Report on Legal Opinions in Personal Property Secured Transactions
5. Perfection Opinions.

The "perfection" of a security interest is a Division 9 concept, although it is not defined in the Code. It entails taking steps necessary to provide actual or constructive notice108 to third parties of a security interest in collateral, so that the secured creditor is afforded protection under the Code against certain third-party claims to that collateral.109 Based upon the four principal methods of perfecting a security interest under the Code,110 this Report discusses four types of opinions concerning the perfection of a security interest under the Code ("Perfection Opinions"): (a) perfection-by-filing opinions; (b) perfection-by-possession opinions; (c) perfection-by-control opinions; and (d) perfection-by-notification opinions.

A Perfection Opinion addresses whether the security interest in the collateral identified in the opinion is enforceable against the claims and interests of certain third parties, as specified in the Code.111 A Perfection Opinion, however, is customarily understood not to cover any of the following (and no express disclaimer to this effect is required):

  • that the perfected security interest has any particular priority in relation either to the rights of other secured parties with perfected security interests in the collateral or to the rights of other claimants to the collateral;112
  • that the secured party's security interest will not be adversely affected under any circumstance in the debtor's bankruptcy113 or by the occurrence of certain other future events or changes;114 or
  • certain matters generally understood not to be covered by Security Interest Opinions.115

5.1 Perfection-By-Filing Opinions

A security interest in collateral of the following types may be perfected by filing a financing statement in the appropriate governmental office:116

  • accounts;
  • general intangibles;
  • commercial tort claims;117
  • instruments;118
  • goods (including equipment, inventory and farm products);119
  • negotiable documents;120
  • tangible chattel paper;121
  • electronic chattel paper;122 and
  • investment property (including certificated securities, uncertificated securities, security entitlements, securities accounts, commodity contracts and commodity accounts).123

In general,124 the mandatory choice-of-law provisions of Division 9 provide that perfection of a security interest by the filing of a financing statement is governed by the local law125 of the jurisdiction where the debtor is located for purposes of Division 9.126 Unless otherwise noted, this Report's discussion of Perfection Opinions where perfection is accomplished by filing a financing statement ("Perfection-by-Filing Opinions") assumes that the debtor in the transaction is located in California for purposes of Division 9 and that California law is the law governing perfection of the security interest addressed in the opinion.127

In addition to covering the matters common to all Perfection Opinions,128 a Perfection-by-Filing Opinion addresses whether:

  • a security interest in some of the collateral covered by the opinion may be perfected by the filing of a financing statement;129
  • the financing statement is sufficient under section 9502(a) of the Code130 because it:
    • provides the name of the debtor (and, with respect to a registered organization, satisfies the requirements of section 9503(a)(1));131
    • provides the name of the secured party or a representative of the secured party;132 and
    • sufficiently indicates the collateral covered by the financing statement (i.e., the collateral specified in the security agreement and covered by the opinion);133
  • the filing office identified in the opinion is the appropriate place within California to file the financing statement to perfect the security interest in the collateral covered by the opinion;134 and
  • the debtor has authorized the filing of the financing statement and the financing statement is (if filed) or will be effective for purposes of Division 9.135

Under the Code, perfection by filing occurs automatically as to after-acquired property referenced in the security agreement and the financing statement upon the debtor acquiring rights therein.136 Accordingly, a Perfection-by-Filing Opinion also covers that property.137

The Code also provides that a security interest in proceeds is perfected if the original collateral is covered by the filed financing statement, the proceeds are collateral of a type in which a security interest may be perfected by filing in the office in which the financing statement has been filed and the proceeds are not acquired with cash proceeds.138 As a result, a Perfection-by-Filing Opinion covers such property.

The sample Perfection-by-Filing Opinion formulations contained in Section 5.1.1, however, are customarily understood not to cover any of the following (and no express disclaimer to this effect is required):

  • that any security interest in collateral has been perfected other than by the filing of a financing statement;139
  • that the financing statement contains all of the information required to be contained therein under section 9516(b);140
  • that the financing statement contains accurate information as to matters such as the debtor's or secured party's mailing address or organizational identification number;141
  • the effect of perfection of a security interest in negotiable documents, goods, instruments, money or tangible chattel paper located outside of California;142
  • that the filing of the financing statement is the only way to perfect a security interest in the collateral covered by the opinion;143 or
  • that the filing will give the secured party priority over any other security interest.144

5.1.1 Wording of Perfection-By-Filing Opinions.

The following are sample formulations of Perfection-by-Filing Opinions:

Alternative 1: [If the opinion letter contains a UCC Scope Limitation.] The security interest in that portion of the collateral described in the security agreement in which a security interest may be perfected by the filing of a financing statement under the California Uniform Commercial Code [will be] [is] perfected145 [upon the filing of [specify financing statement] with [specify filing office]].146

Alternative 2: [If the opinion letter does not contain a UCC Scope Limitation or if it is otherwise appropriate for the opinion giver to limit further the opinion.] The security interest in that portion of the collateral described in the security agreement that consists of (in each case as defined in the California Uniform Commercial Code) [specify collateral types covered by opinion, e.g., accounts,147 general intangibles, equipment, inventory, chattel paper, investment property, negotiable documents and instruments] [will be] [is] perfected [upon the filing of [specify financing statement] with [specify filing office]].

5.1.2 Qualifications for Perfection-By-Filing Opinions.

(a) Perfection Other Than by the Filing of a Financing Statement.

On occasion (as contemplated by each sample Perfection-by-Filing Opinion contained herein), a Perfection-by-Filing Opinion does not include a reference to the filing of the related financing statement (for example, because the financing statement was previously filed). In such an instance and if necessary to avoid the opinion being misleading to the opinion recipient, the opinion giver will customarily include a qualification to the effect that the opinion does not address the perfection of a security interest by any method other than the filing of a financing statement with the relevant filing office.148

(b) Debtor's Location.

Perfection by filing is generally based upon the location of the debtor.149 Where the debtor is a registered organization organized under the laws of a state, the location of the debtor is usually determined by obtaining a copy of the debtor's filed organizational documents.150 Where this review indicates that the debtor is a California registered organization, the opinion typically does not contain a

qualification with respect to the location of the debtor. Otherwise, a qualification with respect to the location may be appropriate.151

5.1.3 Unnecessary Qualifications for Perfection-By-Filing Opinions.

The following qualifications are generally understood and need not be expressly set forth in connection with the sample formulations of the Perfection-by-Filing Opinions set forth in Section 5.1.1:

  • an assumption that all information contained in the financing statement will be received by the filing office in legible form;
  • an assumption that California law governs perfection (or a statement to the effect that no opinion is given regarding the law governing perfection);152
  • an assumption that collateral descriptions are accurate or correct, i.e., that the collateral described corresponds to property actually owned or held by the debtor;153
  • a qualification to remind the opinion recipient that Perfection Opinions as a rule only address facts and circumstances existing on the date of the opinion154 and, thus, do not provide any assurance that the security interest may not cease to be perfected as a result of future events or circumstances;155
  • an assumption that the name of the secured party (as reflected in the security agreement or the financing statement) is the accurate name of the secured party;156
  • if the Perfection-by-Filing Opinion extends to general intangibles157 and the opinion contains a UCC Scope Limitation, a qualification excluding from the scope of the opinion any opinion as to the perfection of a security interest in those general intangibles to the extent subject to federal laws preempting at least some state law pertaining to liens upon that collateral.158 Such a qualification is by custom unnecessary in light of the UCC Scope Limitation, which excludes those types of collateral, such as registered copyrights, to the extent perfection of a security interest therein may be governed by laws other than Division 9;159 and
  • a qualification excluding from the scope of the Perfection Opinion accounts that are as-extracted collateral under section 9102(a)(6)(B). Unless a Perfection-by-Filing Opinion expressly addresses those accounts, the opinion is customarily understood to exclude a Perfection Opinion with respect to that collateral.

5.1.4 Considerations for Perfection-By-Filing Opinions.

(a) Sufficiency of the Financing Statement and Grounds for Rejection.

A Perfection-by-Filing Opinion ordinarily requires a review of the financing statement160 to determine whether it meets the three requirements of section 9502(a)161 -- that it include (1) the name of the debtor,162 (2) the name of the secured party or a representative of the secured party, and (3) an indication of the collateral163 covered by the financing statement164 -- and whether, based on the face of the financing statement, there are any grounds for the filing office to refuse to accept the financing statement under section 9516(b)(3).165

(b) Debtor's Location.

For purposes of determining both the "name"166 and "location" of a debtor, a conclusion must first be reached as to what type of "person"167 the debtor is under Division 9. If the debtor is a "registered organization" organized or formed under California law (generally, a corporation, limited liability company or limited partnership),168 the debtor is "located" in California and the perfection of a security interest by the filing of a financing statement is governed by California law.169 If, however, the debtor is an individual or an organization other than a registered organization (e.g., a general partnership or common law trust), the determination of where the debtor is located is more complicated. Section 9307(b)(1) provides that an individual debtor is generally "located at the individual's principal residence." An organization other than a registered organization is generally located in the state of its chief executive office.170 If a trustee of a common law trust171 owns the collateral under applicable non-Code law,172 then the trustee is the "debtor";173 in that instance, the rules applicable to determining the location of the type of person the trustee is (e.g., an individual or a registered organization) dictate where to file a financing statement.174

In view of the above, the determination of the location of the debtor where the debtor is a registered organization is primarily a legal issue that requires a review of statutes, organizational documents and other public records, while the determination of the location of other types of debtors is in large measure a factual issue that is customarily based on express assumptions or reliance on factual statements made by the debtor (e.g., as to the location of its chief executive office).175

(c) Debtor's Name.

Sections 9503(a), (b) and (c) provide the requirements for supplying a debtor's correct legal name on a financing statement. If a financing statement does not contain the exact name of the debtor, it will not be sufficient to effect perfection unless a search of the records of the filing office using the debtor's correct name and the filing office's "standard" search logic176 reveals the financing statement containing the incorrect name.177 If the debtor is a registered organization,178 the debtor's name as it appears on the financing statement should conform to the name specified for the debtor in a state-certified copy of its filed organizational documents (i.e., its articles of incorporation, articles of organization or limited partnership agreement). Because it is generally understood that an opinion assumes the correctness of certificates received from public officials, it is unnecessary for the opinion giver to qualify the opinion as to the name of the debtor when relying on those certificates. With respect to other types of debtors (for example, organizations that are not registered organizations), a Perfection Opinion does not address the accuracy or completeness of a debtor's name.179 If the opinion giver is aware that there is a potential inaccuracy regarding the debtor's name, the opinion giver should consider alerting the opinion recipient of that fact.

(d) Secured Party's Name.

The financing statement (which is often prepared by the secured party) should provide the name of the secured party or a representative of the secured party180 in whose favor the security interest has been granted pursuant to the terms of the security agreement.181

(e) Authorization.

By authenticating182 or becoming bound by a security agreement, the debtor authorizes the filing of the initial financing statement covering the collateral described in the security agreement and property that becomes collateral under section 9315(a)(2).183

(f) Collateral.

