Day 1037.C: [PART II] How NOT to Invest in a Software Development Firm in the Philippines

We entered their big house to meet with 'the doctor'. One of the housemaids, ushered us into the office cum clinic cum investment room. My wife and I stared at each other and I said to her softly, "This is their office?". To our back was a white curtain that covered half of the room. I was a little concerned that there might be some people there hiding waiting to grab us or something.

Then the door opened and were greated by 'his wife'. She shook our hands, smiled and said, "The Doctor will be with you shortly."

She asked "By the way, do you know about Ragnarok? How about the World of Warcraft?"

I nodded in confirmation to her query and tried to ask her, "What is this thing really?"

"Well, it's like World of Warcraft but with robots. It's still in the development stage. It's an MMORPG where you get to customize robots and fight."

I was excited at the prospect. Wow, I mean literally W.O.W with robots. Forgive me for my nerdiness, but I grew up with games.

She left the room, and smiled at us, "Just a second."

Then in came the 'Doctor'. He was a plump guy who always smiled. He was actually very nice. He carried with him some Gaming Magazines which he showed to us. I got the impression that this guy actually read the magazines.

He knew a lot about games, and he knew a lot about how much the gaming industry was making in the United States. The number was in the billions of dollars.

At the time I didn't care about the numbers. I cared about the prospect of a robotic World of Warcraft. The kid in me felt very excited. Customizable 3D robots, moving around a 3D World. W.O.W.

The Doctor then went serious, he said, "We are only aiming for 1% of that market."

"You will get 1% of 1% the gross income. He went on to crunch big numbers which my mind couldn't really compute that fast without a calculator. And he said out in the air - this is it "300,000 Pesos. Because the intended audience is international they will be paying in Dollars."

I was like, "Hey wait a second, that's too big a number."

But the Doctor assured me, "If you like you could take a look at our books. We'll update you monthly."

I knew I had to be cautious because I would be risking my family's future.

So my wife and I decided to wait. While waiting this happened in the news:



The Peninsula Siege.

At the time I wondered. "Could this be a sign?"

Then I got a call from the wife. She followed up on the investment and reassured me that "We have to think positive. These are all just political noise. We should ignore it and proceed."

Being the hard headed idiot that I am, I believed her. I knew that this Peninsula siege would blow away, Trillanes and company were simply desperate. But that's another story.

So, on the fateful day of November 30, 2007. I signed a Memorandum of Agreement with them.

I will retype it for you hang on a bit (I'll scan this later):



MEMORANDUM OF AGREEMENT


This Agreement, made and executed by and between:

NAME OF SOFTWARE DEVELOPMENT COMPANY. a business organized and existing under Philippine laws, with principal office at address of software development company, Quezon City, Metro Manila, represented herein by Name of Software Development Company, herein referred to as the FIRST PARTY.

