COMMERCIAL CODE §§ 8101-8603
8101. This division may be cited as Uniform Commercial
Code--Investment Securities.
8102. (a) In this division:
(1) "Adverse claim" means a claim that a claimant has a property
interest in a financial asset and that it is a violation of the
rights of the claimant for another person to hold, transfer, or deal
with the financial asset.
(2) "Bearer form," as applied to a certificated security, means a
form in which the security is payable to the bearer of the security
certificate according to its terms but not by reason of an
indorsement.
(3) "Broker" means a person defined as a broker or dealer under
the federal securities laws, but without excluding a bank acting in
that capacity.
(4) "Certificated security" means a security that is represented
by a certificate.
(5) "Clearing corporation" means any of the following:
(A) A person that is registered as a "clearing agency" under the
federal securities laws.
(B) A federal reserve bank.
(C) Any other person that provides clearance or settlement
services with respect to financial assets that would require it to
register as a clearing agency under the federal securities laws but
for an exclusion or exemption from the registration requirement, if
its activities as a clearing corporation, including promulgation of
rules, are subject to regulation by a federal or state governmental
authority.
(6) "Communicate" means to either:
(A) Send a signed writing.
(B) Transmit information by any mechanism agreed upon by the
persons transmitting and receiving the information.
(7) "Entitlement holder" means a person identified in the records
of a securities intermediary as the person having a security
entitlement against the securities intermediary. If a person
acquires a security entitlement by virtue of paragraph (2) or (3) of
subdivision (b) of Section 8501, that person is the entitlement
holder.
(8) "Entitlement order" means a notification communicated to a
securities intermediary directing transfer or redemption of a
financial asset to which the entitlement holder has a security
entitlement.
(9) "Financial asset," except as otherwise provided in Section
8103, means any of the following:
(A) A security.
(B) An obligation of a person or a share, participation, or other
interest in a person or in property or an enterprise of a person,
that is, or is of a type, dealt in or traded on financial markets, or
that is recognized in any area in which it is issued or dealt in as
a medium for investment.
(C) Any property that is held by a securities intermediary for
another person in a securities account if the securities intermediary
has expressly agreed with the other person that the property is to
be treated as a financial asset under this division. As context
requires, the term means either the interest itself or the means by
which a person's claim to it is evidenced, including a certificated
or uncertificated security, a security certificate, or a security
entitlement.
(10) "Good faith," for purposes of the obligation of good faith in
the performance or enforcement of contracts or duties within this
division, means honesty in fact and the observance of reasonable
commercial standards of fair dealing.
(11) "Endorsement" means a signature that alone or accompanied by
other words is made on a security certificate in registered form or
on a separate document for the purpose of assigning, transferring, or
redeeming the security or granting a power to assign, transfer, or
redeem it.
(12) "Instruction" means a notification communicated to the issuer
of an uncertificated security that directs that the transfer of the
security be registered or that the security be redeemed.
(13) "Registered form," as applied to a certificated security,
means a form in which both of the following apply:
(A) The security certificate specifies a person entitled to the
security.
(B) A transfer of the security may be registered upon books
maintained for that purpose by or on behalf of the issuer, or the
security certificate so states.
(14) "Securities intermediary" means either:
(A) A clearing corporation.
(B) A person, including a bank or broker, that in the ordinary
course of its business maintains securities accounts for others and
is acting in that capacity.
(15) "Security," except as otherwise provided in Section 8103,
means an obligation of an issuer or a share, participation, or other
interest in an issuer or in property or an enterprise of an issuer
that is all of the following:
(A) It is represented by a security certificate in bearer or
registered form, or the transfer of it may be registered upon books
maintained for that purpose by or on behalf of the issuer.
(B) It is one of a class or series or by its terms is divisible
into a class or series of shares, participations, interests, or
obligations.
(C) It is either of the following:
(i) It is, or is of a type, dealt in or traded on securities
exchanges or securities markets.
(ii) It is a medium for investment and by its terms expressly
provides that it is a security governed by this division.
(16) "Security certificate" means a certificate representing a
security.
(17) "Security entitlement" means the rights and property interest
of an entitlement holder with respect to a financial asset specified
in Chapter 5 (commencing with Section 8501).
(18) "Uncertificated security" means a security that is not
represented by a certificate.
(b) Other definitions applying to this division and the sections
in which they appear are:
Appropriate person. Section 8107.
Control. Section 8106.
Delivery. Section 8301.
Investment company security. Section 8103.
Issuer. Section 8201.
Overissue. Section 8210.
Protected purchaser. Section 8303.
