Report on Legal Opinions in Personal Property Secured Transactions
1. Introduction

This report by the Uniform Commercial Code Committee (the "Committee") of the Business Law Section (the "BLS") of the State Bar of California on legal opinions in personal property secured transactions1 replaces an earlier report of the Committee, published in 1989.2 It also supplements the relevant reports on legal opinions of other California State Bar Committees3 and the American Bar Association Committee on Legal Opinions.4

The utility of the 1989 Report diminished substantially as a result of California's adoption of revised Article 9 ("Article 9")5 of the Uniform Commercial Code (the "UCC"). When revised Division 9 ("Division 9") of the California Uniform Commercial Code (the "Code")6 became effective on July 1, 2001, it rendered many of the references to the Code in the 1989 Report incorrect and made some of the explanations of the meaning of opinions inaccurate or incomplete. Moreover, in many cases, customary opinion practice and common understandings of the meanings of opinions had developed since the publication of the 1989 Report. Accordingly, the Committee believed it important to replace the 1989 Report.

This Report provides a guide for preparing legal opinions concerning security interests7 in personal property secured transactions8 covered by Division 9.9 In doing so, this Report seeks to simplify the process of issuing Security Interest Opinions,10 while improving the level of communication between opinion givers and opinion recipients.11 Toward these ends, this Report (1) contains sample wording for specific Security Interest Opinions,12 together with an explanation of the meaning and scope of those opinions,13 (2) includes sample qualifications14 related to those opinions, (3) describes various considerations implicated in connection with preparing those opinions, and (4) highlights certain limited differences from the commentary contained in the TriBar Report prepared by the TriBar Opinion Committee.15 An opinion containing sample wording, including qualifications, is attached to this Report as Appendix B.

As a final prefatory note, this Report is neither a comprehensive review of the law relating to personal property security interests nor a treatise on Security Interest Opinions. As noted in the 1989 Report, the law relating to personal property security interests "has a structure and terminology of its own. This structure and terminology should be familiar to any lawyer proposing to render an opinion on personal property secured transactions."16


1 This report (hereinafter, this "Report") was prepared principally by members of the Committee's Subcommittee on Legal Opinions (the "Subcommittee") as set forth on Appendix A to this Report. Drafts of this Report were circulated to members of the Committee, the Opinions Committee of the BLS and a small group of other California lawyers with relevant expertise. The Subcommittee expresses its sincere appreciation to all of those who commented on those drafts and, in particular, Peter H. Carson, Richard N. Frasch, Jerome A. Grossman, Morris W. Hirsch, John B. Power and Steven O. Weise, all of whom are members of the Opinions Committee of the BLS. The Subcommittee would also like to pay special thanks to the TriBar Opinion Committee, which shared with the Subcommittee its thoughts on the subject matter of this Report in connection with its preparation of the Special Report of the TriBar Opinion Committee: U.C.C. Security Interest Opinions - Revised Article 9, 58 BUS. LAW. 1449 (2003) (hereinafter, "TriBar Report"). Any uncited language similar to that contained in the TriBar Report can be traced both to the joint concerns of the two committees and this early sharing of ideas (which the Subcommittee gratefully acknowledges). Back

2 Report Regarding Legal Opinions in Personal Property Secured Transactions, 44 BUS. LAW. 791 (1989) (hereinafter, "1989 Report"). The 1989 Report was actually released in December, 1988. Back

3 These reports are: (a) Report on Third-Party Remedies Opinions, issued in September, 2004 by the Opinions Committee of the Business Law Section of the State Bar of California (hereinafter, "California Remedies Opinion Report"); (b) Legal Opinions in Business Transactions (Excluding the Remedies Opinion), issued in May, 2005 by the Corporations Committee of the Business Law Section of the State Bar of California (hereinafter, "California Legal Opinions (Non-Remedies) Report"); (c) Legal Opinions in California Real Estate Transactions, 42. BUS. LAW. 1139 (1987), issued by the Real Property Law Section of the State Bar of California and the Real Property Section of the Los Angeles County Bar Association; (d) Joint Committee Report -- An Addendum, issued on March 14, 1990 by the Real Property Law Section of the State Bar of California and the Real Property Section of the Los Angeles County Bar Association; (e) 1995 California Real Property Legal Opinion Report, 13 CAL. REAL PROP. J. 1 (Fall 1995); (f) Report on Legal Opinions Concerning California Partnerships, issued in February 1998 by the Partnerships and Limited Liability Companies Committee of BLS, BUS. LAW NEWS (Winter 1999); and (g) Report on Legal Opinions Concerning California Limited Liability Companies, issued in February 2000 by the Partnerships and Limited Liability Companies Committee of the BLS, BUS. LAW NEWS (Spring 2000). Back

4 These reports are: (a) Legal Opinion Principles, 53 BUS. LAW. 831 (1998); and (b) Guidelines for the Preparation of Closing Opinions, 57 BUS. LAW. 875 (2002) (hereinafter, "ABA Guidelines"). Back

