SECURITIES ‑- LIFE‑LEASE AGREEMENTS CONSTITUTE

SECURITIES ‑- LIFE‑LEASE AGREEMENTS CONSTITUTE

The "Founder's Life‑Lease Agreement" which provides for a life lease of an apartment in consideration for certain payments constitutes a security within the definition of RCW 21.04.010 (2) (c).

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                                                                  March 28, 1957

Mr. J. P. Amundson
Assistant Director
Department of Licenses
General Administration Building
Olympia, Washington                                                                                                                Cite as:  AGO 57-58 No. 42

Dear Sir:

            You requested the opinion of this office upon the question of whether a certain instrument entitled "Founder's Life‑Lease Agreement" constitutes a "security" under chapter 21.04 RCW.

            It is the opinion of this office that said instrument does constitute a security as defined by RCW 21.04.010 subsection (2) (c).

                                                                     ANALYSIS

            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 corporation.  The agreement provides that the life lease shall be terminated upon the death of  [[Orig. Op. Page 2]] 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.

            RCW 21.04.010 provides in pertinent part:

            "Terms used in this chapter, unless otherwise apparent from the context, shall have the meaning given in this section:

            "(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;"

            The instrument in question is a form of lease agreement so all reference in subsection (2) (c) to notes, mortgages, bonds and debentures is immaterial for purposes of this opinion.  Deleting the irrelevant parts of subsection (2) (c) a security for purposes of chapter 21.04 RCW is "all . . . evidence of indebtedness issued by any company."

            This is a very broad definition of a security and is capable of encompassing instruments which would be foreign to the commonly accepted definition of a security.  However, in considering the meaning of the term "security" we must accept the definition of the term as defined in RCW 21.04.010.  North Pacific Coast Freight Bureau v. State, 12 Wn. (2d) 563.

             [[Orig. Op. Page 3]]

            The "Founder's Life‑Lease Agreement" imposes upon the corporation the obligation of furnishing a lessee or contracting party the lifetime occupancy of an apartment.  This office, in an opinion to Charles R. Maybury, Director of Licenses, April 21, 1930, construed subsection (2) (c) to include an instrument as a security which obligated the firm to furnish undertaking services.  We stated in that opinion:

            ". . . The fact that an obligation may be discharged by services rendered does not necessarily make the obligation any the less an indebtedness."

            We conclude that the "Founder's Life‑Lease Agreement" must be considered as an evidence of indebtedness of the corporation and, therefore, a "security" as defined in RCW 21.04.010 subsection (2) (c).

            We trust this opinion will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

DOUGLAS HARTWICH
Assistant Attorney General