Securities account. Section 8501.
(c) In addition, Division 1 (commencing with Section 1101)
contains general definitions and principles of construction and
interpretation applicable throughout this division.
(d) The characterization of a person, business, or transaction for
purposes of this division does not determine the characterization of
the person, business, or transaction for purposes of any other law,
regulation, or rule.
8103. (a) A share or similar equity interest issued by a
corporation, business trust, joint stock company, or similar entity
is a security.
(b) An "investment company security" is a security. "Investment
company security" means a share or similar equity interest issued by
an entity that is registered as an investment company under the
federal investment company laws, an interest in a unit investment
trust that is so registered, or a face-amount certificate issued by a
face-amount certificate company that is so registered. Investment
company security does not include an insurance policy or endowment
policy or annuity contract issued by an insurance company.
(c) An interest in a partnership or limited liability company is
not a security unless it is dealt in or traded on securities
exchanges or in securities markets, its terms expressly provide that
it is a security governed by this division, or it is an investment
company security. However, an interest in a partnership or limited
liability company is a financial asset if it is held in a securities
account.
(d) A writing that is a security certificate is governed by this
division and not by Division 3 (commencing with Section 3101), even
though it also meets the requirements of that division. However, a
negotiable instrument governed by Division 3 (commencing with Section
3101) is a financial asset if it is held in a securities account.
(e) An option or similar obligation issued by a clearing
corporation to its participants is not a security, but is a financial
asset.
(f) A commodity contract, as defined in paragraph (15) of
subdivision (a) of Section 9102, is not a security or a financial
asset.
8104. (a) A person acquires a security or an interest therein,
under this division, if either of the following applies:
(1) The person is a purchaser to whom a security is delivered
pursuant to Section 8301; or
(2) The person acquires a security entitlement to the security
pursuant to Section 8501.
(b) A person acquires a financial asset, other than a security, or
an interest therein, under this division, if the person acquires a
security entitlement to the financial asset.
(c) A person who acquires a security entitlement to a security or
other financial asset has the rights specified in Chapter 5
(commencing with Section 8501), but is a purchaser of any security,
security entitlement, or other financial asset held by the securities
intermediary only to the extent provided in Section 8503.
(d) Unless the context shows that a different meaning is intended,
a person who is required by other law, regulation, rule, or
agreement to transfer, deliver, present, surrender, exchange, or
otherwise put in the possession of another person a security or
financial asset satisfies that requirement by causing the other
person to acquire an interest in the security or financial asset
pursuant to subdivision (a) or (b).
8105. (a) A person has notice of an adverse claim if any of the
following applies:
(1) The person knows of the adverse claim.
(2) The person is aware of facts sufficient to indicate that there
is a significant probability that the adverse claim exists and
deliberately avoids information that would establish the existence of
the adverse claim.
(3) The person has a duty, imposed by statute or regulation, to
investigate whether an adverse claim exists, and the investigation so
required would establish the existence of the adverse claim.
(b) Having knowledge that a financial asset or interest therein is
or has been transferred by a representative imposes no duty of
inquiry into the rightfulness of a transaction and is not notice of
an adverse claim. However, a person who knows that a representative
has transferred a financial asset or interest therein in a
transaction that is, or whose proceeds are being used, for the
individual benefit of the representative or otherwise in breach of
duty has notice of an adverse claim.
(c) An act or event that creates a right to immediate performance
of the principal obligation represented by a security certificate or
sets a date on or after which the certificate is to be presented or
surrendered for redemption or exchange does not itself constitute
notice of an adverse claim except in the case of a transfer more than
either of the following:
(1) One year after a date set for presentment or surrender for
redemption or exchange.
(2) Six months after a date set for payment of money against
presentation or surrender of the certificate, if money was available
for payment on that date.
(d) A purchaser of a certificated security has notice of an
adverse claim if the security certificate is any of the following:
(1) Whether in bearer or registered form, has been endorsed "for
collection" or "for surrender" or for some other purpose not
involving transfer.
(2) Is in bearer form and has on it an unambiguous statement that
it is the property of a person other than the transferor, but the
mere writing of a name on the certificate is not such a statement.
(e) Filing of a financing statement under Division 9 (commencing
with Section 9101) is not notice of an adverse claim to a financial
asset.
8106. (a) A purchaser has "control" of a certificated security in
bearer form if the certificated security is delivered to the
purchaser.
(b) A purchaser has "control" of a certificated security in
registered form if the certificated security is delivered to the
purchaser, and either of the following applies:
(1) The certificate is endorsed to the purchaser or in blank by an
effective endorsement.
