NC NC AG Advisory Opinion (1995-05-23) 1995-05-23

Can a NC state agency pledge securities as collateral for a private historic-preservation loan?

Short answer: Yes. The Department of Cultural Resources has express statutory authority under N.C.G.S. § 121-11 to provide assistance to corporations engaged in acquiring, maintaining, preserving, restoring, or developing historic property in NC. The Department's pledge of securities (previously transferred to it from the USS North Carolina Battleship Commission) as collateral for a bank loan was within that statutory authority and created a valid, legal, and binding first-priority security interest in the bank's favor.

Disclaimer: This is an official North Carolina Attorney General advisory opinion. AG opinions are persuasive authority but not binding precedent like a court ruling. This summary is for informational purposes only and is not legal advice. Consult a licensed North Carolina attorney for advice on your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official AG opinion. The original opinion (linked at the bottom of this page) is the authoritative source for any reliance.

Plain-English summary

The USS North Carolina is a WWII battleship moored at Wilmington and operated as a historic site. The State maintains it through a hybrid structure: the USS North Carolina Battleship Commission (a State commission within the Department of Cultural Resources) handles operations, while the Department itself can step in to provide broader financial assistance. In 1995, that hybrid had to execute a particular financial transaction. The Battleship Commission had accumulated certain securities. Those securities had been transferred to the Department of Cultural Resources, which planned to pledge them as collateral for a bank loan in support of battleship preservation. The Bank wanted a formal AG legal opinion confirming the Department's authority and the validity of the pledge before extending credit.

Special Deputy AG Charles J. Murray and Senior Deputy AG Ann Reed delivered that legal opinion. It is structured the way bond counsel and lender's counsel opinions are: a numbered set of findings the Bank could rely on.

The opinion concluded:

The Department of Cultural Resources is a duly-constituted principal executive department under N.C.G.S. § 143B-49 et seq.
The USS North Carolina Battleship Commission is a duly-constituted commission of the Department under N.C.G.S. § 143B-73 et seq.
N.C.G.S. § 121-11 authorizes the Department to provide assistance to any corporation in connection with the acquisition, maintenance, preservation, restoration, or development of historic property in NC.
The securities had been validly transferred from the Commission to the Department; the Department had power to pledge them and create a security interest in favor of the Bank.
The pledge of securities as collateral constituted the provision of assistance within the meaning of § 121-11.
The Secretary of the Department had been duly authorized to execute and deliver the Pledge Agreement.
The Pledge Agreement would create a first and prior pledge, security interest, and lien in the securities in the Bank's favor; it would be a valid, legal, and binding obligation of the Department enforceable in accordance with its terms.
No pending or threatened litigation would materially affect the transaction.

The opinion carried the customary equitable-remedies and sovereign-immunity carve-outs: enforceability is subject to (a) judicial discretion under general principles of equity, and (b) the valid exercise of constitutional powers of the United States and the sovereign police and taxing powers of governmental units. Those carve-outs are standard in bank legal opinions and do not undermine the substance of the pledge.

Currency note

This opinion was issued in 1995. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The Department of Cultural Resources was reorganized as the Department of Natural and Cultural Resources (DNCR) in 2015; statutory citations have shifted accordingly.

Background and statutory framework

Principal executive department architecture. N.C.G.S. § 143B-49 establishes the Department of Cultural Resources as a principal executive department. Each principal department has a defined scope of authority and a defined organizational structure with commissions and divisions reporting up.

The Battleship Commission's role. N.C.G.S. § 143B-73 et seq. set out the Battleship Commission's existence and authorities within the Department. The Commission operates the battleship as a historic site and museum.

§ 121-11 as the assistance grant. N.C.G.S. § 121-11 is the broad statutory grant for the Department to assist corporations engaged in historic preservation. The AG read "assistance" expansively to include collateral pledges, which makes financial sense: many preservation projects require lender support, and lender support requires credit enhancement.

The pledge mechanics. The Commission had securities. Those securities were transferred to the Department. The Department then pledged them to the Bank as collateral for a loan, which the Bank made for battleship preservation purposes. The Pledge Agreement created a first-priority security interest under UCC Article 9 (as applied to securities under then-current law).

Why a formal AG opinion? Banks lending to state agencies routinely demand a written legal opinion from the state's counsel before closing. The opinion gives the Bank assurance that (1) the state agency has the legal capacity to enter the transaction and (2) the pledge will be enforceable. Without such an opinion, the loan typically does not close.

The equitable-remedies carve-out. Legal opinions almost universally include a carve-out for equitable remedies and sovereign powers. This is not a hedge on the conclusion; it is a recognition that no contract can fully bind a court's equitable discretion or the sovereign's constitutional powers.

Common questions

Q: What is the USS North Carolina battleship?

A: A WWII battleship (BB-55) that served in the Pacific theater. After the war it was decommissioned and brought to Wilmington, NC, in 1961 as a memorial and museum.

Q: Why did the Battleship Commission need a bank loan?

A: Historic ship maintenance is expensive. Hulls corrode, decks rot, and major preservation projects (dry-docking, hull repair) require capital. The opinion does not describe the specific project this loan funded.

Q: Does N.C.G.S. § 121-11 authorize the Department to make grants?

A: § 121-11 authorizes "assistance," which has been read to include various forms of support. Grants, collateral pledges, and direct contributions are all within the broad authority.

Q: Could the Bank foreclose on the securities if the loan defaulted?

A: The Pledge Agreement gave the Bank a first-priority security interest. In the event of default, the Bank could exercise its remedies under the Pledge Agreement, subject to applicable equitable principles.

Q: Is the opinion still good law for similar transactions today?

A: The legal framework remains broadly intact, but UCC Article 9 was substantially revised in 2001 (effective in NC in 2001) and the Department itself was reorganized as DNCR in 2015. New transactions need a fresh opinion under current law.

Q: Was there any litigation about this pledge?

A: The opinion expressly stated there was no pending or threatened litigation affecting the transaction.

Citations from the opinion

N.C.G.S. § 121-11
N.C.G.S. § 143B-49 et seq.
N.C.G.S. § 143B-73 et seq.

Source

Landing page: https://ncdoj.gov/opinions/department-of-cultural-resources-u-s-s-north-carolina-battleship-commission/

Original opinion text

Best-effort transcription from the NCDOJ landing page; the opening paragraphs (header, request, and recitals) were not in the scraped capture, so the text below begins with the numbered conclusions. The linked landing page is authoritative.

The Department is a duly-constituted principal executive department of the State of North Carolina, having all of the powers granted to it pursuant to N.C.G.S. § 143B-49, et seq. and other applicable law.
The Commission is a duly-constituted commission of the Department, having all of the powers granted to it pursuant to N.C.G.S. § 143B-73, et seq. and other applicable law.
In accordance with N.C.G.S. § 121-11, the Department is authorized to provide assistance to any corporation in connection with the acquisition, maintenance, preservation, restoration, or development of historic property in the State of North Carolina.
The Securities have been validly transferred from the Commission to the Department, and the Department has the power and authority to pledge the same and to create a security interest in the Securities as collateral for the Loan.
The pledge by the Department of the Securities as collateral for the Loan constitutes the provision of assistance by the Department, within the meaning and scope of N.C.G.S. § 121-11.
The Secretary of the Department has been duly authorized by all necessary actions and proceedings to execute and deliver the Pledge Agreement to the Bank, and to take all such other actions as may be necessary to perform the terms thereof.
The Pledge Agreement, when executed by the Secretary of the Department and delivered to the Bank, will create in the Securities a first and prior pledge of, security interest in and lien upon the Securities and any account in which the same are held, in favor of the Bank, which Pledge Agreement shall constitute the valid, legal and binding obligation of the Department enforceable in accordance with its terms.
There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body known to be pending or threatened against or affecting the Department or the Commission, nor to the best of the undersigned's knowledge, is there any basis therefor, wherein an unfavorable decision, ruling or finding would materially adversely affect the transactions contemplated by the Pledge Agreement or which in any way would adversely affect the validity or enforceability of the Pledge Agreement or any agreement or instrument to which the Department or the Commission is a party. There are no actions, suits or proceedings pending or, to the knowledge of the undersigned, threatened against or affecting the Department or the Commission in any court or before any governmental commission, board or authority which, if adversely determined, will have a material adverse effect on the ability of the Department to perform its obligations under the Pledge Agreement.

It is understood that the rights of the Bank and the enforceability of the Pledge Agreement may be subject to (a) the exercise of judicial discretion in accordance with general principles of equity, and (b) the valid exercise of the constitutional powers of the United States of America and of the sovereign police and taxing powers of any governmental unit having jurisdiction.

Charles J. Murray, Special Deputy Attorney General

Ann Reed, Senior Deputy Attorney General