70A-8-202 - Issuer's responsibility and defenses -- Notice of defect or defense.
70A-8-202. Issuer's responsibility and defenses -- Notice of defect or defense.
(1) Even against a purchaser for value and without notice, the terms of a certificatedsecurity include terms stated on the certificate and terms made part of the security by referenceon 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 not conflictwith terms stated on the certificate. A reference under this subsection does not of itself charge apurchaser for value with notice of a defect going to the validity of the security, even if thecertificate expressly states that a person accepting it admits notice. The terms of anuncertificated security include those stated in any instrument, indenture, or document or in aconstitution, statute, ordinance, rule, regulation, order, or the like, pursuant to which the securityis issued.
(2) The following rules apply if an issuer asserts that a security is not valid:
(a) A security other than one issued by a government or governmental subdivision,agency, or instrumentality, even though issued with a defect going to its validity, is valid in thehands of a purchaser for value and without notice of the particular defect unless the defectinvolves a violation of a constitutional provision. In that case, the security is valid in the handsof a purchaser for value and without notice of the defect, other than one who takes by originalissue.
(b) Subsection (2)(a) applies to an issuer that is a government or governmentalsubdivision, agency, or instrumentality only if there has been substantial compliance with thelegal requirements governing the issue or the issuer has received a substantial consideration forthe issue as a whole or for the particular security and a stated purpose of the issue is one forwhich the issuer has power to borrow money or issue the security.
(3) Except as otherwise provided in Section 70A-8-205, lack of genuineness of acertificated security is a complete defense, even against a purchaser for value and without notice.
(4) All other defenses of the issuer of a security, including nondelivery and conditionaldelivery of a certificated security, are ineffective against a purchaser for value who has taken thecertificated security without notice of the particular defense.
(5) This section does not 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 a material change in the characterof the security that is the subject of the contract or in the plan or arrangement pursuant to whichthe security is to be issued or distributed.
(6) If a security is held by a securities intermediary against whom an entitlement holderhas a security entitlement with respect to the security, the issuer may not assert any defense thatthe issuer could not assert if the entitlement holder held the security directly.
Amended by Chapter 324, 2010 General Session