(2) The certificate is registered in the name of the purchaser,
upon original issue or registration of transfer by the issuer.
(c) A purchaser has "control" of an uncertificated security if
either of the following applies:
(1) The uncertificated security is delivered to the purchaser; or
(2) The issuer has agreed that it will comply with instructions
originated by the purchaser without further consent by the registered
owner.
(d) A purchaser has "control" of a security entitlement if any of
the following apply:
(1) The purchaser becomes the entitlement holder.
(2) The securities intermediary has agreed that it will comply
with entitlement orders originated by the purchaser without further
consent by the entitlement holder.
(3) Another person has control of the security entitlement on
behalf of the purchaser or, having previously acquired control of the
security entitlement, acknowledges that it has control on behalf of
the purchaser.
(e) If an interest in a security entitlement is granted by the
entitlement holder to the entitlement holder's own securities
intermediary, the securities intermediary has control.
(f) A purchaser who has satisfied the requirements of subdivision
(c) or (d) has control, even if the registered owner in the case of
subdivision (c) or the entitlement holder in the case of subdivision
(d) retains the right to make substitutions for the uncertificated
security or security entitlement, to originate instructions or
entitlement orders to the issuer or securities intermediary, or
otherwise to deal with the uncertificated security or security
entitlement.
(g) An issuer or a securities intermediary may not enter into an
agreement of the kind described in paragraph (2) of subdivision (c)
or paragraph (2) of subdivision (d) without the consent of the
registered owner or entitlement holder, but an issuer or a securities
intermediary is not required to enter into such an agreement even
though the registered owner or entitlement holder so directs. An
issuer or securities intermediary that has entered into such an
agreement is not required to confirm the existence of the agreement
to another party unless requested to do so by the registered owner or
entitlement holder.
8107. (a) "Appropriate person" means any of the following:
(1) With respect to an endorsement, the person specified by a
security certificate or by an effective special endorsement to be
entitled to the security.
(2) With respect to an instruction, the registered owner of an
uncertificated security.
(3) With respect to an entitlement order, the entitlement holder.
(4) If the person designated in paragraph (1), (2), or (3) is
deceased, the designated person's successor taking under other law or
the designated person's personal representative acting for the
estate of the decedent, or the beneficiary of a security, as defined
in subdivision (d) of Section 5501 of the Probate Code, registered in
beneficiary form, as defined in subdivision (a) of Section 5501 of
the Probate Code, if the beneficiary has survived the death of the
registered owner or all registered owners.
(5) If the person designated in paragraph (1), (2), or (3) lacks
capacity, the designated person's guardian, conservator, or other
similar representative who has power under other law to transfer the
security or financial asset.
(b) An endorsement, instruction, or entitlement order is effective
if it is made by any of the following:
(1) It is made by the appropriate person.
(2) It is made by a person who has power under the law of agency
to transfer the security or financial asset on behalf of the
appropriate person, including, in the case of an instruction or
entitlement order, a person who has control under paragraph (2) of
subdivision (c) or paragraph (2) of subdivision (d) of Section 8106.
(3) The appropriate person has ratified it or is otherwise
precluded from asserting its ineffectiveness.
(c) An endorsement, instruction, or entitlement order made by a
representative is effective even if:
(1) The representative has failed to comply with a controlling
instrument or with the law of the state having jurisdiction of the
representative relationship, including any law requiring the
representative to obtain court approval of the transaction.
(2) The representative's action in making the endorsement,
instruction, or entitlement order or using the proceeds of the
transaction is otherwise a breach of duty.
(d) If a security is registered in the name of or specially
endorsed to a person described as a representative, or if a
securities account is maintained in the name of a person described as
a representative, an endorsement, instruction, or entitlement order
made by the person is effective even though the person is no longer
serving in the described capacity.
(e) Effectiveness of an endorsement, instruction, or entitlement
order is determined as of the date the endorsement, instruction, or
entitlement order is made, and an endorsement, instruction, or
entitlement order does not become ineffective by reason of any later
change of circumstances.
8108. (a) A person who transfers a certificated security to a
purchaser for value warrants to the purchaser, and an endorser, if
the transfer is by endorsement, warrants to any subsequent purchaser,
all of the following:
(1) The certificate is genuine and has not been materially
altered.
(2) The transferor or endorser does not know of any fact that
might impair the validity of the security.
(3) There is no adverse claim to the security.
(4) The transfer does not violate any restriction on transfer.
(5) If the transfer is by endorsement, the endorsement is made by
an appropriate person, or if the endorsement is by an agent, the
agent has actual authority to act on behalf of the appropriate
person.
