May 20, 1985

Dear Mr. ________:
This is in reply to your letter of ________.
As we understand it, your client, a California state bank, proposes to make a loan to a leasing company. The leasing company will use the proceeds of the loan to purchase equipment and will then lease the equipment to a lessee. The leasing company will provide to the bank a non-recourse promissory note, an assignment of the lease, including an assignment of the leasing company’s rights to receive rents and to enforce the lease, and a security interest in the equipment. The note will provide that, in the event of default, recourse by the bank will be limited to the lessee and the equipment.
You ask whether the note will constitute an obligation of the leasing company for purposes of Financial Code Section 1221.
In our view, the note will not represent an obligation of the leasing company for purposes of Section 1221 if the loan is made under the circumstances described above and if the following requirements are met:
1. The lease must provide that it is freely assignable by the lessor.
2. The lease must provide that the lessee waives all claims and offsets against any rent due and payable.
3. The total amount of the loan, including principal and interest, must not exceed the total amount of rent due under the lease.
4. The bank must make a full credit check of the lessee and maintain in its files information sufficient to support the loan as an extension of credit to the lessee.
5. The lessee must pay all rent under the lease directly to the bank.
It is assumed, of course, that the bank will take all steps necessary to perfect its security interest. Also, it is assumed that the bank will avoid an undue concentration of collateral which is dependent upon a limited area of economic activity.
If you have any additional questions regarding this matter, please do not hesitate to contact us.
Very truly yours,
Superintendent of Banks
Chief Counsel

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