Occasionally, when a security owner (other than the issuer) sells securities to a person other than the issuer – a “secondary sale” – the buyer will request an opinion regarding the transfer of the securities. Although a request may be made in connection with private as well as public sales of securities, it appears often in connection with the sale of securities by selling security holders to underwriters in registered public offerings. Secondary sale opinions are addressed in a report by the TriBar Opinion Committee that has just been published in the latest (May 2011) issue of The Business Lawyer (PDF).
The new report is valuable for a few reasons:
- The report acknowledges that secondary sale opinions are different than most other types of opinions. Secondary sale opinions apply Article 8 of the Uniform Commercial Code, which relatively few lawyers understand, and do not require a significant individualized or case-by-case legal analysis. They are based almost entirely on certain facts, and those facts are often assumed for the opinions.
- The report explains why no opinion regarding any “title” to a security should be requested or given.
- There are only a couple of other sources in the opinion literature that address secondary sale opinions. Although those sources are valuable, the report is more comprehensive than those sources.
- In addition to providing examples of secondary sale opinions and corresponding assumptions and providing information about relevant provisions of Article 8 of the UCC, the report raises the question of whether, in many circumstances, it is really meaningful or appropriate for the buyer to request a secondary sale opinion. Unless the facts are unusual, the buyer’s counsel should normally be able to reach the desired conclusion without the opinion.
OUR TAKE: The New TriBar report should be required reading for any lawyer who might request a secondary sale opinion and for any lawyer responding to such a request.