THIRD DIVISION

[G.R. NO. 158941 : February 11, 2008]

TIMESHARE REALTY CORPORATION, Petitioner, v. CESAR LAO and

CYNTHIA V. CORTEZ, Respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of

the Rules of Court, assailing the October 30, 2002 Resolution1 of the
Court of Appeals (CA), which denied due course to the appeal of
Timeshare Realty Corporation (petitioner) from the March 25, 2002
Decision2 of the Securities and Exchange Commission (SEC) in SEC Case
No. 01-99-6199; and the July 4, 2003 CA Resolution,3 which denied
petitioner's Motion for Reconsideration.

As found by the SEC,4 the antecedent facts are as follows:

On October 6, 1996, herein petitioner sold to Ceasar M. Lao and Cynthia

V. Cortez (respondents), one timeshare of Laguna de Boracay for
US$7,500.00 under Contract No. 135000998 payable in eight months
and fully paid by the respondents.

Sometime in February 1998, the SEC issued a resolution to the effect

that petitioner was without authority to sell securities, like timeshares,
prior to February 11, 1998. It further stated in the resolution/order that
the Registration Statement of petitioner became effective only on
February 11, 1998. It also held that the 30 days within which a
purchaser may exercise the option to unilaterally rescind the purchase
agreement and receive the refund of money paid applies to all purchase
agreements entered into by petitioner prior to the effectivity of the
Registration Statement.

Petitioner sought a reconsideration of the aforesaid order but the SEC

denied the same in a letter dated March 9, 1998.

On March 30, 1998, respondents wrote petitioner demanding their right

and option to cancel their Contract, as it appears that Laguna de
Boracay is selling said shares without license or authority from the SEC.
For failure to get an answer to the said letter, respondents this time,
through counsel, reiterated their demand through another letter dated
June 29, 1998. But despite repeated demands, petitioner failed and
refused to refund or pay respondents.5

Respondents directly filed with SEC En Banc6 a Complaint7 against

petitioner and the Members of its Board of Directors - Julius S.
Strachan, Angel G. Vivar, Jr. and Cecilia R. Palma - for violation of
Section 4 of Batas Pambansa Bilang (B.P. Blg.) 178.8 Petitioner filed an
Answer9 to the Complaint but the SEC En Banc, in an Order10 dated April
25, 2000, expunged the Answer from the records due to tardiness.
On March 25, 2002, the SEC En Banc rendered a Decision in favor of
respondents, ordering petitioner, together with Julius S. Strachan, Angel
G. Vivar, Jr., and Cecilia R. Palma, to pay respondents the amount of
US$7,500.00.11

Petitioner filed a Motion for Reconsideration12 which the SEC En

Bancdenied in an Order13 dated June 24, 2002.

Petitioner received a copy of the June 24, 2002 SEC En Banc Order on
July 4, 200214 and had 15 days or until July 19, 2002 within which to
appeal. However, on July 10, 2002, petitioner sought from the CA an
extension of 30 days, counted from July 19, 2002, or until August 19,
2002, within which to appeal.15 The CA partly granted the motion in an
Order dated July 24, 2002, to wit:

As prayed for, but conditioned on the timeliness of its filing, the Motion
for Extension to File Petition for Review dated 09 July 2002 and filed
before this Court on 10 July 2002 is GRANTED and petitioners are given
a non-extendible period of fifteen (15) days from 10 July 2002 or until
25 July 2002 within which to file the desired petition, otherwise, the
above-entitled case will be dismissed. (Emphasis supplied.) 16

Petitioner purportedly received the July 24, 2002 CA Order on July 29,
2002,17 but filed a Petition for Review with the CA on August 19, 2002.18

In the assailed October 30, 2002 Resolution, the CA dismissed the

Petition for Review, thus:

Under Section 4, Rule 43 of the 1997 Revised Rules of Civil Procedure,

petitioners shall not be given an extension longer than fifteen (15) days
from the expiration of the reglementary period, except for the most
compelling reason.