The collateral indicated in the financing statement should encompass the collateral types described in the security agreement to the extent the collateral types are expressly covered in the opinion.184

5.2 Perfection-By-Possession Opinions.

A security interest in the following collateral types may be perfected by the secured party obtaining possession:185

  • certificated securities;186
  • goods;187
  • instruments;188
  • money;189
  • negotiable documents;190 and
  • tangible chattel paper.191

A secured party may take possession for this purpose either directly or through an agent,192 in certain instances, indirectly though a third-party bailee,193 or, in the case of certificated securities, through a securities intermediary.194

The law of the jurisdiction where the collateral is located governs perfection, the effect of perfection or nonperfection and the priority of a possessory security interest in that collateral.195 Accordingly, if California law is the only law designated for coverage in an opinion as to perfection of a security interest by possession of the collateral (a "Perfection-by-Possession Opinion"),196 then the opinion only covers collateral located in California.

A Perfection-by-Possession Opinion addresses whether perfection has occurred or will occur through possession of the collateral by an appropriate person.197 Actual possession, whether by the secured party or a third-party bailee, is primarily a factual matter; accordingly, the opinion giver is understood to assume its existence, as indicated in the sample language contained in Section 5.2.1.198 Where a third-party bailee is involved who is not an agent of the secured party, the opinion might cover one or more of three situations: (1) in the case of collateral other than certificated securities and goods covered by a document, the third party has possession of the collateral and has authenticated a record acknowledging that it has possession for the secured party's benefit;199 (2) in the case of goods covered by a negotiable or non-negotiable document, the third party has possession of the collateral and has received a notification of the secured party's interest;200 or (3) if the collateral specified in the opinion is a certificated security, the third party has possession of the security on behalf of the secured party or, after having acquired possession of the security, the third party has acknowledged that it holds the security for the secured party.201

5.2.1 Wording of Perfection-By-Possession Opinions.

The following is a sample formulation of a Perfection-by-Possession Opinion:

The security interest in that portion of [specify items of collateral] that consists of [specify collateral types covered by opinion, e.g., certificated securities,202 goods, instruments, money, negotiable documents, tangible chattel paper] [will be] [is] perfected [upon [[the secured party] or [name of bailee or securities intermediary]] obtaining possession] [OR] [assuming [[the secured party] or [name of bailee or securities intermediary] has possession] of [specify items of collateral].203

This sample wording may be used where, under section 9313(a), the secured party itself or through its agent (including a securities intermediary) takes actual possession of the collateral covered by the opinion.

5.2.2 Unnecessary Qualifications for Perfection-By-Possession Opinions.

If a Perfection-by-Possession Opinion concerning certificated securities is based upon delivery pursuant to section 8301(a)(2), then the third-party bailee must not be a securities intermediary with respect to the securities; if it is based upon delivery pursuant to section 8301(a)(3), then the bailee204 must be a securities intermediary with respect to the securities. The opinion giver is generally not expected to determine whether a bailee is or is not a securities intermediary,205 and that status is assumed for purposes of the opinion (without the need for an express qualification).

While opinion givers often include a specific reminder to the opinion recipient that failure of the secured party, its agent or a bailee to maintain possession of collateral can adversely affect continued perfection (even though this would be a future event, the effects of which are typically understood to be excluded from the scope of the opinion),206 such a qualification is unnecessary. It is also unnecessary to specify that possession of the collateral will be in California -- unless the opinion otherwise provides, a Perfection-by-Possession Opinion is commonly understood to be given only under the law covered by the opinion letter generally (i.e., California law).207

Under section 9313(c), perfection by possession through a bailee of collateral (other than certificated securities and goods covered by a document of title) requires that the bailee not be the debtor or a lessee of the collateral from the debtor in the ordinary course of the debtor's business.208 Typically, an express qualification to this effect is unnecessary, because that assumption is generally understood.209

5.2.3 Considerations for Perfection-By-Possession Opinions.

Factors to be considered in connection with the issuance of a Perfection-by-Possession Opinion vary somewhat, depending on (1) the type of collateral involved210 and (2) whether possession occurs directly by the secured party or through a third-party bailee or securities intermediary. For example, if the collateral covered by the opinion is a certificated security and the Perfection-by-Possession Opinion is to be based on section 8301(a)(3) (i.e., the bailee who holds possession for the secured party is believed to be a securities intermediary), the relevant inquiry is whether the conditions for delivery to occur under that section have been satisfied.211 If, however, the secured party obtains possession through a bailee under section 9313(c), then perfection will depend on whether the bailee's acknowledgment satisfies the requirements of section 9313(c).

5.3 Perfection-By-Control Opinions.

A security interest in the following collateral types may be perfected by the secured party obtaining control:212

  • deposit accounts;213
  • certificated securities;214
  • uncertificated securities;215
  • security entitlements and securities accounts;216
  • commodity contracts and commodity accounts;217
  • letter-of-credit rights;218 and
  • electronic chattel paper.219

An opinion as to the perfection of a security interest by control (a "Perfection-by-Control Opinion"),220 in addition to covering the matters common to all Perfection Opinions, addresses whether the secured party has taken or caused to be taken the appropriate steps to obtain control in accordance with section 9104 (deposit accounts), section 9105 (electronic chattel paper), section 9106 (investment property) or section 9107 (letter-of-credit rights).221 Perfection by control is governed by the law of the jurisdiction of a third person designated by Division 9 or, in the case of a certificated security, by the law of the jurisdiction in which the certificated security is physically located.222

5.3.1 Perfection-By-Control Opinions Concerning Desposit Accounts.

The sole method to perfect a security interest in a deposit account taken as original collateral is by obtaining control under section 9104.223

(a) Wording of Deposit Account Perfection-by-Control Opinions.

The following are sample formulations of Perfection-by-Control Opinions concerning a security interest in a deposit account:

Alternative 1: [For perfection under section 9314(b) pursuant to control under section 9104(a)(1).] The security interest in that portion of the collateral that consists of deposit accounts maintained with the secured party is perfected by control.

Alternative 2: [For perfection under section 9314(b) pursuant to control under section 9104(a)(2).] The security interest in [specify account] is perfected by control pursuant to [specify agreement providing for control].224

Alternative 3: [For perfection under section 9314(b) pursuant to section 9104(a)(3).] The security interest in [specify account] maintained by the secured party as a customer of [specify depository bank] is perfected by control.

Alternative 1 above would be used where control has been effected under section 9104(a)(1), i.e., where the secured party is the bank with which the deposit account is maintained.225 Alternative 2 above would be used where control has been effected under section 9104(a)(2) through a control agreement,226 i.e., "an authenticated record that the bank will comply with instructions originated by the secured party directing the disposition of the funds in the deposit account without further consent by the debtor."227 Alternative 3 above would be used where the secured party is the customer of the depository bank as to the subject deposit account.228

Each of the foregoing opinion formulations is premised upon the fact that the referenced collateral consists of or includes a deposit account.229 None of the opinions, however, is generally understood to address whether the subject bank account is in fact a deposit account for purposes of Division 9.230 In addition, as with all Security Interest Opinions, no opinion is implied with respect to which state's law governs the perfection or the effect of perfection or non-perfection of the security interest in the deposit account.

(b) Considerations for Deposit Account Perfection-by-Control Opinions.

The factors to consider in connection with giving the sample opinions will vary depending on the specific alternative used. For example, in the case of Alternative 2, the control agreement should provide that the depository bank is obligated to comply with instructions originated by the secured party regarding the disposition of the funds in the deposit account without further consent by the debtor.231 In the case of Alternative 3, the customer agreement should reflect the secured party as the customer of the depository bank.232

5.3.2 Perfection-By-Control Opinions Concerning Electronic Chattel Paper.

A security interest in electronic chattel paper may be perfected under section 9314(a) by obtaining control under section 9105 or by filing a financing statement.233 Although perfection of a security interest in electronic chattel paper by control may afford rights against certain third parties superior to those afforded by perfection by filing,234 in light of the extensive factual assumptions that are required,235 a Perfection-by-Control Opinion concerning electronic chattel paper provides little utility to the opinion recipient. Accordingly, such an opinion is ordinarily not requested, and, instead, the opinion recipient will typically rely on a Perfection-by-Filing Opinion.236

5.3.3 Perfection-By-Control Opinions Concerning Certificated Securities.

In addition to filing237 or possession,238 a security interest in certificated securities may be perfected by obtaining control of the collateral under section 9314(a).239 Control of a certificated security in bearer form requires that it be "delivered" to the secured party in accordance with section 8301(a)(1) or (2).240 Control of a certificated security in registered form requires "delivery" in accordance with section 8301(a) plus endorsement241 to the secured party or in blank or registration in the name of the secured party, in accordance with section 8106(b).242

Perfection-by-Control Opinions concerning certificated securities are similar to Perfection-by-Possession Opinions concerning such collateral in that, among other things, they require delivery of the collateral.243 A sample formulation of such a Perfection-by-Control Opinion would be the following:

The security interest in [specify certificate(s)]244 will be perfected upon the secured party's obtaining possession of [specify certificate(s)] [[if not in bearer form, then either:] [and the registration of such certificate(s) in the name of the secured party] [OR] [and the endorsement of such certificate(s) in the name of the secured party or in blank].

5.3.4 Perfection-By-Control Opinions Concerning Uncertificated Securities.

A security interest in uncertificated securities245 may be perfected by obtaining control under section 9314 pursuant to section 9106,246 as well as by filing a financing statement.247 "Control" in this context requires either (1) delivery (in accordance with section 8301(b)) or (2) an agreement by the issuer that it will comply with the secured party's instructions without further consent of the registered owner of the securities.248 Although perfection of a security interest in uncertificated securities by control may afford rights against certain third parties superior to those afforded by perfection by filing,249 a Perfection-by-Control Opinion may not be justified where a Perfection-by-Filing Opinion is also being provided as to that collateral.250

(a) Wording of Perfection-by-Control Opinions Concerning Uncertificated Securities.

The following are sample formulations of a Perfection-by-Control Opinion concerning uncertificated securities:

Alternative 1: [For perfection under section 9314(a) pursuant to control under section 9106, section 8106(c)(1) and section 8301(b)(1) or (2).] The security interest in the [specify uncertificated securities] will be perfected by control [pursuant to the [specify acknowledgement of third person] upon the registration by [specify issuer] of [specify third person] as the registered owner of such securities] [OR] [upon the registration by [specify issuer] of the secured party as the registered owner of such securities].

Alternative 2: [For perfection under section 9314(a) pursuant to control under section 9106 and section 8106(c)(2).] The security interest in the [specify uncertificated securities] is perfected by control pursuant to [specify agreement providing for control].

Alternative 1 above would be used where control is effected by delivery under section 8106(c)(1) either by the secured party becoming the registered owner of the uncertificated security or by another person becoming the registered owner and acknowledging that it holds for the secured party.251 Alternative 2 above would be used where control is effected under section 8106(c)(2) through a control agreement.252

The opinions above address whether the secured party's security interest in the specified uncertificated securities has been perfected by, or will be perfected upon, the appropriate registration253 of the securities or the entering into of an appropriate control agreement.254

(b) Qualifications for Perfection-by-Control Opinions Concerning Uncertificated Securities.

