§ 6A-8-202 - Issuer's responsibility and defenses – Notice of defect or defense.
SECTION 6A-8-202
§ 6A-8-202 Issuer's responsibility anddefenses – Notice of defect or defense. – (a) Even against a purchaser for value and without notice, the terms of acertificated security include terms stated on the certificate and terms madepart of the security by reference on the certificate to another instrument,indenture, or document or to a constitution, statute, ordinance, rule,regulation, order, or the like, to the extent the terms referred to do notconflict with terms stated on the certificate. A reference under thissubsection does not of itself charge a purchaser for value with notice of adefect going to the validity of the security, even if the certificate expresslystates that a person accepting it admits notice. The terms of an uncertificatedsecurity include those stated in any instrument, indenture, or document or in aconstitution, statute, ordinance, rule, regulation, order, or the like,pursuant to which the security is issued.
(b) The following rules apply if an issuer asserts that asecurity is not valid:
(1) A security other than one issued by a government orgovernmental subdivision, agency, or instrumentality, even though issued with adefect going to its validity, is valid in the hands of a purchaser for valueand without notice of the particular defect unless the defect involves aviolation of a constitutional provision. In that case, the security is valid inthe hands of a purchaser for value and without notice of the defect, other thanone who takes by original issue.
(2) Paragraph (1) applies to an issuer that is a governmentor governmental subdivision, agency, or instrumentality only if there has beensubstantial compliance with the legal requirements governing the issue or theissuer has received a substantial consideration for the issue as a whole or forthe particular 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 otherwise provided in § 6A-8-205, lack ofgenuineness of a certificated security is a complete defense, even against apurchaser for value and without notice.
(d) All other defenses of the issuer of a security, includingnondelivery and conditional delivery of a certificated security, areineffective against a purchaser for value who has taken the certificatedsecurity without notice of the particular defense.
(e) This section does not affect the right of a party tocancel a contract for a security "when, as and if issued" or "when distributed"in the event of a material change in the character of the security that is thesubject of the contract or in the plan or arrangement pursuant to which thesecurity is to be issued or distributed.
(f) If a security is held by a securities intermediaryagainst whom an entitlement holder has a security entitlement with respect tothe security, the issuer may not assert any defense that the issuer could notassert if the entitlement holder held the security directly.