Thus, on 24 July 2002, in the absence of a compelling reason that

justifies the granting of a longer period of extension, this Court issued a
resolution wherein petitioners were given an extension of ONLY fifteen
days from 10 July 2002 or until 25 July 2002 within which to file the
Petition for Review, otherwise, the above entitled case will be dismissed.

However, records show that petitioners filed their Petition for Review
only on 19 August 2002, which is twenty-five (25) days beyond the
allowed 15-day extended period granted by this Court.

WHEREFORE, the appeal from the decision of the Securities and

Exchange Commission (SEC) Case No. 01-99-6199 is hereby
DISMISSED for failure of the petitioners to file their Petition for Review
under the 15-day period granted by this Court as provided by Rule 43,
Section 4 of the 1997 Revised Rules of Civil Procedure.

SO ORDERED.19

and denied petitioner's Motion for Reconsideration in the assailed

Resolution dated July 4, 2003.20
Petitioner filed the present petition, urging us to look beyond the
procedural lapse in its appeal, and resolve the following substantive
issues:

Whether or not the eventual approval or issuance of license has

retroactive effect and therefore ratifies all earlier transactions;

Whether or not a party in a contract could withdraw or rescind

unilaterally without valid reason.21

We deny the petition.

A judgment must become final at the time appointed by law22 - - this is

a fundamental principle upon which rests the efficacy of our courts
whose processes and decrees command obedience only when these are
perceived to have some degree of permanence and predictability. Thus,
an appeal from such judgment, not being a natural right but a mere
statutory privilege, must be perfected according to the mode and within
the period prescribed by the law and the rules; otherwise, the appeal is
forever barred, and the judgment becomes binding.23

Section 70 of Republic Act No. 879924 which was enacted on July 19,
2000, is the law which governs petitioner's appeal from the orders of
the SEC En Banc. It prescribes that such appeal be taken to the CA "by
Petition for Review in accordance with the pertinent provisions of the
Rules of Court," specifically Rule 43.25

Section 4 of Rule 43 is restrictive in its treatment of the period within

which a petition may be filed:

Section 4. Period of appeal. - The appeal shall be taken within fifteen

(15) days from notice of the award, judgment, final order or resolution,
or from the date of its last publication, if publication is required by law
for its effectivity, or of the denial of petitioner's motion for new trial or
reconsideration duly filed in accordance with the governing law of the
court or agency a quo. Only one (1) motion for reconsideration shall be
allowed. Upon proper motion and the payment of the full amount
of the docket fee before the expiration of the reglementary
period, the Court of Appeals may grant an additional period of
fifteen (15) days only within which to file the Petition for Review
. No further extension shall be granted except for the most
compelling reason and in no case to exceed fifteen (15)
days. (Emphasis supplied.)

Petitioner's Motion for Extension of Time to File Petition for Review

flouted the foregoing restriction: it sought, not a 15-day, but a 30-day
extension of the appeal period;26 and it did not even bother to cite a
compelling reason for such extension, other than its counsel's caseload
which, as we have repeatedly ruled, hardly qualifies as an imperative
cause for moderation of the rules.27

Its motion for extension being inherently flawed, petitioner should not
have presumed that the CA would fully grant the same.28 Instead, it
should have exercised due diligence by filing the proper petition within
the allowable period,29 or at the very least, ascertaining from the CA
whether its motion for extension had been acted upon.30 As it were,
petitioner's counsel left the country, unmindful of the possibility that his
client's period to appeal was about to lapse - as it indeed lapsed on July
25, 1999, after the CA allowed them a 15-day extension only, in view of
the restriction under Section 4, Rule 43. Thus, petitioner has only itself
to blame that the Petition for Review it filed on August 19, 1999 was
late by 25 days. The CA cannot be faulted for dismissing it.