5 Except as noted below, references in this Report to Article 9 and the UCC and the Official Comments thereto are to the 2002 Official Text of the UCC (the "2002 Official Text"), prepared under the joint sponsorship of The American Law Institute ("ALI") and the National Conference of Commissioners on Uniform State Laws ("NCCUSL"). References to Article 1 of the UCC are references to Article 1 as in effect prior to the revisions reflected in the 2002 Official Text; however, an additional reference has been included to Article 1 as revised (as set forth in the 2002 Official Text). Article 9, as set forth in the 2002 Official Text, has been adopted in all fifty states, the District of Columbia and the United States Virgin Islands. The revised version of Article 1 contained in the 2002 Official Text has, as of the date of this Report, been enacted in Alabama, Arkansas, Connecticut, Delaware, Hawaii, Idaho, Minnesota, Montana, Nebraska, Nevada, New Mexico, Oklahoma, Texas and Virginia. Back

6 Unless otherwise indicated, section references herein are to sections of the Code. Back

7 Cal. Com. Code § 1201(36)(a); UCC §§ 1-201(37), 1-201(b)(37)(revised). The term "security interest" includes the interest of a buyer of accounts, chattel paper and payment intangibles and promissory notes, id., although section 9109(d)(4)-(7) excludes some sales of these types of property from Division 9. For purposes of Division 9, a "debtor" includes a person (whether or not that person is an obligor) who has an interest (other than a security interest or other lien) in the collateral, a seller of accounts, chattel paper, payment intangibles, and promissory notes, and a consignee. Cal. Com. Code § 9102(a)(28). A "secured party," as defined in section 9102(a)(72), includes a buyer of accounts, chattel paper, payment intangibles, and promissory notes and further includes a consignee. Cal. Com. Code § 9102(a)(72)(D). Back

8 This Report is limited to security interests in commercial transactions. In addition, it does not consider agricultural liens, Cal. Com. Code § 9102(a)(5), even though such liens are generally covered by Division 9. Cal. Com. Code § 9109(a)(2). Back

9 This Report also covers opinions concerning security interests in securities, security entitlements and securities accounts covered in part by Division 8 of the Code. Back

10 For an explanation of the use of the term "Security Interest Opinion" in this Report, see infra text accompanying notes 29, 34. Back

11 This Report, following Third-Party Closing Opinions, 53 BUS. LAW. 591 (1998) (hereinafter, "1998 TriBar Report"), uses the terms "opinion giver" to refer to "the lawyer or law firm in whose name the opinion letter is signed" and "opinion recipient" to refer to "the addressee of the opinion letter and others, if any, granted permission by the opinion giver to rely on the opinion letter." Id. § 1.9. Back

12 Each Section of this Report which discusses a particular opinion provides a sample, though not model, formulation of that opinion, which sample is intended to be reflective of customary practice. While the same opinion may be expressed in an alternative fashion, an opinion giver who uses the sample wording or its equivalent will have the advantage of associating that wording with the commentary contained in this Report. Back

13 Each Section of this Report also explains what a particular opinion (absent qualifications) is, by custom, understood to cover and, in certain instances, sets forth conclusions that are, by custom, not inferred from a specific opinion. Because Security Interest Opinions will rarely, if ever, be free from qualification, the Section on the meaning of a specific opinion should never be read in isolation from the Section on qualifications for that opinion. This Report does not specifically address the appropriateness, in any given circumstance, of any expansion or limitation on the scope of a particular opinion as may be agreed upon by the opinion recipient and the opinion giver in accordance with the general guidelines on requesting and giving opinions discussed in this Report. See infra Section 2.1; see also California Remedies Opinion Report, supra note 3, at 5-6 and at Appendix 4.

In recognition of the fact that practices under Division 9 and Article 9 are developing, the Committee will continue to monitor opinion practices and, if appropriate, issue supplements to this Report. Back

14 For purposes of this Report, "qualifications" include assumptions on which an opinion is based and limitations on, exclusions from or exceptions to the opinion given. See generally California Remedies Opinion Report, supra note 3, Appendices 10-11. Where it is useful to the understanding of a particular Security Interest Opinion or in order to comment on currently prevailing practices, this Report also discusses some possible qualifications for that Security Interest Opinion, even when it is unnecessary to state them expressly. Back

15 The changes in law and opinion practices discussed in this Report have, in general, been addressed by the TriBar Report. This Report, however, leaves to the TriBar Report a discussion of the effect of the transition rules found in Chapter 7 of Division 9. See TriBar Report, supra note 1, § 9. Back

16 1989 Report, supra note 2, at 794 (emphasis added). See TriBar Report, supra note 1, § 1, at 1454 and at 1455, n.16; California Remedies Opinion Report, supra note 3, Appendix 5, § 4, Appendix 8, § 2.C. For a discussion of Security Interest Opinions generally, see, for example, D. GLAZER, S. FITZGIBBON & S. WEISE, GLAZER AND FITZGIBBON ON LEGAL OPINIONS: DRAFTING, INTERPRETING AND SUPPORTING CLOSING OPINIONS IN BUSINESS TRANSACTIONS §§ 12.1-12.10 (2d ed. 2001 & Rev. Cum. Supp. 2005) (hereinafter, "Glazer, FitzGibbon & Weise"). Back

Section 2. Security Interest Opinion Considerations Generally / Table of Contents