-and-
MR DANIEL ANDREI R. GARCIA, of legal age, a resident of the Philippines, with postal address at I'm not putting my address here, Paranaque City, herein referred to as the SECOND PARTY.
Whereas, both parties agree to the following conditions:
1. The FIRST PARTY agrees to develop an on-line computer game and is in the process of publishing the said game on or about four weeks from signing of this agreement.
2. The title of the on-line computer game is NAME OF COMPUTER GAME.
3. The FIRST PARTY will allow the SECOND PARTY to propose or suggest any business procedures, promotions or strategies that will help hasten the completion of the on-line computer game or improve the chances of success of the business. However, the FIRST PARTY holds the right for the approval of such suggestion/s or proposal/s.
4. The FIRST PARTY will allow the SECOND PARTY to look at the accounting journals of the FIRST PARTY for proper monitoring.
5. While in the process of developing the on-line computer game, the FIRST PARTY will provide the SECOND PARTY monthly progress report.
6. During the publication/operation of the said on-line computer game, The FIRST PARTY will provide the SECOND PARTY monthly sales report.
7. The FIRST PARTY will give the SECOND PARTY a one percent (1%) share on the gross monthly sales for one hundred twenty five thousand pesos (Php 125,000) the SECOND PARTY will invest.
8. The FIRST PARTY will pay the SECOND PARTY of its share of one percent (1%) of the gross monthly sale every seventh (7th) of the month.
9. The FIRST PARTY will pay the SECOND PARTY of its share of one percent (1%) of the gross monthly share in the form of a MANAGER'S CHECK.
10. The FIRST PARTY will deduct a 12% VAT from the SECOND PARTY'S one percent (1%) share on the gross monthly sales of the FIRST PARTY.
11. The SECOND PARTY will commit and obligate himself to invest one hundred twenty five thousand pesos, (Php 125,000).
12. The SECOND PARTY'S participation is purely as an investor, thus she is free from any legal action/s or litigation/s that may be filed against the FIRST PARTY in the event of any untoward incident.
13. The SECOND PARTY has the option to refund her investment subject to the following schedule:
a. The option for refund can be done after 180 days of operation.
b. The FIRST PARTY will pay the SECOND PARTY twenty five thousand pesos (Php 25,000) a month for (5) months.
c. The FIRST PARTY will pay the SECOND PARTY twenty five thousand pesos (Php 25,000) on the sixth (6th) month after the initiation of the refund.
14. If the SECOND PARTY did not ask for a refund after 180 days of operation, the SECOND PARTY is deemed to have waived her right for refund.
15. In the event that the SECOND PARTY demised or become invalid, or incapacitated the investment of the SECOND PARTY is transferred and assigned to {my wife}.
16. The effectivity of this agreement will last for the entire duration of the publication of the said on-line computer game.
17. That we have read and understood the contents of this memorandum of agreement.
18. Signed this 30th day of November, 2007.
In retrospect, this document is obviously not written by a lawyer. Or maybe it is  - by a retarded lawyer. 
But in it lies the complex web of deceit and maneuvering. I shall say that in it's stupidity is its brilliance.
The sick and painful truth of the matter is, I signed it. 
So in turn you my dear reader, will have to logically say that ... nevermind.
Let's fast forward a bit to May 2009. I got this email from their Administrative Whatchamadingle:
These, and other kinds of failures and excuses all point to the happiness of the whole situation. Are you happy? I am.
Why? Because I already forgive them. Ayoko na. I know I am not going to win against you people. After all, if you have 30+ investors who invested 125,000 each - wala akong ganoong pera pang laban sa inyo. 
For me it looks like a grand charade. The guy who emailed me earlier - if he is really a real investor and if he is really going to sue - is going to lose. 
I am not a lawyer, in fact I dropped out of law school only two weeks into it and most of all I am not going to pretend to know the law. This is what I know - upon signing that damned piece of paper. Wala na akong magagawa. Why?


1. Section 7 (Grade 1 ba ang nagsulat nito?)




The FIRST PARTY will give the SECOND PARTY a one percent (1%) share on the gross monthly sales for one hundred twenty five thousand pesos (Php 125,000) the SECOND PARTY will invest.




Simple lang, they can declare any amount that they want to declare. Even if they showed me the accounting journals - accounting journals can be faked. Digging into these is next to impossible specially if the transactions involved are electronic. For all I care these people could declare a 1 peso gross income and give me 1 % of that which is 1 centavo and then deduct 12% from that.


2. Section 12


The SECOND PARTY'S participation is purely as an investor, thus she is free from any legal action/s or litigation/s that may be filed against the FIRST PARTY in the event of any untoward incident.


I have never read anything like this before. Really? Who puts the words "any untoward incident" in a business agreement? What untoward incident are they expecting? Not one end user license agreement I have read is written as sloppily - yet ingeniously masterful as this. It's like written in such crude language because that is its precise aim - to protect itself from "any untoward incident". 


3. Section 13


The SECOND PARTY has the option to refund her investment subject to the following schedule:
The direct to the point use of the phrase "has the option to refund her investment" belies the fact that such an occurrence is expected. 


The problem is in the phrase "after 180 days of operation". Going back to Section 1, it is said that:


The FIRST PARTY agrees to develop an on-line computer game and is in the process of publishing the said game on or about four weeks from signing of this agreement.


This puts the timeframe to an indefinite period covered by on or about four weeks from signing this agreement. Experience shows that this is also made problematic by the fact that the game was launched several months after the agreement was signed. When in fact it was launched, they claimed that it was alpha launch, pre-beta launch, beta launch and finally a commercial launch. These were spaced  several weeks apart. So when is the start of the operation? 
 

NEXT UP: SUMMATION: WHAT IS THE LESSON AND HOW THE HELL CAN WE AVOID THESE KIND OF PEOPLE? 

Bukas na...