The Court notes that the CA reckoned the 15-day extension it granted to
petitioner from July 10, 1999, the date petitioner filed its Motion for
Extension, rather than from July 19, 1999, the date of expiration of
petitioner's original period to appeal. While such computation of the CA
appears to be erroneous, petitioner did not question it in the present
petition. But even if we do reckon the 15-day extension period from July
19, 1999, the same would have ended on August 3, 1999, making
petitioner's appeal still inexcusably tardy by 16 days. Either way we
reckon it, therefore, petitioner's appeal was not perfected within the
period prescribed under Rule 43.

Nevertheless, the Court opts to resolve the substantive issues raised by

petitioner in its appeal so as to determine the lawful rights of the parties
and put an end to the litigation.

Petitioner claims that at the time it entered into a timeshare purchase

agreement with respondents on October 6, 1996, it already possessed
the requisite license and marketing agreement to engage in such
transactions,31 as evidenced by its registration with the SEC as a
corporation.32 Petitioner argues that when it was registered and
authorized by the SEC as broker of securities33 - such as the Laguna de
Boracay timeshares - this had the effect of ratifying its October 6, 1996
purchase agreement with respondents, and removing any cause for the
latter to rescind it.

The Court is not persuaded.

As cited by the SEC En Banc in its March 25, 2002 Decision, as early as
February 13, 1998, the SEC, through Director Linda A. Daoang, already
rendered a ruling on the effectivity of the registration statement of
petitioner, viz:

This has reference to your registration statement which was rendered

effective 11 February 1998. The 30 days within which a purchaser may
exercise the option to unilaterally rescindthe purchase agreement and
receive the refund of money paid, applies to all purchase agreements
entered into by the registrant prior to the effectivity of the
registration statement. The 30-day rescission period for
contracts signed before the Registration Statement was
rendered effective shall commence on 11 February 1998. The
rescission period for contracts after 11 February 1998 shall
commence on the date of purchase agreement.(Emphasis
supplied.)34
Petitioner sought a reconsideration of said ruling but the same was
denied by Director Daoang in an Order dated March 9, 1998.35 However,
petitioner did not resort to any other administrative remedy against said
ruling, such as by questioning the same before the SEC En Banc. Having
failed to exhaust the administrative remedies available to it, petitioner is
already bound by said ruling and can no longer question the same
through a direct and belated recourse to us.36

Finally, the provisions of B.P. Blg. 178 do not support the contention of
petitioner that its mere registration as a corporation already authorizes
it to deal with unregistered timeshares. Corporate registration is just
one of several requirements before it may deal with timeshares:

Section 8. Procedure for registration. - (a) All securities required to be

registered under subsection (a) of Section four of this Act shall be
registered through the filing by the issuer or by any dealer or
underwriter interested in the sale thereof, in the office of the
Commission, of a sworn registration statement with respect to such
securities, containing or having attached thereto, the following:

xxx

(36) Unless previously filed and registered with the Commission and
brought up to date:

(a) A copy of its articles of incorporation with all amendments thereof

and its existing by-laws or instruments corresponding thereto, whatever
the name, if the issuer be a corporation.

Prior to fulfillment of all the other requirements of Section 8, petitioner

is absolutely proscribed under Section 4 from dealing with unregistered
timeshares, thus:

Section 4. Requirement of registration of securities. - (a) No securities,

except of a class exempt under any of the provisions of Section five
hereof or unless sold in any transaction exempt under any of the
provisions of Section six hereof, shall be sold or offered for sale or
distribution to the public within the Philippines unless such securities
shall have been registered and permitted to be sold as
hereinafter provided. (Emphasis supplied.)

WHEREFORE, the petition is DENIED for lack of merit.

Costs against petitioner.

SO ORDERED.
6 It is noted that the propriety of the filing of the complaint directly with the SEC En Banc was never raised as an issue.
 FIRST DIVISION

POWER HOMES UNLIMITED G.R. No. 164182

CORPORATION,
Petitioner,
Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
- versus - CORONA,
AZCUNA, and
LEONARDO-DE CASTRO, JJ.

