§ 25-8-202. Issuer's responsibility and defenses; notice of defect or defense.
§25‑8‑202. Issuer's responsibility and defenses; notice of defector defense.
(a) Even against apurchaser for value and without notice, the terms of a certificated securityinclude terms stated on the certificate and terms made part of the security byreference on the certificate to another instrument, indenture, or document orto a constitution, statute, ordinance, rule, regulation, order, or the like, tothe extent the terms referred to do not conflict with terms stated on thecertificate. A reference under this subsection does not of itself charge apurchaser for value with notice of a defect going to the validity of thesecurity, even if the certificate expressly states that a person accepting itadmits notice. The terms of an uncertificated security include those stated inany instrument, indenture, or document or in a constitution, statute,ordinance, rule, regulation, order, or the like, pursuant to which the securityis issued.
(b) The following rulesapply if an issuer asserts that a security is not valid:
(1) A security otherthan one issued by a government or governmental subdivision, agency, orinstrumentality, even though issued with a defect going to its validity, isvalid in the hands of a purchaser for value and without notice of the particulardefect unless the defect involves a violation of a constitutional provision. Inthat case, the security is valid in the hands of a purchaser for value andwithout notice of the defect, other than one who takes by original issue.
(2) Subdivision (1) of thissubsection applies to an issuer that is a government or governmentalsubdivision, agency, or instrumentality only if there has been substantialcompliance with the legal requirements governing the issue or the issuer hasreceived a substantial consideration for the issue as a whole or for theparticular security and a stated purpose of the issue is one for which theissuer has power to borrow money or issue the security.
(c) Except as otherwiseprovided in G.S. 25‑8‑205, lack of genuineness of a certificatedsecurity is a complete defense, even against a purchaser for value and withoutnotice.
(d) All other defensesof the issuer of a security, including nondelivery and conditional delivery ofa certificated security, are ineffective against a purchaser for value who hastaken the security without notice of the particular defense.
(e) This section doesnot affect the right of a party to cancel a contract for a security "when,as and if issued" or "when distributed" in the event of amaterial change in the character of the security that is the subject of thecontract or in the plan or arrangement pursuant to which the security is to beissued or distributed.
(f) If a security isheld by a securities intermediary against whom an entitlement holder has a securityentitlement with respect to the security, the issuer may not assert any defensethat the issuer could not assert if the entitlement holder held the securitydirectly. (1899, c. 733, ss. 23, 28, 56, 57, 61, 62; Rev., ss.2171, 2176, 2205, 2206, 2210, 2211; C.S., ss. 3003, 3008, 3037, 3038, 3042,3043; 1965, c. 700, s. 1; 1989, c. 588, s. 1; 1997‑181, s. 1.)