Qualifications that may be appropriate for inclusion in an opinion that the security interest in uncertificated securities has been perfected by control include the following:255

  • in the case of Alternative 1 above, to the extent based upon delivery under section 8301(b)(2), an assumption that the person in whose name the uncertificated securities are registered is not a securities intermediary;256 and
  • in the case of Alternative 2 above, that the debtor is the registered owner of the uncertificated securities covered by the opinion.257

(c) Unnecessary Qualifications for Perfection-by-Control Opinions Concerning Uncertificated Securities.

The following qualifications are unnecessary in connection with the sample formulations of the Perfection-by-Control Opinions concerning uncertificated securities set forth in section 5.3.4(a):

  • in the case of Alternative 1 above, an assumption that the person named in the opinion as the person who will register the transfer of the uncertificated securities to the secured party is the issuer of the securities;258 and
  • in the case of Alternative 2 above, an assumption that the person named in the control agreement as the person who will comply with the secured party's instructions concerning the uncertificated securities is the issuer of the securities.259

(d) Considerations for Perfection-by-Control Opinions Concerning Uncertificated Securities.

To be able to give a Perfection-by-Control Opinion concerning uncertificated securities, the issuer's organizational documents must reflect that the issuer is organized under the laws of California.260

If an opinion addresses whether control exists under section 8106(c)(1), in order for the uncertificated securities to have been "delivered" within the meaning of section 8301(b)(2), the related acknowledgment must provide that the person holds those securities for the secured party. If the opinion addresses whether control exists under section 8106(c)(2), the related control agreement must provide that the issuer agree to comply with the secured party's instructions without the need for further consent from the registered owner of the securities

5.3.5 Perfection-By-Control Opinions Concernig Security Entitlements And Securities Accounts.

A security interest in security entitlements261 or securities accounts262 may be perfected by obtaining control under section 9314(a) pursuant to section 9106, as well as by filing a financing statement.263 "Control" for this purpose requires that (1) the secured party become the entitlement holder (as defined in section 8102(a)(7)) with respect to security entitlements to financial assets constituting collateral, (2) the securities intermediary agree that it will comply with entitlement orders originated by the secured party without further consent by the entitlement holder, or (3) another person, having control of the security entitlement or securities account on behalf of the secured party, acknowledge that it has control on behalf of the secured party.264 Although perfection of a security interest in security entitlements and securities accounts by control may afford rights against certain third parties superior to those afforded by perfection by filing,265 a Perfection-by-Control Opinion may not be justified where a Perfection-by-Filing Opinion is also being provided as to that collateral.266

(a) Wording of Perfection-by-Control Opinions Concerning Security Entitlements and Securities Accounts.

The following are sample formulations of Perfection-by-Control Opinions concerning security entitlements or a securities account (which would include all security entitlements to financial assets credited to the securities account):267

Alternative 1: [For perfection under section 9314(a) pursuant to control under sections 9106(a) and 8106(d)(1).] The security interest in [specify account] established in the name of the secured party and all security entitlements to the financial assets carried therein will be perfected by control upon [specify securities intermediary] crediting [specify financial assets] to that account.

Alternative 2: [For perfection under section 9314(a) pursuant to control under section 9106(a) and section 8106(d)(2), 8106(d)(3) or 8106(e).] The security interest in [[specify account] and the security entitlements to the financial assets carried therein] [OR] [specify security entitlements to particular financial assets] is perfected by control.

Alternative 1 above would be used where the secured party establishes a securities account in its own name and perfects its security interest in the security entitlements with respect to the financial assets credited to that securities account by becoming the entitlement holder under sections 9106(a) and 8106(d)(1). It provides that, subject to the securities intermediary indicating in its records that the secured party is the entitlement holder, all actions necessary for perfection by control of the security interest in the collateral covered by the opinion have been completed.268

Alternative 2 above would be used where perfection of the security interest is effected under section 9106(a), and (1) the securities intermediary has agreed, in accordance with section 8106(d)(2), that it will comply with entitlement orders originated by the secured party without further consent by the entitlement holder (i.e., the debtor), or (2) another person acknowledges, in accordance with section 8106(d)(3), that it has control of the security entitlements or the securities account on behalf of the secured party, or (3) the entitlement holder grants a security interest to its own securities intermediary in accordance with section 8106(e).269 Accordingly, this alternative addresses whether: (a) in the case of a control agreement, the control agreement is sufficient to comply with section 8106(d)(2);270 (b) in the case of an acknowledgement, the acknowledgement is sufficient to comply with section 8106(d)(3);271 or (c) in the case of a security agreement in favor of the entitlement holder's securities intermediary, the entitlement holder has granted its securities intermediary a security interest in the security entitlement.272 By custom, however, this opinion is not understood to include a remedies opinion with respect to the applicable control agreement, acknowledgement or security agreement.273

Neither of the sample opinions addresses whether any specified account is a securities account or whether any of the collateral covered in the opinions consists of security entitlements.274 It is often difficult for an opinion giver to determine whether a particular financial product described in a security agreement is a deposit account or a financial asset carried in a securities account. Accordingly, the language of the sample opinions gives the opinion recipient notice that the opinion giver has assumed that the identified collateral consists of securities accounts or security entitlements to financial assets (as applicable).275

(b) Unnecessary Qualifications for Perfection-by-Control Opinions Concerning Security Entitlements and Securities Accounts.

One or more of the following qualifications will be implicit in the sample opinions and need not be expressly stated:

  • that the person maintaining the securities account to which the financial assets are credited is a securities intermediary;276
  • if the opinion is based on perfection by the secured party becoming the entitlement holder under section 8106(d)(1), that the securities account is maintained in the name of the secured party in the records of the securities intermediary or that the secured party is the entitlement holder of the security entitlements covered by the opinion;
  • if the opinion is based on perfection by the use of a control agreement under section 8106(d)(2), that the securities account is maintained in the name of the debtor in the records of the securities intermediary and/or that the debtor is the entitlement holder of the security entitlements covered by the opinion;
  • if the opinion is based on perfection by the use of an acknowledgement under section 8106(d)(3), that the person who acknowledges that it has control for the secured party has control over the collateral covered by the opinion; and
  • if the opinion is based on perfection by the use of a security agreement granting a security interest to the entitlement holder's own securities intermediary under section 8106(e), that the secured party is the entitlement holder's own securities intermediary.

(c) Considerations for Perfection-by-Control Opinions Concerning Security Entitlements and Securities Accounts.

Where the opinion addresses whether control exists under section 8106(d)(2), 8106(d)(3) or 8106(e), the relevant document277 should provide:

  • in the case of an opinion based on section 8106(d)(2), that the securities intermediary has agreed that it will comply with the entitlement orders of the secured party concerning the collateral covered by the opinion without further consent by the entitlement holder (i.e., the debtor);
  • in the case of an opinion based on section 8106(d)(3), that the person who has control over the collateral covered by the opinion has acknowledged that it has control for the benefit of the secured party; or
  • in the case of an opinion based on section 8106(e), that the agreement grants a security interest in the security entitlements to the securities intermediary.

5.3.6 Perfection-By-Control Opinions Concerning Commodity Contracts And Commodity Accounts.

A security interest in commodity contracts278 and commodity accounts279 may be perfected by obtaining control under section 9314(a),280 as well as by filing a financing statement.281 "Control" for this purpose requires either that (1) the secured party be the commodity intermediary282 with which the commodity contract is carried or (2) the commodity customer (i.e., the debtor), secured party and commodity intermediary agree that the commodity intermediary will apply any value distributed on account of a commodity contract or the commodity contracts carried in the commodity account as directed by the secured party without further consent by the commodity customer.283 Although perfection of a security interest in commodity contracts and commodity accounts by control may afford rights against certain third parties superior to those afforded by perfection by filing,284 a Perfection-by-Control Opinion may not be justified where a Perfection-by-Filing Opinion is also being provided as to the collateral.285

(a) Wording of Perfection-by-Control Opinions Concerning Commodity Contracts and Commodity Accounts.

The following is a sample formulation of a Perfection-by-Control Opinion concerning commodity contracts or a commodity account:

The security interest in [[specify account] and the commodity contracts carried therein] [OR] [specify commodity contracts] is perfected by control pursuant to [specify agreement providing for control or security agreement].

The opinion addresses whether the secured party has control under either (1) section 9106(b)(1), because the secured party is the commodity intermediary with which the commodity contracts or commodity account is carried, or (2) section 9106(b)(2), because the secured party, the commodity customer and the commodity intermediary have entered into an appropriate control agreement.286 The opinion, however, does not address whether any of the collateral covered in the opinions actually constitutes a commodity contract or a commodity account.287 Rather, the language of the sample opinions gives the opinion recipient notice that the opinion giver has assumed that the identified collateral consists of a commodity account or commodity contracts (as applicable).288

(b) Qualifications for Perfection-by-Control Opinions Concerning Commodity Contracts and Commodity Accounts.

One or more of the following qualifications will be implicit in the sample opinions and need not be expressly stated:

  • that the person on whose books the commodity contracts are carried or which maintains the commodity account is a commodity intermediary;289
  • if the opinion is based on perfection through use of a control agreement under section 9106(b)(2), that the debtor is the commodity customer with regard to the collateral covered by the opinion; and
  • if the opinion is based on perfection under section 9106(b)(1) through the use of a security agreement granting a security interest to the commodity customer's own commodity intermediary, that the secured party is the commodity customer's own commodity intermediary.

(c) Considerations for Perfection-by-Control Opinions Concerning Commodity Contracts and Commodity Accounts.

A threshold question in giving a Perfection-by-Control Opinion concerning a security interest in commodity contracts or a commodity account (other than in the case of automatic perfection of a security interest in the collateral created by a commodity intermediary)290 is the location of the commodity intermediary.291 Furthermore: (1) in the case of an opinion based on section 9106(b)(1), the relevant agreements must provide for the present grant of a security interest in the commodity contract or commodity account to the commodity intermediary; and (2) in the case of an opinion based on section 9106(b)(2), the commodity customer (i.e., the debtor), secured party, and commodity intermediary must have agreed292 that the commodity intermediary will apply any value distributed on account of the commodity contract or the commodity contracts carried in the commodity account as directed by the secured party without further consent by the commodity customer.

5.3.7 Perfection-By-Control Opinions Concerning Letter-Of-Credit Rights.

A security interest in letter-of-credit rights293 that do not constitute supporting obligations294 for an account or similar property in which there is a security interest295 may be perfected only by control.296 Where letter-of-credit rights are supporting obligations for other property in which a debtor has granted a security interest, for example, an account receivable, the security interest in the letter-of-credit right automatically attaches and is automatically perfected if the security interest in the supported obligation is perfected.297

The following is a sample formulation of a Perfection-by-Control Opinion concerning letter-of-credit rights:

The security interest in the letter-of-credit rights with respect to [specify letter of credit] is perfected by control pursuant to [specify assignment and consent].