SECURITIES AND EXCHANGE

COMMISSION AND NOEL Promulgated:
MANERO,
Respondents. February 26, 2008

x-------------------------------------------------x

DECISION

PUNO, C.J.:

This petition for review seeks the reversal and setting aside of the July 31, 2003
Decision[1] of the Court of Appeals that affirmed the January 26, 2001 Cease and Desist
Order (CDO)[2] of public respondent Securities and Exchange Commission (SEC)
enjoining petitioner Power Homes Unlimited Corporations (petitioner) officers,
directors, agents, representatives and any and all persons claiming and acting under their
authority, from further engaging in the sale, offer for sale or distribution of securities;
and its June 18, 2004 Resolution[3] which denied petitioners motion for reconsideration.
The facts: Petitioner is a domestic corporation duly registered with public
respondent SEC on October 13, 2000 under SEC Reg. No. A200016113. Its primary
purpose is:
To engage in the transaction of promoting, acquiring, managing, leasing,
obtaining options on, development, and improvement of real estate properties for
subdivision and allied purposes, and in the purchase, sale and/or exchange of said
subdivision and properties through network marketing.[4]

On October 27, 2000, respondent Noel Manero requested public respondent SEC to
investigate petitioners business. He claimed that he attended a seminar conducted by
petitioner where the latter claimed to sell properties that were inexistent and without any
brokers license.

On November 21, 2000, one Romulo E. Munsayac, Jr. inquired from public
respondent SEC whether petitioners business involves legitimate network marketing.

On the bases of the letters of respondent Manero and Munsayac, public

respondent SEC held a conference on December 13, 2000 that was attended by
petitioners incorporators John Lim, Paul Nicolas and Leonito Nicolas. The attendees
were requested to submit copies of petitioners marketing scheme and list of its members
with addresses.

The following day or on December 14, 2000, petitioner submitted to public

respondent SEC copies of its marketing course module and letters of
accreditation/authority or confirmation from Crown Asia, Fil-Estate Network and
Pioneer 29 Realty Corporation.

On January 26, 2001, public respondent SEC visited the business premises of
petitioner wherein it gathered documents such as certificates of accreditation to several
real estate companies, list of members with web sites, sample of member mail box,
webpages of two (2) members, and lists of Business Center Owners who are qualified to
acquire real estate properties and materials on computer tutorials.
On the same day, after finding petitioner to be engaged in the sale or offer for sale
or distribution of investment contracts, which are considered securities under Sec. 3.1
(b) of Republic Act (R.A.) No. 8799 (The Securities Regulation Code),[5] but failed to
register them in violation of Sec. 8.1 of the same Act,[6] public respondent SEC issued a
CDO that reads:

WHEREFORE, pursuant to the authority vested in the Commission, POWER

HOMES UNLIMITED, CORP., its officers, directors, agents, representatives and any
and all persons claiming and acting under their authority, are hereby ordered to
immediately CEASE AND DESIST from further engaging in the sale, offer or
distribution of the securities upon the receipt of this order.

In accordance with the provisions of Section 64.3 of Republic Act No. 8799,
otherwise known as the Securities Regulation Code, the parties subject of this Cease
and Desist Order may file a request for the lifting thereof within five (5) days from
receipt.[7]

On February 5, 2001, petitioner moved for the lifting of the CDO, which public
respondent SEC denied for lack of merit on February 22, 2001.

Aggrieved, petitioner went to the Court of Appeals imputing grave abuse of

discretion amounting to lack or excess of jurisdiction on public respondent SEC for
issuing the order. It also applied for a temporary restraining order, which the appellate
court granted.
On May 23, 2001, the Court of Appeals consolidated petitioners case with CA-G.R.
[SP] No. 62890 entitled Prosperity.Com, Incorporated v. Securities and Exchange
Commission (Compliance and Enforcement Department), Cristina T. De La Cruz,
et al.

