Legal Opinions in Business Transactions (Excluding the Remedies Opinions) -- May 2005, Revised October 2007. The Corporations Committee of The State Bar of California Business Law Section
VII. Opinions Not Normally Requested or Given

A legal opinion expresses the opinion giver's professional judgment on questions of law or procedure. For example:

  • Is the transaction to be entered into by the client within its corporate power and authority?
  • Has the transaction been duly authorized by the client's board of directors and shareholders?
  • Has the client secured all of the consents necessary to enable it to enter into the transaction?
  • Will the opinion recipient, if the client breaches the Agreement in a material way, have available to it, under the law governing the agreement, the remedies for which it has bargained?

Requests for "opinions" on essentially factual questions, opinions that are not cost effective and opinions that address questions beyond the competence of a business lawyer are generally viewed as inappropriate. Some of those opinions are discussed below.291

A. Title to and Transfer of Assets

An opinion giver occasionally will be asked for an opinion that the Company has "good and marketable title" or "good and valid title" to its assets or that the Company has transferred title to certain assets to a buyer. The Committee is of the view that lawyers should not be asked for an opinion on title to assets.292

Sometimes an opinion giver is asked for an opinion on the form of the document that is intended to transfer title. An illustration of the form of such an opinion follows:

... The [bill of sale] is sufficient as to form to transfer the Company's right, title and interest in and to the assets specified in the Agreement to the Buyer.

The Committee wishes to point out, however, that specific issues relating to real estate and the application of the Uniform Commercial Code to the transfer of assets are beyond the scope of this Report.

B. Fraudulent Transfers and Other Insolvency-Related Opinions

An opinion on the enforceability of an Agreement does not address the effect of fraudulent transfer laws. The "bankruptcy exception" to the standard remedies opinion excludes the effect of fraudulent transfer laws from the opinion.293

A specialized practice has developed in structured finance involving the rendering of opinions to rating agencies and investors in connection with the establishment of special purpose entities acquiring assets from related parties. In these transactions, opinion givers do give reasoned opinions on bankruptcy-related issues, including substantive consolidation, "true sales" and restrictions on access to bankruptcy.294

C. Opinions Referenced Elsewhere in this Report

The following opinions are addressed elsewhere in this Report and, for the reasons there indicated, should normally not be requested or given:

Description of Opinion Report Reference
No violation of any law Part IV.B.1
No violation of any agreement Part IV.B.1
Due authorization/valid issuance of all shares of capital stock Part IV.B.1. & V.D.5
Qualification in all jurisdictions Part V.A.5
Outcome of litigation Part IV.B.2
Financial statements or economic valuation Part IV.B.6


291 Readers of this Report may also wish to review the list of disfavored opinions set forth in the ABA Guidelines § 4. See also the discussion in Part IV, Section B of this Report. Back

292 In connection with the purchase and sale of assets, seller's counsel may be asked for an opinion that the assets are free and clear of all liens, encumbrances, and adverse claims. In giving opinions on asset sales, opinion givers should consider the application of Division 6 of the Uniform Commercial Code relating to bulk sales. California is one of a few states that has not repealed Division 6 of the Uniform Commercial Code, despite the long-standing recommendation by the Uniform Commercial Code Committee of the Business Law Section of the California Bar Association that the California Legislature should do so. (Report of the UCC Committee of the Business Law Section of the State Bar of California Recommending Repeal of Division 6 of the California Commercial Code Regarding Bulk Sales dated December 1, 2003.) For a variety of reasons, it has become standard business practice for many buyers in California to waive compliance with the California bulk sales law. For this reason, and because title to most types of personal property is affected significantly by facts that a lawyer cannot determine without great cost or at all, lawyers generally do not render an opinion that assets are free and clear of all liens, encumbrances, and adverse claims (except for "free from adverse claim" opinions with respect to securities and instruments). Back

293 See Appendix 10 ("Report of the Exceptions Committee") to the Remedies Report at 4-6. Back

294 See TriBar Opinion Committee, Opinions in the Bankruptcy Context: Rating Agency, Structured Financing, and Chapter 11 Transactions, 46 BUS. LAW. 717 (1991). Back

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