SECURITIES ‑- LIFE LEASE AGREEMENTS "BLUE SKY LAW" ‑- SECURITIES ‑- LIFE LEASE AGREEMENTS
A life‑lease agreement which provides for a life lease of an apartment in consideration for certain payments does not constitute a security.
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April 16, 1958
Department of Licenses
General Administration Building
Olympia, Washington Cite as: AGO 57-58 No. 179
Attention: !ttMr. Bernard G. Lonctot
Administrator, Securities Division
You have requested an opinion of this office on the following question:
Does a certain legal instrument entitled "Founder's Life‑Lease Agreement" constitute a security under chapter 21.04 RCW, and thus place the operations of those issuing such agreements within the purview of the "Blue Sky" laws of this state?
We answer your question in the negative.
The instrument in question has previously been described as follows:
"The 'Founder's Life‑Lease Agreement' provides that the corporation offering the lease agreement agrees to lease for the lifetime use of the leaseholder an apartment located in King County, Washington at the full lease price of $ . In return for the life lease the lessee promises to maintain a certain sum in a reserve account and also make designated monthly payments to the [[Orig. Op. Page 2]] corporation. The agreement provides that the life lease shall be terminated upon the death of the lessee or at any time by mutual agreement or by ten weeks' notice by the lessee, or by ten weeks' notice by the corporation, for certain reasons such as failure to make payments in accordance with the agreement." AGO 57-58 No. 42.
We understand that the instruments contemplated for issue differ from the one existing at the time of the above‑cited opinion. However, the peculiarity that the maximum measuring period of the leasehold is to be the life of the tenant still exists.
As to whether or not the instrument is a security, we quote from RCW 21.04.010:
"The following words have in this chapter the meaning attached to them in this section, unless otherwise apparent from the context:
"(2) The word 'security' includes:
"(c) All promissory notes, mortgages, bonds, debentures, and other evidence of indebtedness issued by any company, excepting promissory notes and mortgages negotiated by the drawer or maker in the ordinary course of business by private negotiation;"
Although the life‑lease agreement is not one of the specific types of instruments named above, is it, nonetheless, some "other evidence of indebtedness" contemplated to fall within the statutory definition? We think not.
The principle of statutory construction of ejusdem generis is defined in State v. Thompson, 38 Wn. (2d) 774, 777, as follows:
". . . The principle requires that general terms appearing in a statute in connection with precise, specific terms, shall be accorded meaning and effect only to the extent that the general terms suggest items or things similar to those designated by the precise or specific terms. . . ."
[[Orig. Op. Page 3]]
This principle has been applied by our supreme court in similar situations. SeeTownsend Gas & Electric Light Co. v. Hill, 24 Wash. 469. Furthermore, securities acts of other jurisdictions have been interpreted through application of the rule of ejusdem generis. (SeeCreasy Corp. v. Enz Bros. Co., 177 Wis. 49, 187 N.W. 666, 37 C.J. 275;People v. Leach, 106 Cal.App. 442, 290 Pac. 131, 87 A.L.R. 76; also 53 C.J.S., Licenses, § 75, page 764.)
TheCreasy case,supra, involved the interpretation of a Wisconsin statute which defined securities as "any bonds, stocks, or other obligations or evidence of indebtedness." The court said that the phrase "of indebtedness" referred to "obligations of indebtedness" as well as "evidence of indebtedness", and if it did not, that the term "obligations" was limited in meaning to the things similar in character to the ones specified. The term was concluded to refer to money obligations and not all other contractual obligations.
The rule ofejusdem generis was also applied in interpreting a California statute, here paraphrased, defining securities as bonds, debentures, and evidences of indebtedness issued by any company. People v. Leach, supra. The court reasoned that there was essentially no difference between a bond and a promissory note, and furthermore that it was difficult to distinguish between a bond and a debenture. However, all of these instruments, including the mortgage notes in question, were primarily written promises to pay a fixed sum of money.
To determine whether or not a particular instrument is a security, it is stated in 47 Am.Jur., Securities Acts, § 17, page 576:
"The substance of the transaction and of the relationship between the alleged issuer and alleged security holder will control as against the form of the instrument." (See also 79 C.J.S., p. 944.)
In this regard inSperry & Hutchinson Co. v. Hudson, 190 Ore. 458, 226 P. (2d) 501, 505, the court stated:
"The terms 'evidence of indebtedness,' 'certificate of interest or participation in any profit-sharing agreement,' and 'investment contract' as used in the act refer only to such of those types as are commonly known as 'securities'; they contemplate the presence of the investment process, that is, 'the investment of funds . . . with a view of receiving a profit through the efforts of others than the investor.' . . ." (Giving citations)
[[Orig. Op. Page 4]]
A lease of the kind contemplated is a contractual agreement but unlike promissory notes, mortgages, bonds and debentures, it does not have investment characteristics as defined above.
We conclude therefore that such instruments are not securities as initially defined.
This opinion overrules AGO 57-58 No. 42 [[to J. P. Amundson, Department of Licenses on March 28, 1957]].
Very truly yours,
JOHN J. O'CONNELL
ERNEST M. FURNIA
Assistant Attorney General