On June 19, 2001, petitioner filed in the Court of Appeals a Motion for the
Issuance of a Writ of Preliminary Injunction. On July 6, 2001, the motion was
heard. On July 12, 2001, public respondent SEC filed its opposition. On July 13, 2001,
the appellate court granted petitioners motion, thus:
Considering that the Temporary Restraining Order will expire tomorrow or on
July 14, 2001, and it appearing that this Court cannot resolve the petition immediately
because of the issues involved which require a further study on the matter, and
considering further that with the continuous implementation of the CDO by the SEC
 would eventually result to the sudden demise of the petitioners business to their
prejudice and an irreparable damage that may possibly arise, we hereby resolve to grant
the preliminary injunction.

WHEREFORE, let a writ of preliminary injunction be issued in favor of

petitioner, after posting a bond in the amount of P500,000.00 to answer whatever
damages the respondents may suffer should petitioner be adjudged not entitled to the
injunctive relief herein granted.[8]

On August 8, 2001, public respondent SEC moved for reconsideration, which was
not resolved by the Court of Appeals.

On July 31, 2003, the Court of Appeals issued its Consolidated Decision. The
disposition pertinent to petitioner reads:[9]

WHEREFORE, x x x x the petition for certiorari and prohibition filed by the

other petitioner Powerhomes Unlimited Corporation is hereby DENIED for lack of
merit and the questioned Cease and Desist Order issued by public respondent against it
is accordingly AFFIRMED IN TOTO.

On June 18, 2004, the Court of Appeals denied petitioners motion for
reconsideration;[10] hence, this petition for review.

The issues for determination are: (1) whether public respondent SEC followed
due process in the issuance of the assailed CDO; and (2) whether petitioners business
constitutes an investment contract which should be registered with public respondent
SEC before its sale or offer for sale or distribution to the public.

On the first issue, Sec. 64 of R.A. No. 8799 provides:

Sec. 64. Cease and Desist Order. 64.1. The Commission, after proper investigation or
verification, motu proprio or upon verified complaint by any aggrieved party, may issue
a cease and desist order without the necessity of a prior hearing if in its judgment the act
or practice, unless restrained, will operate as a fraud on investors or is otherwise likely
to cause grave or irreparable injury or prejudice to the investing public.

We hold that petitioner was not denied due process. The records reveal that public
respondent SEC properly examined petitioners business operations when it (1) called
into conference three of petitioners incorporators, (2) requested information from the
incorporators regarding the nature of petitioners business operations, (3) asked them to
submit documents pertinent thereto, and (4) visited petitioners business premises and
gathered information thereat. All these were done before the CDO was issued by the
public respondent SEC. Trite to state, a formal trial or hearing is not necessary to
comply with the requirements of due process. Its essence is simply the opportunity to
explain ones position. Public respondent SEC abundantly allowed petitioner to prove its
side.

The second issue is whether the business of petitioner involves an investment

contract that is considered security[11] and thus, must be registered prior to sale or offer
for sale or distribution to the public pursuant to Section 8.1 of R.A. No. 8799, viz:

Section 8. Requirement of Registration of Securities. 8.1. Securities shall not be

sold or offered for sale or distribution within the Philippines, without a registration
 statement duly filed with and approved by the Commission. Prior to such sale,
information on the securities, in such form and with such substance as the Commission
may prescribe, shall be made available to each prospective purchaser.

Public respondent SEC found the petitioner as a marketing company that promotes and
facilitates sales of real properties and other related products of real estate developers
through effective leverage marketing. It also described the conduct of petitioners
business as follows:

The scheme of the [petitioner] corporation requires an investor to become a

Business Center Owner (BCO) who must fill-up and sign its application form. The
Terms and Conditions printed at the back of the application form indicate that the BCO
shall mean an independent representative of Power Homes, who is enrolled in the
companys referral program and who will ultimately purchase real property from any
accredited real estate developers and as such he is entitled to a referral
bonus/commission. Paragraph 5 of the same indicates that there exists no
employer/employee relationship between the BCO and the Power Homes Unlimited,
Corp.