The opinion addresses whether the agreement pursuant to which the debtor assigns to the secured party all or a portion of the debtor's rights to the proceeds of a letter of credit and the consent to the assignment by the issuer or the nominated person298 are sufficient to give the secured party control over the letter-of-credit rights described in the opinion.299

The opinion does not address whether the related letter of credit is a letter of credit within the meaning of section 5102(a)(10)300 or that the collateral assigned constitutes proceeds of the letter of credit.301

5.4 Perfection-By-Notification Opinions.

A security interest in, or claim in or under, any insurance policy (including unearned premiums) may be perfected by a secured party only by providing written notification to the insurer.302 The general application of Division 9 to security interests in insurance policies as original collateral is a non-uniform California provision that is not contained in the UCC.303

Because the law of the jurisdiction where the debtor is located governs perfection, the effect of perfection and nonperfection and the priority of a security interest in an insurance policy,304 any opinion as to perfection of a security interest by notification (a "Perfection-by-Notification Opinion")305 ordinarily extends only to policies of insurance in which a debtor located in California has rights.306

The following is a sample formulation of a Perfection-by-Notification Opinion:

The security interest in [specify policy of insurance] [is] [will be] perfected [upon the giving of notice to the insurer] pursuant to [specify the secured party's written notification to the insurer].

In order for a Perfection-by-Notification Opinion to be based upon section 9312(b)(4), the insurance policy must not be a health care insurance receivable.307 By custom, it is unnecessary to include an express qualification to this effect.

Endnotes

108 For purposes of the Code, notice includes the notice given by the filing of a financing statement indicating the collateral. Where, however, perfection of a security interest is effected by control, see Cal. Com. Code § 9314, third parties may not receive notice of the security interest. Moreover, where perfection is "automatic" or temporary, Cal. Com. Code §§ 9308(d)-(g), 9309, 9312(e)-(g), 9314, 9315, no notice is given to third parties. Back

109 Section 9322 provides for priority among conflicting security interests. Cal. Com. Code § 9322. For example, section 9322(a)(2) provides that a perfected security interest has priority over a conflicting unperfected security interest or agricultural lien. Id. Perfection also confers certain protections against a bankruptcy trustee in a case involving the debtor, which cannot avoid the security interest solely under section 544(a) of the Bankruptcy Code. 11 U.S.C.A. § 544(a). Back

110 Depending on the type of collateral, a secured party may be able to perfect its security interest by more than one method. See infra notes 118-23. A secured party's security interest in collateral may also be automatically perfected, depending upon the circumstances and the type of collateral, see, e.g., Cal. Com. Code § 9309, but opinions covering automatic perfection (other than in respect of deposit accounts maintained with the secured party, see infra Section 5.3.1(a) (Alternative 1), and temporary perfection, see Cal. Com. Code § 9312(e)-(h)) are beyond the scope of this Report. For examples of automatic or temporary perfection, see TriBar Report, supra note 1, § 4.1, at 1469, n.93; § 4.2(d).

The fourth listed method of perfecting a security interest (perfection by notification with respect to insurance policies) is specific to California (and is not contained in the 2002 Official Text). See infra Section 5.4. Back

111 Such perfection extends to any security interest in any supporting obligation for the covered collateral, Cal. Com. Code § 9308(d), and, where the collateral includes securities accounts or commodity accounts, the security entitlements (in the case of securities accounts) or commodity contracts (in the case of commodity accounts) carried in such accounts are also perfected. Cal. Com. Code § 9308(f)-(g). See supra note 109.Back

112 Sections 9322 through 9342 set forth rules for determining priority among conflicting security interests and liens. Certain third-party purchasers of the collateral, for example, take the collateral free of any such security interest. Cal. Com. Code § 9317(b), (d). The phrase "rights of other claimants" refers to rights and liens arising under other provisions of non-Division 9 California law and Federal law. Back

113 A perfected security interest is protected from attack under section 544(a) of the Bankruptcy Code. See supra note 109. Nevertheless, bankruptcy law may still adversely affect a perfected security interest. For example, section 362 of the Bankruptcy Code provides for an automatic stay against enforcement of security interests; section 552 limits the effect of a security interest granted and perfected pre-petition in property or proceeds acquired by the debtor post-petition; section 547 provides avoiding powers relating to preferential transfers; sections 548 and 544(b) provide avoiding powers relating to fraudulent transfers; section 506(c) permits collateral to be invaded to pay certain expenses; section 363 permits the sale or use of collateral under certain circumstances; section 364 permits imposition of a super-priority lien on collateral; and section 1129(b) permits collateral to be affected in connection with reorganization plans confirmed pursuant to "cram-down" powers. These consequences of bankruptcy apply to all security interests, including those that have been properly created and perfected under the Code. Back

114 These events and changes include, among other things, (1) lapse of perfection due to failure to file on a timely basis a continuation statement, Cal. Com. Code § 9515, (2) failure to maintain possession or control (where perfection is premised on such possession or control), (3) certain changes relating to the debtor, Cal. Com. Code § 9507, and (4) the possibility that certain persons may take free of the perfected security interest under express provisions of the Code (for example, a licensee of a general intangible, Cal. Com. Code § 9317(d)). See infra note 155. Back

115 See supra Section 2.4. Back

116 Section 9310(a) provides that a financing statement must be filed to perfect all security interests except as otherwise provided in sections 9310(b) and 9312(b). Cal. Com. Code §§ 9310, 9312(b). Back

117 See supra note 78. Back

118 Cal. Com. Code § 9312(a). A security interest in instruments may also be perfected by possession. Cal. Com. Code § 9313(a). Back

119 Cal. Com. Code § 9312(a). A security interest in goods may also be perfected by possession. Cal. Com. Code § 9313(a). Back

120 Cal. Com. Code § 9312(a). A security interest in negotiable documents may also be perfected by possession. Cal. Com. Code § 9313(a). Back

121 Cal. Com. Code § 9312(a). A security interest in tangible chattel paper may also be perfected by possession. Cal. Com. Code § 9313(a). Back

122 Cal. Com. Code § 9312(a). A security interest in electronic chattel paper may also be perfected by control. Cal. Com. Code § 9314(a). Back

123 Cal. Com. Code § 9312(a). A security interest in investment property may also be perfected by control. Cal. Com. Code § 9314(a). A security interest in certificated securities may also be perfected by possession. Cal. Com. Code § 9313(a). A security interest in investment property created by a broker, securities intermediary or commodity intermediary is automatically perfected when it attaches. Cal. Com. Code § 9309(10)-(11). Back

124 Exceptions to the general rule include perfection as to fixtures by filing a financing statement as a fixture filing, and as to timber to be cut and as-extracted collateral. See Cal. Com. Code § 9301(3)-(4). Back

125 As used in Division 9 and this Report, "local law" means the substantive law of a state (without giving effect to the choice-of-law rules of that state). See UCC § 9-301 cmt. 3; see also Cal. Com. Code § 9301. Compare former Cal. Com. Code § 9103(3). See 1998 TriBar Report, supra note 11, § 4.3 and at 633, n.89 (choice-of-law provision in agreement refers only to the substantive law of the jurisdiction); RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 8 (1974). The 1998 TriBar Report uses the term "local law" to refer to law below the level of state law, for example, municipal law. 1998 TriBar Report, supra note 11, § 1.9(n). Back

126 Cal. Com. Code § 9301(1). Back

127 Registered organizations are located in their jurisdiction of incorporation or formation for purposes of Division 9. Cal. Com. Code § 9307(e); see generally Cal. Com. Code § 9307 (provisions dealing with the determination of the location or statutory location of debtors that are not registered organizations). Where the debtor is located in a jurisdiction other than California, the perfection of a security interest by filing will, subject to certain limited exceptions, be governed by the law of that other jurisdiction. See supra notes 124-25. See also TriBar Report, supra note 1, Appendix B. Back

128 See supra introduction to Section 5. Back

129 See Cal. Com. Code §§ 9310, 9311, 9312. If, however, the opinion giver uses a formulation of the Perfection-by-Filing Opinion, such as Alternative 1 in Section 5.1.1, that identifies the collateral covered as collateral for which perfection under Division 9 may occur by the filing of a financing statement with the California Secretary of State, the opinion still does not cover whether perfection has occurred with respect to any particular collateral type or collateral. See infra note 145. Back

130 See Cal. Com. Code § 9502(a). Each of the sample Perfection-by-Filing Opinions contained in Section 5.1.1 involves a financing statement that has been reviewed by the opinion giver. Because of the importance of the financing statement to such an opinion, the opinion giver will typically identify it with particularity or attach a copy of the financing statement to the opinion letter as an exhibit. If the opinion letter does not identify a particular financing statement, it is customary practice for the opinion recipient to assume, absent knowledge to the contrary: (a) that the opinion giver has reviewed the financing statement that was used in the transaction (as provided to the opinion giver) and that the information it contains is not substantively inconsistent with the same information in the security agreement (for example, the names of the debtor and the secured party and the description of the collateral); and (b) that the opinion giver has reviewed an acknowledgment copy of the financing statement (indicating that the financing statement has not been rejected by the filing office). Back

131 Cal. Com. Code § 9503(a)(1). For example, where the debtor is a corporation, limited liability company or limited partnership, the debtor's name on the financing statement is that indicated on the public record in the state of its organization. Id. See infra discussion at Sections 5.1.4(b)-(c). Back

132 Cal. Com. Code § 9502(a)(2). See infra notes 180-81. But see infra note 156. Back

133 Section 9504 provides that a financing statement sufficiently indicates the collateral covered by it if the collateral is indicated by specific listing, category, collateral type, quantity, computational or allocational formula or procedure or another method that is objectively determinable. If the collateral consists of all of the personal property assets of the debtor, a description of the collateral in the financing statement (unlike a description in the security agreement) as "all assets" or "all personal property" will be sufficient. Cal. Com. Code § 9504(2). See supra Section 4.2.2. Back

134 As such, the opinion covers the fact that: (a) the rules in section 9301(1), (3) or (4) or section 9305(c) apply to perfection of a security interest in the collateral covered by the opinion; (b) under those rules, the laws of the jurisdiction in which the filing will be made govern the perfection of a security interest in the collateral covered by the opinion; and (c) under those laws, the filing of a financing statement will perfect a security interest in the collateral covered by the opinion. See also Cal. Com. Code § 9310. The opinion does not, however, cover which law governs perfection or the effect of perfection or nonperfection of the security interest in the collateral. See supra Section 2.2; see also supra text accompanying note 43. Back

135 The Perfection-by-Filing Opinion indicates only that the filing of the financing statement has been: (a) authorized by the debtor in an authenticated record, Cal. Com. Code §§ 9509(a)(1), 9510(a); (b) authorized by the debtor through the debtor authenticating or becoming bound by a security agreement, Cal. Com. Code § 9509(b); or (c) authorized because the debtor has acquired collateral in which a security interest continues under section 9315(a)(1), Cal. Com. Code § 9509(c). It does not address the existence of, among other things, proper corporate authorization by a corporate debtor as an antecedent to the enforceability of the underlying security agreement. See supra notes 36, 42, 93 and text accompanying note 42. Back

136 See Cal. Com. Code §§ 9204, 9203(a)-(b). Back

137 A Perfection-by-Filing Opinion might be understood to refer only to collateral that exists on the date the financing statement is filed with the filing office (or the date of the authentication of the security agreement if the financing statement has been filed first) and, accordingly, to exclude any property acquired after that date. Because, however, the security interest in the collateral covered by the financing statement will be perfected when the debtor acquires rights therein, a Perfection-by-Filing Opinion is commonly understood to apply to collateral in which the debtor later acquires rights to the extent the "after-acquired" collateral is covered by the financing statement. A Perfection-by-Filing Opinion does not cover whether the debtor has rights or the power to transfer rights in any item of collateral. See supra notes 83-84; see also supra text accompanying note 68. Back

138 Cal. Com. Code § 9315(d)(1). Where these criteria are not satisfied, the security interest in proceeds nevertheless is automatically perfected for twenty days after the security interest attaches to the proceeds. Cal. Com. Code § 9315(d). Back

139 By customary usage, other than where the opinion might otherwise be misleading, see infra note 148 and accompanying text, no further disclaimer is required to the effect that the Perfection Opinion does not extend to collateral in which a security interest can, or may, be perfected by a means other than the filing of a financing statement (for example, a security interest in a claim of insurance, see Cal. Com. Code § 9312(b)(4)). Back

140 But see infra note 146. Back

141 Even though the financing statement may be in a form that the filing office may not refuse to accept, it may still contain inaccurate information. The customary practice is that a qualification as to the accuracy of the information contained in the financing statement is unnecessary (although the implicit assumption regarding the accuracy of the information does not extend to the name of the debtor where the debtor is a registered organization). See infra notes 153, 156 and accompanying text; see also Cal. Com. Code § 9338 (priority of security interest perfected by financing statement containing inaccurate information described in section 9516(b)(5) is subordinate to conflicting perfected security interest to the extent holder of such conflicting interest gave value in reasonable reliance on the incorrect information). Back

142 Section 9301(3)(C) separates perfection from the effect of perfection by providing that the local law of the jurisdiction in which that collateral is located governs the effect of perfection or nonperfection and the priority of a nonpossessory security interest in that collateral. See UCC § 9-301 cmt. 7; see also Cal. Com. Code § 9301. A Perfection-by-Filing Opinion as to that collateral addresses whether the secured party has a perfected security interest therein; but, because the opinion is limited to the laws of California, it does not cover the effect of that perfection where the collateral is located outside of California. A Perfection-by-Filing Opinion, however, does not contain a choice-of-law opinion. See supra Section 2.2 and text accompanying note 43. Back

143 See, e.g., supra notes 118-23. Back

144 Such an opinion would be the subject of a Priority Opinion. See infra Section 6. Back

145 Alternative 1 is the same formulation contained in the TriBar Report. TriBar Report, supra note 1, Appendix A, at 1506. Unlike Alternative 2, Alternative 1 does not address whether any specific collateral types are covered. It merely provides that, if the secured party could perfect a security interest in any of the collateral described in the security agreement by the filing of a financing statement, then the filing of the financing statement indeed perfects that security interest. Alternative 2, on the other hand, provides that a security interest in specific collateral types has been or will be perfected by the filing of the financing statement. Back

146 Under section 9516(a), a "filing" occurs when (1) a record (i.e., a financing statement) is communicated to the filing office and (2) the applicable filing fee is tendered or the record is accepted by the filing office (whether or not there were grounds to refuse to accept the record for one of the reasons stated under section 9516(b)). Cal. Com. Code § 9516(a). The filing office may refuse to accept an initial financing statement only for the reasons set forth in section 9516(b). See Cal. Com. Code § 9516(b). If the only financing statement reviewed is one that might later be rejected (i.e., it is neither filed nor received-stamped), leaving the secured party to rely on section 9516(d), prudence suggests that the status of the financing statement actually reviewed (i.e., whether it was filed) be disclosed in the opinion letter. A filer whose financing statement is wrongfully rejected (i.e., not rejected for reasons specified in section 9516(b)) may rely on section 9516(a), which provides in pertinent part: "… communication of a record to the filing office and tender of the filing fee … constitutes filing." The secured party will have a perfected security interest; however, the the filing office will not have a record of the financing statement, and, consequently, the financing statement will not appear on a search report. In this case, the secured party will not have priority against another, subsequent secured party that obtains and perfects a security interest in the same collateral in reasonable reliance on the absence of the wrongfully rejected financing statement. Cal. Com. Code § 9516(d). A Perfection Opinion, however, does not address this priority issue.

It was fairly commonplace before the enactment of revised Division 9 to request an opinion to the effect that the financing statement was in "appropriate form for filing" with the filing office. Such an opinion under revised Division 9, which would address a concern that the financing statement might be rejected by the filing office under section 9516(b), might take the following form:

If a financing statement in the form attached hereto as Schedule 1 is communicated to [specify filing office] by a method or medium of communication authorized by that filing office and an amount equal to the applicable filing fee is tendered to that filing office, the filing office will be obligated to accept such financing statement for filing.

Consistent with the TriBar Report, however, this Report views any reference to the "filing" of a financing statement in a Perfection-by-Filing Opinion as including a reference to the "acceptance" of the financing statement by the filing office. TriBar Report, supra note 1, § 4.3(a), at 1474-1475, nn.132, 136. Accordingly, if the financing statement referenced in the opinion has not yet been filed and the financing statement does not on its face contain all of the information set forth in section 9516(b) so as to require the filing office to accept it under section 9520, it would generally be inappropriate to provide a Perfection-by-Filing Opinion (whether based upon an assumption that the financing statement will be filed and accepted by the filing office or upon a statement that "upon filing" the security interest will be perfected). See TriBar Report, supra note 1, § 4.3(a), at 1473, n.126. Back

147 This Report does not address accounts that constitute "as-extracted collateral." See Cal. Com. Code § 9102(a)(6)(B). Unless a Perfection-by-Filing Opinion expressly addresses such accounts, it is commonly understood not to include an opinion as to that collateral. See infra Section 5.1.3. This Report also does not specifically address other types of "as-extracted collateral," Cal. Com. Code § 9102(a)(6), or goods comprised of "timber to be cut." See Cal. Com. Code § 9102(a)(44). Back

148 The following are sample formulations of this qualification:

We express no opinion as to the perfection of any security interest referenced herein other than by the filing of a financing statement with [specify filing office].

[OR]

Our opinion in [refer to paragraph regarding perfection] is based solely upon the filing of [specify financing statement] with [specify filing office]. Back

149 Cal. Com. Code § 9301(1). See supra note 124. Back

150 If the debtor is a registered organization that is organized under the laws of a state, it is located in that state. Cal. Com. Code § 9307(e). See infra Section 5.1.4(b). An individual is located at his or her principal residence. Cal. Com. Code § 9307(b)(1). An organization that is not a registered organization is located at its sole place of business or the location of its chief executive office. Cal. Com. Code § 9307(b)(2)-(3). The location of a foreign (non-U.S.) organization may be the foreign jurisdiction in which it has its place of business or chief executive office, or, in certain instances, the District of Columbia. Cal. Com. Code § 9307(c). The location of a debtor that is a registered organization organized under the laws of the United States may be any of various jurisdictions. See Cal. Com. Code § 9307(f). Back

151 For guidance in giving Perfection Opinions (including Perfection-by-Filing Opinions) where the opinion is based on the laws of a state other than California, see TriBar Report, supra note 1, Appendix B. Back

152 Even where the debtor is a California registered organization, the secured party is located in California, the security agreement chooses California law as the governing law and the choice-of-law conclusion may appear to be clear, a Security Interest Opinion by custom does not include an implicit opinion as to which law governs the perfection of the security interest granted in the collateral covered by the opinion letter. Accord TriBar Report, supra note 1, § 2.1(d). See supra Section 2.2 and text accompanying note 43. In addition, although the law governing perfection of a security interest in collateral in certain transactions is not that of the location of the debtor but that of the location of the collateral, see supra note 124; Cal. Com. Code §§ 9301(2), 9303(c), the UCC Scope Limitation excludes an opinion as to any collateral located outside of California. See also supra Section 5.1.2(c). Back

153 See supra Section 4.2.2. Back

154 See generally California Legal Opinions (Non-Remedies) Report, supra note 3, at 22, n.85. Back

155 Unless they expressly provide otherwise, Perfection-by-Filing Opinions by custom are understood to address two types of future circumstances: after-acquired property and proceeds. See supra notes 136-38 and accompanying text. While it is customary for opinion givers to exclude (whether or not expressly) the effect of subsequent events, such an exclusion would not, by custom, extend to after-acquired property and proceeds. Back

156 The accuracy of the name of the secured party is not the responsibility of the opinion giver. Accord, TriBar Report, supra note 1, § 4.3(a), at 1473-74, n.128. Back

157 See UCC § 9-102(a)(42) cmt. 5d; see also Cal. Com. Code § 9102(a)(42). Back

158 See supra note 49. Back

159 This Report does not address the creation, perfection or priority of security interests in collateral, such as federally-registered copyrights, see, e.g., supra note 49, to the extent these matters are governed by laws other than Division 9. See, e.g., Cal. Com. Code § 9311(a)(1). If an opinion giver believes that its Security Interest Opinion, whether by inclusion of a UCC Scope Limitation or otherwise, might be misleading to the opinion recipient, it would be appropriate for the opinion giver to modify the opinion so as not to be misleading or to decline to give the opinion. See generally TriBar Report, supra note 1, § 2.1(b), n.27 and accompanying text. Back

160 See Cal. Com. Code § 9516(c)(1). If the financing statement is not attached to the opinion letter, a description of the financing statement will usually specify: (a) the exact names of the debtor and secured party as they appear on the financing statement; (b) the particular filing office where the financing statement is or will be filed; and (c) the filing status of the financing statement reviewed. If only an unfiled financing statement or a received-stamped financing statement is reviewed, the customary practice is to make this clear in the opinion, either by describing the financing statement as an "unfiled copy" a "received-stamped copy" or, alternatively, by making express assumptions with respect to filing. Back

161 Cal. Com. Code § 9502(a). Except with respect to financing statements covering as-extracted collateral, timber to be cut or goods which are or are to become fixtures, section 9502(a) provides the minimum requirements for a financing statement to be effective if accepted by the filing office, and a financing statement meeting these requirements that is accepted will be filed under section 9516(a). A financing statement that meets the requirements of section 9502(a) may, however, still be rejected by the filing office for the reasons specified in section 9516(b). Cal. Com. Code § 9516(b). Back

162 A financing statement that does not contain the exact name of the debtor will not be sufficient unless a search of the filing office's records under the debtor's correct name and using the "standard" search logic of the filing office discloses the financing statement. Cal. Com. Code §§ 9503, 9506(c). Where the debtor is a California registered organization, the customary practice is for the opinion giver to obtain a state-certified copy of the debtor's filed organizational document(s) to ascertain the debtor's correct legal name. Back

163 See Cal. Com. Code §§ 9108, 9504. See, also Cal. Com. Code § 9516(c). Back

164 The signature of the debtor is not required. See UCC § 9-502 cmt. 3; see also Cal. Com. Code § 9502. Section 9516(b)(5) permits the filing office to reject a financing statement if it does not contain certain additional information (such as the debtor's mailing address). If, however, the filing office does accept the filing with the three items of necessary information, the financing statement is effective. Cal. Com. Code §§ 9516, 9520(c); see also UCC § 9-516 cmt. 9. Thus, an opinion on the perfection of the security interest may be given if the financing statement does not contain the additional information, but has been accepted for filing. If the financing statement on its face lacks any of the additional information required under section 9516(b), it would not be appropriate to base the Perfection-by-Filing Opinion on an assumption that the financing statement will be filed. Back

165 See supra notes 146-47. Back

166 See infra Section 5.1.4(c). Back

167 Cal. Com. Code § 1201(30); UCC §§ 1-201(30), 1-201(b)(27) (revised); see Cal. Com. Code § 1201(28); UCC §§ 1-201(28), 1-201(b)(25) (revised). Back

168 See UCC § 9-307 cmt. 4; see also Cal. Com. Code § 9307. Other types of entities, such as business trusts and real estate investment trusts, see UCC § 9-503 cmt. 2; see also Cal. Com. Code § 9503, may also be registered organizations, depending on the law of the state where they were organized. Back

169 Cal. Com. Code § 9301(1); cf. infra note 174. Back

170 Cal. Com. Code § 9307(b)(2)-(3). Back

171 This may also apply to a business trust if the statute under which the statutory business trust is formed vests the property in the trustee. Where the debtor is a trust or a trustee acting with respect to property held in trust, section 9503(3) provides special rules for specifying the name of the "debtor" on the related financing statement. Cal. Com. Code § 9503(3). Back

172 Under non-UCC choice-of-law rules, this issue would ordinarily be decided by the law governing the trust. See generally RESTATEMENT (SECOND) OF CONFLICT OF LAWS §§ 267-275 (1974). Back

173 Cal. Com. Code § 9102(a)(28). Back

174 Cal. Com. Code § 9307. Section 9307 contains additional rules to determine the location of additional entities, such as entities formed under Federal law. See, e.g., Cal. Com. Code § 9307(f). For a limited number of categories of collateral, the location of the debtor is not the place of filing. See Cal. Com. Code § 9301(3); see supra note 124. Back

175 Accord, TriBar Report, supra note 1, Appendix B, at 1514. Back

176 California has adopted the "standard" search logic suggested by the International Association of Commercial Administrators. Cal. Code Regs. tit. 2, §§ 22600-22602 (2004). Back

177 Cal. Com. Code § 9506(c). Back

178 See Cal. Com. Code § 9102(a)(70). Back

179 For purposes of preparing the financing statement, evidence of the debtor's name may be found: (a) in the case of a debtor that is an organization that is not registered, in any organizational or organic documents, such as its articles of association or agreement of general partnership, (b) in the case of a debtor that is a decedent's estate, in the documents creating the probate case, and (c) in the case of a debtor which is a trust or a trustee, in the trust's organic documents or, if no name is specified, by determination of the name of the settlor, including additional information sufficient to distinguish the debtor from other trusts having one or more of the same settlors. See Cal. Com. Code § 9503. Back

180 Cal. Com. Code § 9502(a)(2). Back

181 Where the secured party is represented by an agent, it is not necessary for a financing statement that references solely the name of the agent to disclose the agency relationship in order to be effective to perfect the secured party's security interest. Cal. Com. Code § 9503(d). It is necessary, however, that the agency relationship in fact exist if the principal secured party is to have the benefit of the perfected security interest. It is customary practice for the opinion giver to assume the existence of this relationship and no express qualification is necessary. Back

182 See supra note 100 and accompanying text. Back

183 Cal. Com. Code § 9509(b). If the opinion relates to a financing statement that was filed prior to the debtor authenticating or becoming bound by a security agreement, the debtor must have authorized the secured party to file the financing statement in an authenticated record. Cal. Com. Code § 9509(a)(1). A filed financing statement is effective only if filed by a person authorized to file it. Cal. Com. Code § 9510. The filing of a financing statement that was not authorized by the debtor may, however, become authorized by ratification upon the authentication of the security agreement. See UCC § 9-509, cmt. 3. Back

184 See Cal. Com. Code §§ 9504, 9108; see also supra note 133. The inclusion in the financing statement of collateral not referenced in the security agreement and not covered by the Perfection-by-Filing Opinion is often not mentioned in the opinion, even though the filing of the financing statement with respect to that collateral has not been authorized by the debtor. See Cal. Com. Code § 9509(b)(1). Back

185 If a secured party perfects its security interest both by the filing of a financing statement and by possession and receives a Perfection-by-Filing Opinion (covering the collateral in question), an opinion that the security interest has also been perfected by possession is ordinarily unwarranted. But see infra Section 6.2.2. Where the secured party perfects its security interest solely by possession, however, the opinion recipient may, assuming it is otherwise reasonable and appropriate to do so, request a Perfection-by-Possession Opinion. Back

186 Cal. Com. Code §§ 8301(a), 9313(a). The Code refers to possession by the secured party (or certain other persons) of a certificated security as "delivery" of that certificated security. Cal. Com. Code § 8301(a). See infra notes 201-02. A security interest in certificated securities (as a type of investment property) may also be perfected by filing or by control. Cal. Com. Code §§ 9312(a), 9314(a). See also infra Section 5.3.3 and note 214. An opinion that a security interest in specific certificated securities has been perfected by possession does not cover whether those securities have been duly authorized or duly issued. Such an opinion, if appropriate, is customarily the subject of a separate opinion from qualified counsel. Back

187 Cal. Com. Code § 9313(a). A security interest in goods may also be perfected by filing. Cal. Com. Code § 9310(a). Back

188 Cal. Com. Code § 9313(a). A security interest in instruments may also be perfected by filing. Cal. Com. Code § 9312(a). Back

189 A security interest in money may be perfected only by possession. Cal. Com. Code § 9312(b)(3). Money means a medium of exchange authorized or adopted by a domestic or foreign government, i.e., actual currency. Cal. Com. Code § 1201(24); UCC §§ 1-201(24), 1-201(b)(24) (revised). It does not include funds in a deposit account or ancient coins. Back

190 Cal. Com. Code § 9313(a). A security interest in negotiable documents may also be perfected by filing. Cal. Com. Code § 9312(a). Back

191 Cal. Com. Code § 9313(a). A security interest in tangible chattel paper may also be perfected by filing. Cal. Com. Code § 9312(a). Back

192 The debtor cannot qualify as an agent of the secured party (or as a bailee) for purposes of the secured party's taking possession of collateral. See UCC § 9-313 cmt. 3; see also Cal. Com. Code § 9313. If an agent or third party is "closely connected to or controlled by the debtor," the debtor may still have possession. Id. See also infra text accompanying notes 208-09. Back

193 Cal. Com. Code § 9313(c). Back

194 Cal. Com. Code § 8301(a)(3). See infra note 201. Back

195 Cal. Com. Code § 9301(2). Back

196 This would ordinarily be accomplished by way of the UCC Scope Limitation. See supra Section 3. No choice-of-law opinion, however, is necessarily implied. See supra Section 2.2 and text accompanying note 43. Back

197 By custom, a Perfection-by-Possession Opinion is also understood to cover certain aspects of the perfection of a security interest in proceeds of the collateral arising after the date of the transaction. In particular, a Perfection-by-Possession Opinion is understood to cover automatic perfection of the security interest in these proceeds upon attachment and its continuance for twenty days, lapsing on the twenty-first day, unless the proceeds are identifiable cash proceeds or certain other kinds of proceeds; in some circumstances, however, some action must be taken to continue perfection. Cal. Com. Code §§ 9315(a)(2), (c)-(e). Except to this limited extent, the opinion is not understood to cover perfection of a security interest in the proceeds of collateral in which the security interest has been perfected by possession. It also does not address after-acquired property, because the fundamental condition for perfection in a Perfection-by-Possession Opinion -- possession -- does not exist on the date of the opinion. Cf. supra notes 137-38 and accompanying text. Back

198 The Code does not define possession, and the customary practice is not to hold the opinion giver responsible for determining whether it exists. The opinion recipient generally takes responsibility for making the arrangements under which a third party will hold the collateral; as such, it can undertake the investigation as well as or better than the opinion giver to determine whether the bailee has sufficient dominion and control over the specified collateral to constitute possession. Similarly, if the secured party's possession arises through an agent, it is customary for this agency relationship not to be separately addressed and instead be implicitly assumed by the opinion giver. See supra note 181. Back

199 Cal. Com. Code § 9313(c). Back

200 In these instances, no acknowledgment is necessary. Cal. Com. Code §§ 9312(d)(2), 9313(h); see UCC § 9-313 cmts. 3, 9. Back

201 Where the certificated security is held by a third party that is not a securities intermediary, section 8301(a)(2) provides that delivery to a purchaser occurs when "[a]nother person, other than a securities intermediary, either acquires possession of the security certificate on behalf of the purchaser or, having previously acquired possession of the certificate, acknowledges that it holds for the purchaser." A "purchaser" includes a secured party. See Cal. Com. Code § 1201(32); UCC §§ 1-201(33), 1-201(b)(30) (revised). See also Cal. Com. Code § 1201(31); UCC §§ 1-201(32), 1-201(b)(29) (revised). As to a certificated security held by a third party that is a securities intermediary, the opinion addresses whether the security certificate is in registered form and is registered in the name of the secured party, payable to the order of the secured party or specially endorsed to the order of the secured party by an effective endorsement (and has not been endorsed to the securities intermediary or in blank). Delivery under sections 8301(a)(2) and (a)(3) (as well as (a)(1)) also constitute possession by the secured party under section 9313(a). Back

202 Where the collateral described in the opinion is a certificated security, the secured party acquires possession by taking delivery under section 8301(a). See also supra note 201. There is no requirement of an effective endorsement of a certificated security for perfection by possession (as opposed to perfection by control) to occur. A secured party that perfects a security interest in a certificated security in registered form by mere possession cannot obtain "protected purchaser" status under section 8303, unless control has been obtained. Cal. Com. Code § 8303. See infra Sections 5.3.3 and 6.2.3. For additional considerations where perfection by possession is accomplished through a securities intermediary, see infra note 211. Back

203 The sample language provides for a description of specific items of collateral as to which the Perfection-by-Possession Opinion is given. Perfection-by-Filing Opinions are usually issued in transactions where the financing statement, at a minimum, describes collateral by collateral types. On the other hand, Perfection-by-Possession Opinions (as well as Perfection-by-Control Opinions and Perfection-by-Notification Opinions) are usually requested only in transactions where the secured party has perfected its security interest in specifically identified items of collateral (such as security certificates identified by certificate number) by taking possession or control of such collateral and not by filing. The sample language, however, does not address whether the subject collateral in fact constitutes one of the specified collateral types. Back

204 See note 201. The term "bailee" is not defined in the Code. Back

205 Section 8102(a)(14) defines a securities intermediary as a clearing corporation or "a person, including a bank or broker, that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity." Cal. Com. Code § 8102(a)(14). Back

206 Proceeds of collateral and after-acquired property present special concerns. See supra note 197. As a general matter, the opinion giver is not responsible for events that occur after the closing. 1998 TriBar Report, supra note 11, at 597. Back

207 Accord, TriBar Report, supra note 1, § 4.3(b), at 1475, n.142. Back

208 Cal. Com. Code § 9313(c); see also supra note 192. Where an acknowledgement by the third-party bailee is a predicate to the delivery of a Perfection-by-Possession Opinion, such an acknowledgement is typically listed in the opinion letter as one of the documents that was reviewed by the opinion giver. See generally infra note 227. Back

209 Generally, the opinion recipient will be in as good a position as the opinion giver to determine whether the bailee is the debtor or a lessee of the collateral from the debtor. Back

210 Notwithstanding the fact that the sample form of opinion covers collateral only to the extent it may fall within the specified Division 9 categories, if the opinion giver is on notice that specific collateral of interest to the opinion recipient is not within any of the specified categories, then the parties should discuss whether such an opinion is appropriate to be requested or given. See ABA Guidelines, supra note 4, § 1.5. Back

211 "Delivery" under section 8301(a)(3) requires that the certificated security be in registered form and be (1) registered in the name of the secured party, (2) payable to the order of the secured party, or (3) specially endorsed to the secured party by an effective endorsement and not endorsed to the securities intermediary in blank. Cal. Com. Code § 8301(a)(3). Back

212 In certain circumstances, a secured party may have perfected its security interest as to certain collateral both by filing a financing statement and by obtaining control of such collateral. If a secured party receives a Perfection-by-Filing Opinion covering the collateral in question, an opinion that the security interest has also been perfected by control is ordinarily unwarranted. But see infra Section 6.2.2. Where, however, the secured party perfects its security interest in collateral solely by control, the opinion recipient may, assuming it is otherwise reasonable and appropriate to do so, request a Perfection-by-Control Opinion. Back

213 A security interest in a deposit account as original collateral may be perfected only by control. Cal. Com. Code §§ 9312(b)(1), 9314(a), 9104. A deposit account is a demand, time, savings, passbook or similar account maintained with a bank and does not include investment property or accounts evidenced by an instrument. Cal. Com. Code § 9102(1)(29). It is often difficult to distinguish between a "deposit account" and a "securities account." See Cal. Com. Code §§ 8-501(a), 9102(a)(29); UCC, Article 8, Prefatory Note, III.C.4. If the collateral is a "securities account," the security interest may also be perfected by the filing of a financing statement. Cal. Com. Code § 9312(a). If a bank's product that is otherwise similar to a deposit account is represented by a paper-based certificate of deposit that is an "instrument" for purposes of Division 9, the putative deposit account is classified as an "instrument" and not a "deposit account." Cal. Com. Code § 9102(a)(29). Back

214 Cal. Com. Code §§ 9314(a), 9106, 8106. A security interest in certificated securities may also be perfected by filing or by possession. Cal. Com. Code §§ 9312(a), 9313(a). Back

215 Cal. Com. Code §§ 9314(a), 9106, 8106. A security interest in uncertificated securities may also be perfected by filing. Cal. Com. Code § 9312(a). Back

216 Cal. Com. Code §§ 9314(a), 9106, 8106. A security interest in securities accounts or security entitlements may also be perfected by filing. Cal. Com. Code § 9312(a). Back

217 Cal. Com. Code §§ 9314(a), 9106. A security interest in commodity accounts or commodity contracts may also be perfected by filing. Cal. Com. Code § 9312(a). Back

218 A security interest in a letter-of-credit right may be perfected only by control unless the letter-of-credit right is a supporting obligation for other collateral in which the secured party has a perfected security interest. Cal. Com. Code §§ 9312(b)(2), 9314(a), 9107, 9308(d). Back

219 Cal. Com. Code §§ 9314(a), 9105. A security interest in electronic chattel paper may also be perfected by filing. Cal. Com. Code § 9312(a). Back

220 As with any Security Interest Opinion, a Perfection-by-Control Opinion does not implicitly address which state's law governs the perfection, the effect of perfection or nonperfection or the priority of the particular security interest. See supra Section 2.2 and text accompanying note 43. Back

221 Cal. Com. Code §§ 9104-9107. Back

222 Cal. Com. Code §§ 9304-9306. Back

223 Cal. Com. Code §§ 9312(b)(1), 9314(a). Back

224 By custom, this formulation (just like any Perfection-by-Control Opinion) is not understood to contain a remedies opinion with respect to the underlying control agreement. The TriBar Report is in accord, providing in its sample formulation of this opinion that perfection is dependent on the "execution and delivery" of the control agreement:

The Article 9 Security Interest in the Deposit Account [is perfected by] [will be perfected upon] the execution and delivery of the Deposit Account Control Agreement.

TriBar Report, supra note 1, Appendix A, Opinion 11, at 1508. Back

225 Revised Division 9 resolved the issue, which arose under prior law, of whether a financing statement was defective if it failed to indicate the representative capacity of the secured party (for example, when the named secured party acted as an agent). See Cal. Com. Code § 9503(d). A corollary issue may still exist, however: whether, for purposes of perfection by control under section 9104(c)(1), the security interest of the secured parties represented by an agent that is also a depository bank are automatically perfected as to deposit accounts maintained with the agent in its capacity as a depository bank. Pending definitive resolution of this issue, opinion givers may elect to decline to provide Perfection Opinions in these circumstances, absent the execution of a control agreement between the agent for the secured parties and the depository. See UCC §§ 1-102 (revised), 9-313 cmt. 3. Back

226 Cal. Com. Code § 9104(a)(2). The agreement pursuant to which the debtor grants such control to the secured party is generally referred to as a control agreement. For sample forms of control agreements for deposit accounts, see Sample Forms of Deposit Account Control Agreements, 22 BUS. LAW NEWS, Issue 2 at 18 (2002). As of the date of this Report, a task force of the American Bar Association -- Deposit Account Control Agreements - Joint Task Force of the Committees on Consumer Financial Services, Commercial Financial Services and Banking Law -- is developing a model form of control agreement for deposit accounts. Back

227 A Perfection-by-Control Opinion premised upon a control agreement requires an enforceable control agreement against all parties to it. As noted previously, see supra note 224, a Perfection-by-Control Opinion in the form of Alternative 2 is not customarily understood to include a remedies opinion with respect to the control agreement. See supra note 224. The control agreement will typically be one of the documents listed in the opinion and often be the subject of a separate remedies opinion. If it is not the subject of a separate remedies opinion, however, it is customary practice for the Perfection-by-Control Opinion not specifically to assume enforceability. See generally supra discussion at Section 2.3 and note 42 (unnecessary for a Security Interest Opinion to assume expressly the due authorization, authentication and delivery (and enforceability) of a security agreement). Back

228 By custom, the opinion assumes that the secured party is the depository bank's customer with respect to the subject deposit account, and no express qualification to this effect is necessary. Back

229 See also supra notes 68-69 and accompanying text. By custom, the opinion assumes that the secured party or third-party institution where the account is maintained is a "bank" as defined in Division 9, see Cal. Com. Code § 9102(a)(8), and no express qualification to this effect is necessary. Back

230 If the collateral is an "instrument," perfection by control is not available and the only methods of perfection are the filing of a financing statement or taking possession of the instrument. Cal. Com. Code §§ 9312(a), 9313(a). The opinion assumes that the described account constitutes a deposit account, and no express qualification to this effect is necessary. If the collateral is described as a "certificate of deposit," the opinion recipient may wish to consider whether (a) to rely on express assumptions concerning the nature of the collateral, or (b) to address the possibility that the collateral may be a "deposit account" or an "instrument," in which case, the secured party could take appropriate steps to perfect its security interest under either conclusion. Back

231 Cal. Com. Code § 9104(a)(2). Back

232 See generally Cal. Com. Code § 9104(a)(3). Back

233 Cal. Com. Code §§ 9312(a), 9314(a); see Cal. Com. Code § 9105. Back

234 See, e.g., Cal. Com. Code § 9330(a)-(b). Back

235 To achieve control of electronic chattel paper, (a) the records that create, store and assign the specific electronic chattel paper (i) must be unique, (ii) must identify the secured party as the assignee thereof, (iii) must have been communicated to, and be maintained by, the secured party, and (iv) must be able to be copied or revised to add or change an identified assignee thereof only with the participation of the secured party, (b) each copy of these records must be readily identifiable as a copy that is not the authoritative version thereof, and (c) any revisions to these records must be readily identifiable as authorized or unauthorized revisions thereof. Cal. Com. Code § 9105. These matters are all factual in nature and the opinion giver is in no better position than the opinion recipient to make any required determinations. Back

236 See also supra note 212. Back

237 Cal. Com. Code § 9312(a). A certificated security is a type of investment property. Cal. Com. Code § 9102(a)(49); see Cal. Com. Code § 8102(a)(4) (definition of "certificated security"). Back

238 Cal. Com. Code §§ 9313(a), 8301(a)(1). Back

239 Cal. Com. Code § 9314(a); see also Cal. Com. Code §§ 8106, 9106. Back

240 Cal. Com. Code § 8106(a). Opinions concerning certificated securities in either bearer or registered form based solely upon delivery under section 8301(a) are addressed herein as Perfection-by-Possession Opinions. See supra Section 5.2.1. Back

241 Unlike the Code as adopted in California, the UCC uses the term "indorsement" in lieu of "endorsement" in Article 8 (but not in Article 3). See, e.g., UCC §§ 8-102(a)(11), 8-107(b), 8-301(a)(3). Back

242 Cal. Com. Code §§ 8301(a), 8106(b). Section § 8102(a)(11) defines "endorsement" to mean "a signature that alone or accompanied by other words is made on a security certificate in registered form or on a security document for the purpose of assigning, transferring, or redeeming the security or granting a power to assign, transfer or redeem it." Cal. Com. Code § 8102(a)(11). For an endorsement to be effective, one of the following must have occurred: (a) the endorsement must have been made by an appropriate person; (b) the endorsement must have been made by a person who has power under the law of agency to transfer the security on behalf of the appropriate person; or (c) the appropriate person has ratified it or is otherwise precluded from asserting its ineffectiveness. Cal. Com. Code § 8107(b). The opinion assumes that the related person is an "appropriate person," Cal. Com. Code § 8107, and no express qualification to this effect is necessary. Note that endorsement is not required for a Perfection-by-Possession Opinion concerning certificated securities. See supra Section 5.2. Back

243 For a discussion of the issues involved, see supra Section 5.2. Note that perfection by control is a necessary prerequisite to "protected purchaser" status under section 8303. Cal. Com. Code § 8303; see infra Section 6.2.3. Back

244 Though the opinion assumes that the subject collateral consists of certificated securities, some opinion givers include an express qualification to this effect. Back

245 Cal. Com. Code § 9312(a). An uncertificated security is a type of investment property. Cal. Com. Code § 9102(a)(49); see Cal. Com. Code § 8102(a)(18) (definition of "uncertificated security"). Back

246 See Cal. Com. Code §§ 9106(a), 9314(a), 8106(c). Back

247 Cal. Com. Code § 9312(a). Back

248 Cal. Com. Code § 8106(c). Back

249 See, e.g., Cal. Com. Code § 9328(2). Back

250 See also supra note 212. Back

251 Cal. Com. Code §§ 8106(c)(1), 8301(b), 9106(a). Control can be effected by a third person, other than a securities intermediary, becoming the registered owner of the uncertificated security on behalf of the owner or, having previously become the registered owner, acknowledging that it holds for the secured party. Cal. Com. Code § 8301(b)(2). Back

252 See Cal. Com. Code §§ 8106(c)(2), 8301(b), 9106(a). Back

253 See supra note 251. Back

254 Alternative 2 above addresses whether the control agreement is sufficient to comply with section 8106(c)(2) by providing that the issuer "will comply with instructions originated by the secured party without further consent by the registered owner." Cal. Com. Code § 8106(a)(2). By custom, however, the opinion is understood not to include a remedies opinion with respect to the control agreement. See supra Section 2.3 and notes 224, 227. Back

255 Where a control agreement or acknowledgement is a predicate to the delivery of a Perfection-by-Control Opinion, the document is typically listed in the opinion letter as one of the documents that was reviewed by the opinion giver. See generally supra note 227. Back

256 The following is a sample formulation of this qualification:

We have assumed that [specify party in whose name the uncertificated securities are registered] is not a securities intermediary.

Where it is clear that the party is not a securities intermediary, it is customarily unnecessary to include this qualification. Back

257 The Code requires that the issuer agree to comply with the secured party's instructions "without further consent by the registered owner." Cal. Com. Code § 8106(c)(2).

The following is a sample form of this qualification:

We have assumed that the debtor is the registered owner of the securities described in paragraph [refer to perfection opinion for uncertificated securities]. Back

258 The person who agrees to register the securities must be the issuer for control to have occurred under section 8106(c)(1). Cal. Com. Code § 8106(c)(1). Back

259 The person who agrees to comply with the instructions of the secured party must be the issuer for control to have occurred under section 8106(c)(2). Cal. Com. Code § 8106(c)(2).

The following is a sample formulation of this qualification:

We have assumed that [specify party named in the control agreement as issuer] is the issuer of the securities described in paragraph [refer to perfection opinion for uncertificated securities]. Back

260 Cal. Com. Code § 8110(d). If this is not the case, the issuer must have chosen the laws of California to govern the uncertificated securities in which the security interest is granted, a situation that would be unusual. Back

261 "Security entitlement" is defined at section 8102(a)(17). Cal. Com. Code § 8102(a)(17). The term includes both rights in and to financial assets held by a securities intermediary and rights against the securities intermediary. See UCC § 8-102 cmt. 17. It is thus a "super-generic" term that subsumes, for example, pro rata rights to securities held by a securities intermediary. Back

262 "Securities account" is defined at section 8501(a). Cal. Com. Code § 8501(a). A secured party that has control of all security entitlements carried in a securities account has control over that account. Cal. Com. Code § 9106(c). Similarly, perfection of a security interest in a securities account also perfects a security interest in the security entitlements carried in that securities account. Cal. Com. Code § 9308(f). Accordingly, Perfection-by-Control Opinions as to securities accounts and security entitlements involve similar considerations. Back

263 Cal. Com. Code §§ 9314(a), 9106(a), 8106(d), (e); see also Cal. Com. Code § 9312(a). Security entitlements and securities accounts are types of investment property. Cal. Com. Code § 9102(a)(49). Back

264 Cal. Com. Code § 8106(d). Back

265 See Cal. Com. Code § 9328(1). Back

266 See also supra note 212. Back

267 See UCC § 9-106 cmt. 4. Back

268 Cal. Com. Code § 8106(d)(1). Back

269 See Cal. Com. Code §§ 8106(d)(2)-(3), 8106, 9106(a). Back

270 The securities intermediary must agree to comply with entitlement orders originated by the purchaser (which includes a secured party) without further consent by the entitlement holder. Cal. Com. Code § 8106(d)(2). When a securities intermediary credits financial assets to a securities account, a security entitlement arises with respect to the financial assets. The security entitlement refers to the bundle of rights against the securities intermediary that the entitlement holder has with respect to the underlying financial asset. The secured party's security interest is in that bundle of rights against the securities intermediary -- not in any specific underlying financial assets. Cf. Cal. Com. Code § 8503 (providing that the bundle of rights includes a pro rata property right to all of the units of the underlying financial asset held by the securities intermediary). Back

271 The third party must acknowledge that it has control on behalf of the purchaser. Cal. Com. Code § 8106(d)(3). Back

272 Cal. Com. Code § 8106(e). Back

273 See supra note 227. Back

274 See also supra note 69 and accompanying text. Back

275 Whether an item is a financial asset only has significance when the item is held in a relationship between a securities intermediary and an entitlement holder that falls within the definition of a securities account (i.e., where the person maintaining the account undertakes to treat the person for whom the account is maintained as entitled to exercise the rights that comprise the financial assets). If the relationship is that between a bank and its customer (i.e., a debtor/creditor relationship), then the item described is often a deposit account and not a financial asset. See supra note 213. Back

276 Cal. Com. Code § 8102(a)(14). The customary practice is for the opinion recipient not to look to the opinion giver to examine the registration or status of the person with whom the securities account is maintained. If the securities intermediary is a clearing corporation, Cal. Com. Code § 8102(a)(5), then it may adopt rules governing the rights and obligations among the clearing corporation and its participants; these rules will be effective even if they conflict with Division 8 or affect persons who have not consented to them. Cal. Com. Code § 8111. Also, if the securities intermediary is a Federal Reserve Bank, then the Secretary of the Treasury has the right, under applicable Federal regulations, "to waive any provision(s) of these regulations in any case or class of cases for the convenience of the United States or in order to relieve any person(s) of unnecessary hardship, if such action is not inconsistent with law, does not adversely affect any substantial existing rights, and the Secretary [of the Treasury] is satisfied that such action will not subject the United States to any substantial expense or liability." 31 C.F.R. Part 357, Subpart D, § 357.41. In these circumstances, the customary practice is for the opinion giver not to be charged with determining the rules that have been adopted by the Secretary of the Treasury or a clearing corporation. Back

277 Where a control agreement or acknowledgement is a predicate to the delivery of a Perfection-by-Control Opinion, the document is typically listed in the opinion letter as one of the documents that was reviewed by the opinion giver. See generally supra note 227. Back

278 See Cal. Com. Code § 9102(a)(15) (definition of "commodity contract"). Back

279 See Cal. Com. Code § 9102(a)(14) (definition of "commodity account"). A secured party that has control of all commodity contracts carried in a commodity account has control over that account. Cal. Com. Code § 9106(c). Similarly, perfection of a security interest in a commodity account also perfects a security interest in the commodity contracts carried in that commodity account. Cal. Com. Code § 9308(g). Accordingly, Perfection-by-Control Opinions as to commodity accounts and commodity contracts involve similar considerations. Back

280 Cal. Com. Code §§ 9314(a), 9106(b). Commodity contracts and commodity accounts are types of investment property. Cal. Com. Code § 9102(a)(49). Commodity contracts, however, are not securities or financial assets; accordingly, commodity contracts, and the commodity accounts in which they are carried, are not covered by Division 8. See UCC § 8-103(f) cmt. 7; Cal. Com. Code § 8103(f). Back

281 Cal. Com. Code § 9312(a). Back

282 Cal. Com. Code § 9102(a)(17) (definition of "commodity intermediary"). Back

283 Cal. Com. Code § 9106(b). Back

284 See Cal. Com. Code § 9328(1). Back

285 See also supra note 212. Back

286 See Cal. Com. Code 9106(b). Back

287 See also supra note 69 and accompanying text. Back

288 See supra note 213. Back

289 Cal. Com. Code § 9102(a)(17). The customary practice is for the opinion recipient not to look to the opinion giver to examine the registration or status of the person on whose books the commodity contracts are carried or who maintains the commodity account. Back

290 Cal. Com. Code § 9305(c)(3). This Report does not generally address opinions concerning automatic (or temporary) perfection of a security interest. See supra note 110. Back

291 Cal. Com. Code § 9305(b). Back

292 Where a control agreement is a predicate to the delivery of a Perfection-by-Control Opinion, the agreement is typically listed in the opinion letter as one of the documents that was reviewed by the opinion giver. See generally supra note 227. Back

293 A letter-of-credit right is the right to payment or performance under a letter of credit. It does not include the right of a beneficiary to demand performance under a letter of credit. Cal. Com. Code § 9102(a)(51). Transfers of such rights are governed by Division 5. See Cal. Com. Code § 5112. Back

294 Cal. Com. Code § 9102(a)(77). Back

295 Cal. Com. Code § 9308(d) provides that a security interest in a supporting obligation is perfected by perfecting the security interest in the collateral supported. Back

296 Cal. Com. Code §§ 9312(b)(2), 9314. Back

297 Cal. Com. Code §§ 9203(f), 9308(d). Back

298 Where the consent is a predicate to the delivery of a Perfection-by-Control Opinion, such consent is typically listed in the opinion letter as one of the documents that was reviewed by the opinion giver. See generally supra note 227. Back

299 Cal. Com. Code §§ 5114(c), 9107. By custom, the opinion is not understood to include a remedies opinion with respect to the assignment and consent. See supra note 42; see generally supra note 227 (unnecessary to include enforceability of underlying agreement). Back

300 See also supra notes 68-69 and accompanying text. Back

301 Section 5114(a) defines proceeds of a letter of credit as "a cash, check, accepted draft, or other item of value paid or delivered upon honor or giving of value by the issuer or any nominated person under the letter of credit." Cal. Com. Code § 5114(a). Back

302 Cal. Com. Code § 9312(b)(4). This method of perfection does not, however, apply to health care insurance receivables. Id. A health care insurance receivable is an "interest or claim under an insurance policy which is a right to payment of a monetary obligation for health care goods or services provided or to be provided." Cal. Com. Code § 9102(a)(46). Security interests in health care insurance receivables are perfected by the filing of a financing statement. Cal. Com. Code § 9310(a). But see Cal. Com. Code § 9309(5). Back

303 Section 9-109(d)(8) of the UCC specifically states that it is not applicable to transfers of interests in insurance policies except assignments by or to a healthcare provider of a health care insurance receivable. Back

304 See Cal. Com. Code § 9301(1). Back

305 As with any Security Interest Opinion, a Perfection-by-Notification Opinion does not address which state's law governs perfection, the effect of perfection or nonperfection and the priority of the particular security interest. See supra Section 2.2 and text accompanying note 43. Back

306 Unless the subject policy is also governed by California law, however, California law may not operate to bind the insurance company as account debtor. See UCC §§ 9-401 cmt. 3, 9-408; Cal. Com. Code §§ 9401, 9408. Back

307 See Cal. Com. Code § 9102(a)(46). Back


Section 6. Priority Opinions. / Table of Contents