Mr. Romarico I. Gatchalian

May 4, 1993 Mr. Romarico I. Gatchalian 5/F, Dominion Building, 833 Pasay Road, Makati, Metro Manila S i r : This refers to your letter of April 27, 1993 requesting opinion on the query posed relative to the proposed business venture mentioned therein. As stated, Prisma Construction and Development Corporation (PRISMA), a real estate developer, intends to enter into a joint-venture agreement with a realty owner for the construction and development of a resort facility and a business convention center on the land owned by the latter, to be known as PACIFICA. Under said joint-venture agreement, PRISMA is obligated to construct and develop a resort and business convention facilities which shall include, among others, one hundred fifty (150) units of hotel rooms, swimming pools, coffee shops and restaurants, mini-theater, business center, etc. PRISMA, would at the same time act as the marketing arm and contemplates to sell PACIFICA to the public under a unique ownership scheme. Instead of outrightly selling proprietary membership shares in PACIFICA, PRISMA intends to sell "vacation rights" therein under a "time-sharing" concept. For Philippine residents, each "time-share" shall consist of the right to use a hotel room and the resort's other facilities for a period of seven (7) days three (3) days during the ON session (March, April and May) and four (4) days during the OFF season (June to September). For foreign residents or tourists, each ;"time-share" shall consist of seven (7) continuous days. The months of October, November, December, January and February are specially reserved for them. PACIFICA's "time-shares" have a proprietary nature such that by the year 2007, when all the facilities therein are expected to have been built and completed, the land, buildings, equipment, interiors etc. of the 150-room resort shall automatically become the property of the "time-share" owners of PACIFICA. Your query is whether or not the above-mentioned business venture of selling time-shares is considered dealing in "securities" as contemplated under the Revised Securities Act. We believe that the transaction falls within the definition of "securities" under the Revised Securities Act (Batas Pambansa Blg. 178). Said Law has expanded the meaning of securities to include contracts and investments even where there is no tangible return of investments but an appreciation of capital as well as enjoyment of particular privileges and services. Section 2 (a) of the law provides thus: Definition For purposes of the Act: (a) "Securities" shall include . . . proprietary or non-proprietary membership certificates, commodity futures contracts, transferable stock option, pre-need plans, pension plans, life plans, joint venture contracts and similar contracts and investments where there is no tangible return of investments plus profit but an appreciation of capital as well as enjoyment of particular privileges and services ." (Emphasis supplied) The present definition of "securities" in the Revised Securities Act is designed to embrace speculative schemes and includes contracts for future delivery of goods or services of every kind, character and description as can be construed from the phrase "and similar contracts". The term was redefined and broadened to prevent evasion of promoters who adopt ingenious schemes in order to escape regulation by the issue of what purports to be a simple contract of sale of goods or future services. Thus, under the " SEC Revised Rules on Registration and Sale of Pre-Need Plans, Pension Plans, Life Plans, and Similar Contracts and Investments", the transaction is included within the scope of "contracts" subject to registration and licensing. The said SEC Revised Rules provides: "SECTION 1. Scope . These rules shall apply to the following: xxx xxx xxx (c) Contracts which provide for the payment and/or performance of future services or services of a fixed value at the time of actual need, payable in cash or installment by investors at stated prices, with or without interest or finance charges and with or without insurance coverage." In the above-mentioned scheme, the company is engaged in the selling of future interest which is represented by time share contract, the holder of which will eventually be the owner of the property represented by the time share. While it is not strictly considered an investment contract as there is no expectation of profitable return, it essentially involves money outlay on the assumption and anticipation of future delivery of services and eventual ownership of property. Therefore, the scheme of operation described above falls within the scope of "securities" contemplated by the Revised Securities Act. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman