EXHIBIT 5.1
[LETTERHEAD OF MANATT, PHELPS & PHILLIPS, LLP]
June 2, 1999 File No: 12050-035
Downey Financial Corp.
3501 Jamboree Road
Newport Beach, California 92660
RE: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We have acted as special counsel to Downey Financial Corp., a Delaware
corporation ("Downey") in connection with the preparation and filing under the
Securities Act of 1933, as amended (the "Act"), of a Registration Statement on
Form S-3 to be filed with the Securities and Exchange Commission on or about
June 2, 1999 (the "Registration Statement"). The Registration Statement
relates to the offer for sale of 4,000,000 shares of Cumulative Trust Preferred
Securities (the "Capital Securities") of Downey Financial Capital Trust I, a
statutory business trust formed at the direction of Downey under the laws of the
State of Delaware (the "Trust") and the guaranty of Downey with respect to the
Capital Securities (the "Guarantee Agreement") and Junior Subordinated
Debentures to be issued by Downey to the Trust in connection with the sale of
the Capital Securities, and as further described in the Registration Statement
(the "Offering"). Other capitalized terms used but not defined herein have the
meanings ascribed to them in the Registration Statement. As special counsel to
Downey, we have been requested to render this opinion.
For the purpose of rendering the opinions set forth herein, we have
been furnished with and examined only the following documents:
1. The Certificate of Incorporation of Downey, as amended, certified
by the Delaware Secretary of State as of May 27, 1999;
2. The Bylaws of Downey, as amended, certified by the Secretary of
Downey as of June 2, 1999;
3. The Registration Statement;
4. The Form of Guarantee Agreement relating to the Capital
Securities, attached as Exhibit 4.6 to the Registration Statement;
Downey Financial Corp.
June 2, 1999
Page 2
5. The Form of Junior Subordinated Debenture included in the form of
Junior Subordinated Indenture, attached as Exhibit 4.1 to the Registration
Statement; and
6. Records of the meetings of the Board of Directors of Downey
pertaining to the Offering.
With respect to all of the foregoing documents, we have assumed,
without investigation, the genuineness of all signatures, the authenticity of
all documents submitted to us as originals and the conformity to originals of
all documents submitted to us as certified or reproduced copies. We also have
obtained from the officers of Downey such advice as to such factual matters as
we consider necessary for the purpose of this opinion, and insofar as this
opinion is based on such matters of fact, we have relied on such advice.
Based upon the foregoing and subject to our receipt of the following
documents or fulfillment of the following conditions to our satisfaction, upon
both of which our opinions are expressly conditioned:
(a) The order to be issued by the Securities and Exchange Commission
declaring the Registration Statement to be effective;
(b) Such exemptive orders, permits, licenses or no action letters as
may be required by the appropriate regulatory or governmental agencies in the
states where the Offering is to be made;
(c) All other conditions and legal requirements necessary to
consummate the transactions contemplated by the Registration Statement; and
(d) The due execution and delivery of the Guarantee Agreement and
Indenture; upon which our opinions are expressly conditioned,
we are of the opinion that:
1. Downey has been duly incorporated and is validly existing as a
corporation under the laws of the State of Delaware.
2. The Guarantee Agreement, when executed and delivered as
contemplated by the Registration Statement, and the Junior Subordinated
Debentures, when issued and paid for as contemplated by the Registration
Statement, will be validly issued obligations of Downey enforceable in
accordance with their terms except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
transfer laws or similar laws affecting the rights of creditors generally and
subject to general principles of equity, including, but not limited to, concepts
of materiality, reasonableness, good faith and fair dealing and the
unavailability of specific performance or injunctive relief, regardless of
whether considered in a proceeding in equity or at law.
The foregoing opinion is also subject to the following comments and
qualifications:
Downey Financial Corp.
June 2, 1999
Page 3
(a) The enforceability of certain provisions of the Indenture and the
Guarantee Agreement may be limited by laws rendering unenforceable the release
of a party from, or the indemnification of a party against, liability for its
own wrongful or negligent acts under certain circumstances, and indemnification
contrary to Federal or state securities laws and the public policy underlying
such laws.
(b) The enforceability of provisions in the Indenture, the Junior
Subordinated Debentures and the Guarantee Agreement, to the effect that the
terms may not be waived or modified except in writing, may be limited under
certain circumstances.
(c) We advise you that, under certain circumstances, a guaranty
executed by a corporate shareholder of a corporate borrower may not be enforced
as an obligation separate from the obligation guaranteed if it is determined
that the borrower is merely an alter ego or nominee of the guarantor and that
the "true" borrower is the guarantor. If the guarantor is deemed to be liable
as a primary obligor, it is likely that the guarantor will also be entitled to
the rights and defenses otherwise available to a primary obligor.
(d) Notwithstanding the choice of law provision in the Guarantee
Agreement, we also advise you of California statutory provisions and case law,
including defenses set forth in Union Bank v. Gradsky, 265 Cal.App. 2d 40 (1968)
---------------------
and defenses arising from California Civil Code Section 2787 et seq. relating to
-- ----
suretyship defenses or rights of redemption, to the effect that, in certain
circumstances, a surety may be exonerated if the creditor materially alters the
original obligation of the principal without the consent of the guarantor,
elects remedies for default which impairs the subrogation rights of the
guarantor against the principal, or otherwise takes any action without notifying
the guarantor which materially prejudices the guarantor. However, there is also
authority to the effect that a guarantor may validly waive such rights, if such
waivers are expressly set forth in the guaranty. While we believe that a
California court should hold that the explicit language contained in the
Guarantee Agreement waiving such rights should be enforceable, we express no
opinion with respect to the effect of (i) any modification to or amendment of
the obligations of the Trust which materially increases such obligations; (ii)
any election of remedies by the Trust following the occurrence of an event of
default; or (iii) any other action by the Trust which materially prejudices any
guarantor, if, in any such instance, such modification, election or action
occurs without notice to any guarantor and without granting to any guarantor an
opportunity to cure any default by the Trust.
Our opinion expressed herein is limited to those matters expressly set
forth herein, and no opinion may be implied or inferred beyond the matters
expressly stated herein. We hereby disclaim any obligation to notify any person
or entity after the date hereof if any change in fact or law should change our
opinion with respect to any matter set forth in this letter.
This opinion is limited to the current laws of the State of New York,
the State of California, the General Corporation Law of Delaware (the "GCL"), to
present judicial interpretations thereof and to facts as they presently exist.
In rendering this opinion, we have no obligation to revise or supplement it
should the current laws of the State of New York, the State of California or the
GCL be changed by legislative action, judicial decision or otherwise.
Downey Financial Corp.
June 2, 1999
Page 4
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus which is part of the Registration Statement.
Very truly yours,
/s/ Manatt, Phelps & Phillips, LLP