself appears to have agreed to take some of the shares, to
be paid for out of his earnings as an employee of the company. Later,
by mutual agreement between the appellant and Cornelio de la Peña, the
subscription of the latter was withdrawn and the mortgage given to
secure the subscription was cancelled. But the shares that had been
paid for out of Nemesio’s earnings were left with De la Peña in the
form of a paid up certificate.

It further appears that in
December, 1921, one Manuel V. Gallego, an attorney, paid to the
appellant the sum of P3,000, as the price of one hundred and fifty
shares of the company. This subscription was made in response to a
promise by the appellant to give Mr. Gallego the position of attorney
for the Philippines-American Company with a salary of P200 a month,
with office quarters in Manila and office supplies free, and with the
further privilege of engaging in private practice. Pursuant to this
agreement Gallego, after having paid for the shares, entered upon the
discharge of his duties as attorney for the company.

After
this relation had continued for about a year, D. A. Lobaton, the
president of the company, arrived in the Philippine Islands from Los
Angeles, and in the course of interviews with him Gallego got the
impression that the company had little or no ready capital and that he
had been duped. As a result Gallego began a civil action against the
appellant, and later the present prosecution was instituted.

The prosecution proceeds upon the idea that the sales of shares
effected to Cornelio de la Peña and M. V. Gallego were sales of
speculative securities, within the meaning of section 1 of Act No.
2581; and it does not appear that the appellant had obtained any
written permit from the Treasurer of the Philippine Islands to make
such sales.

The solution of the case depends upon the interpretation to be given to subsection (a)
of section 1 of Act No. 2581, containing the definition of “speculative
securities.” In the part here material to be quoted said section reads
as follows:

“* * * The term ‘speculative securities’ as used in this Act shall be deemed to mean and include:

“(a)
All securities to promote or induce the sale of which profit, gain, or
advantage unusual in the ordinary course of legitimate business is in
any way advertised or promised.”

We are
unable to sustain the view of the law proposed by the Attorney-General
and adopted by the court below. The offering of the positions of clerk
and attorney respectively to the intending subscribers undoubtedly
involved an advantage to them, but we are unable to see that the
offering of these positions was, in the sense intended by the statute,
“unusual in the ordinary course of legitimate business.” The employment
of persons for positions such as these employees were called to nil is
an ordinary incident in the business of any successful enterprise; and
there was nothing extraordinary in requiring them to qualify for
employment by subscribing for stock. As we read the provision above
quoted it was apparently intended to catch promoters who hold out
promises of extraordinary advantage deriving from possibilities
inherent in the stock, and we are of the opinion that it cannot fairly
be interpreted as including a promise of employment conditioned upon
the fact of the employee subscribing for shares.

The
judgment appealed from must be reversed and the appellant absolved from
the information. It is so ordered, with costs of both instances de oficio.

Avanceña, C. J., Johnson, Malcolm, Villamor, Ostrand, Johns, and Villa-Real, JJ., concur.