The BCO is required to pay US$234 as his enrollment fee. His enrollment
entitles him to recruit two investors who should pay US$234 each and out of which
amount he shall receive US$92. In case the two referrals/enrollees would recruit a
minimum of four (4) persons each recruiting two (2) persons who become his/her own
down lines, the BCO will receive a total amount of US$147.20 after deducting the
amount of US$36.80 as property fund from the gross amount of US$184. After
recruiting 128 persons in a period of eight (8) months for each Left and Right business
groups or a total of 256 enrollees whether directly referred by the BCO or through his
down lines, the BCO who receives a total amount of US$11,412.80 after deducting the
amount of US$363.20 as property fund from the gross amount of US$11,776, has now
an accumulated amount of US$2,700 constituting as his Property Fund placed in a
Property Fund account with the Chinabank. This accumulated amount of US$2,700 is
used as partial/full down payment for the real property chosen by the BCO from any of
[petitioners] accredited real estate developers.[12]

An investment contract is defined in the Amended Implementing Rules and

Regulations of R.A. No. 8799 as a contract, transaction or scheme (collectively
contract) whereby a person invests his money in a common enterprise and is led to
expect profits primarily from the efforts of others.[13]

It behooves us to trace the history of the concept of an investment contract under

R.A. No. 8799. Our definition of an investment contract traces its roots from the 1946
United States (US) case of SEC v. W.J. Howey Co.[14] In this case, the US Supreme
Court was confronted with the issue of whether the Howey transaction constituted an
investment contract under the Securities Acts definition of security. [15] The US Supreme
Court, recognizing that the term investment contract was not defined by the Act or
illumined by any legislative report,[16] held that Congress was using a term whose
meaning had been crystallized[17] under the states blue sky laws[18] in existence prior to
the adoption of the Securities Act.[19] Thus, it ruled that the use of the catch-all term
investment contract indicated a congressional intent to cover a wide range of investment
transactions.[20] It established a test to determine whether a transaction falls within the
scope of an investment contract.[21] Known as the Howey Test, it requires a transaction,
contract, or scheme whereby a person (1) makes an investment of money, (2) in a
common enterprise, (3) with the expectation of profits, (4) to be derived solely from the
efforts of others.[22] Although the proponents must establish all four elements, the US
Supreme Court stressed that the Howey Test embodies a flexible rather than a static
principle, one that is capable of adaptation to meet the countless and variable schemes
devised by those who seek the use of the money of others on the promise of
profits.[23] Needless to state, any investment contract covered by the Howey Test must
be registered under the Securities Act, regardless of whether its issuer was engaged in
fraudulent practices.

After Howey came the 1973 US case of SEC v. Glenn W. Turner Enterprises,
Inc. et al.[24] In this case, the 9th Circuit of the US Court of Appeals ruled that the
element that profits must come solely from the efforts of others should not be given a
strict interpretation. It held that a literal reading of the requirement solely would lead to
unrealistic results. It reasoned out that its flexible reading is in accord with the statutory
policy of affording broad protection to the public. Our R.A. No. 8799 appears to follow
this flexible concept for it defines an investment contract as a contract, transaction or
scheme (collectively contract) whereby a
person invests his money in a common enterprise and is led to expect profits not solely
but primarily from the efforts of others. Thus, to be a security subject to regulation
by the SEC, an investment contract in our jurisdiction must be proved to be: (1) an
investment of money, (2) in a common enterprise, (3) with expectation of profits,
(4) primarily from efforts of others.

Prescinding from these premises, we affirm the ruling of the public respondent
SEC and the Court of Appeals that the petitioner was engaged in the sale or distribution
of an investment contract. Interestingly, the facts of SEC v. Turner[25] are similar to the
case at bar. In Turner, the SEC brought a suit to enjoin the violation of federal
securities laws by a company offering to sell to the public contracts characterized as
self-improvement courses. On appeal from a grant of preliminary injunction, the US
Court of Appeals of the 9th Circuit held that self-improvement contracts which primarily
offered the buyer the opportunity of earning commissions on the sale of contracts to
others were investment contracts and thus were securities within the meaning of the
federal securities laws. This is regardless of the fact that buyers, in addition to investing
money needed to purchase the contract, were obliged to contribute their own efforts in
finding prospects and bringing them to sales meetings. The appellate court held:

It is apparent from the record that what is sold is not of the usual business
motivation type of courses. Rather, the purchaser is really buying the possibility of
deriving money from the sale of the plans by Dare to individuals whom the purchaser
has brought to Dare. The promotional aspects of the plan, such as seminars, films, and
records, are aimed at interesting others in the Plans. Their value for any other purpose
is, to put it mildly, minimal.

Once an individual has purchased a Plan, he turns his efforts toward

bringing others into the organization, for which he will receive a part of what they
pay. His task is to bring prospective purchasers to Adventure Meetings.
The business scheme of petitioner in the case at bar is essentially similar. An investor
enrolls in petitioners program by paying US$234. This entitles him to recruit two (2)
investors who pay US$234 each and out of which amount he receives US$92. A
minimum recruitment of four (4) investors by these two (2) recruits, who then recruit at
least two (2) each, entitles the principal investor to US$184 and the pyramid goes on.
 We reject petitioners claim that the payment of US$234 is for the seminars on
leverage marketing and not for any product. Clearly, the trainings or seminars are
merely designed to enhance petitioners business of teaching its investors the know-how
of its multi-level marketing business. An investor enrolls under the scheme of petitioner
to be entitled to recruit other investors and to receive commissions from the investments
of those directly recruited by him. Under the scheme, the accumulated amount received
by the investor comes primarily from the efforts of his recruits.

We therefore rule that the business operation or the scheme of petitioner

constitutes an investment contract that is a security under R.A. No. 8799. Thus, it must
be registered with public respondent SEC before its sale or offer for sale or distribution
to the public. As petitioner failed to register the same, its offering to the public was
rightfully enjoined by public respondent SEC. The CDO was proper even without a
finding of fraud. As an investment contract that is security under R.A. No. 8799, it must
be registered with public respondent SEC, otherwise the SEC cannot protect the
investing public from fraudulent securities. The strict regulation of securities is founded
on the premise that the capital markets depend on the investing publics level of
confidence in the system.

IN VIEW WHEREOF, the petition is DENIED. The July 31, 2003 Decision of
the Court of Appeals, affirming the January 26, 2001 Cease and Desist Order issued by
public respondent Securities and Exchange Commission against petitioner Power
Homes Unlimited Corporation, and its June 18, 2004 Resolution denying petitioners
Motion for Reconsideration are AFFIRMED. No costs.

SO ORDERED.
[5]
Sec. 3.1. Securities are shares, participation or interests in a corporation or in a commercial enterprise or profit-making
venture and evidenced by a certificate, contract, instrument, whether written or electronic in character. It includes:
xxxx
(b) Investment contracts, x x x x
[6]
Sec. 8.1. Securities shall not be sold or offered for sale or distribution within the Philippines, without a registration
statement duly filed with and approved by the Commission. Prior to such sale, information on the securities, in such
form and with such substance as the Commission may prescribe, shall be made available to each prospective purchaser.
[9]
See Note 1; the Court shall only discuss the petition of Power Homes Unlimited Corporation as the other petitioner did
not elevate its case before the Supreme Court.
[13]
Rule 3, 1 (G), Definition of Terms Used in the Rules and Regulations.
[14]
328 U.S. 293, 66 S.Ct. 1100, 163 A.L.R. 1043, 90 L.Ed. 1244 (1946), where investment contract was defined as a
contract, transaction or scheme whereby a person invests money in a common enterprise expecting profits to accrue
solely from the efforts of the promoter or third parties.
[18]
From 1911 to 1931, forty-seven of forty-eight states enacted statutes regulating the sales of securities. One advocate of
the laws purportedly asserted that securities salesmen were so dishonest that they would attempt to sell building lots in
the blue sky. Thus, the statutes came to be known as the blue sky laws. (Paul G. Mahoney, The Origins of the Blue Sky
Laws: A Test of Competing Hypotheses, 46 J.L. & Econ. 229 [2003].)