(6) The transfer is otherwise effective and rightful.
(b) A person who originates an instruction for registration of
transfer of an uncertificated security to a purchaser for value
warrants to the purchaser all of the following:
(1) The instruction is made by an appropriate person, or if the
instruction is by an agent, the agent has actual authority to act on
behalf of the appropriate person.
(2) The security is valid.
(3) There is no adverse claim to the security.
(4) At the time the instruction is presented to the issuer, all of
the following will be applicable:
(A) The purchaser will be entitled to the registration of
transfer.
(B) The transfer will be registered by the issuer free from all
liens, security interests, restrictions, and claims other than those
specified in the instruction.
(C) The transfer will not violate any restriction on transfer.
(D) The requested transfer will otherwise be effective and
rightful.
(c) A person who transfers an uncertificated security to a
purchaser for value and does not originate an instruction in
connection with the transfer warrants all of the following:
(1) The uncertificated security is valid.
(2) There is no adverse claim to the security.
(3) The transfer does not violate any restriction on transfer.
(4) The transfer is otherwise effective and rightful.
(d) A person who endorses a security certificate warrants all of
the following to the issuer:
(1) There is no adverse claim to the security.
(2) The endorsement is effective.
(e) A person who originates an instruction for registration of
transfer of an uncertificated security warrants all of the following
to the issuer:
(1) The instruction is effective.
(2) At the time the instruction is presented to the issuer the
purchaser will be entitled to the registration of transfer.
(f) A person who presents a certificated security for registration
of transfer or for payment or exchange warrants to the issuer that
the person is entitled to the registration, payment, or exchange, but
a purchaser for value and without notice of adverse claims to whom
transfer is registered warrants only that the person has no knowledge
of any unauthorized signature in a necessary endorsement.
(g) If a person acts as agent of another in delivering a
certificated security to a purchaser, the identity of the principal
was known to the person to whom the certificate was delivered, and
the certificate delivered by the agent was received by the agent from
the principal or received by the agent from another person at the
direction of the principal, the person delivering the security
certificate warrants only that the delivering person has authority to
act for the principal and does not know of any adverse claim to the
certificated security.
(h) A secured party who redelivers a security certificate
received, or after payment and on order of the debtor delivers the
security certificate to another person, makes only the warranties of
an agent under subdivision (g).
(i) Except as otherwise provided in subdivision (g), a broker
acting for a customer makes to the issuer and a purchaser the
warranties provided in subdivisions (a) to (f), inclusive. A broker
that delivers a security certificate to its customer, or causes its
customer to be registered as the owner of an uncertificated security,
makes to the customer the warranties provided in subdivision (a) or
(b), and has the rights and privileges of a purchaser under this
section. The warranties of and in favor of the broker acting as an
agent are in addition to applicable warranties given by and in favor
of the customer.
8109. (a) A person who originates an entitlement order to a
securities intermediary warrants all of the following to the
securities intermediary:
(1) The entitlement order is made by an appropriate person, or if
the entitlement order is by an agent, the agent has actual authority
to act on behalf of the appropriate person.
(2) There is no adverse claim to the security entitlement.
(b) A person who delivers a security certificate to a securities
intermediary for credit to a securities account or originates an
instruction with respect to an uncertificated security directing that
the uncertificated security be credited to a securities account
makes to the securities intermediary the warranties specified in
subdivision (a) or (b) of Section 8108.
(c) If a securities intermediary delivers a security certificate
to its entitlement holder or causes its entitlement holder to be
registered as the owner of an uncertificated security, the securities
intermediary makes to the entitlement holder the warranties
specified in subdivision (a) or (b) of Section 8108.
8110. (a) The local law of the issuer's jurisdiction, as specified
in subdivision (d), governs the following:
(1) The validity of a security.
(2) The rights and duties of the issuer with respect to
registration of transfer.
(3) The effectiveness of registration of transfer by the issuer.
(4) Whether the issuer owes any duties to an adverse claimant to a
security.
(5) Whether an adverse claim can be asserted against a person to
whom transfer of a certificated or uncertificated security is
registered or a person who obtains control of an uncertificated
security.
(b) The local law of the securities intermediary's jurisdiction,
as specified in subdivision (e), governs the following:
(1) Acquisition of a security entitlement from the securities
intermediary.
(2) The rights and duties of the securities intermediary and
entitlement holder arising out of a security entitlement.
(3) Whether the securities intermediary owes any duties to an
adverse claimant to a security entitlement.
(4) Whether an adverse claim can be asserted against a person who
acquires a security entitlement from the securities intermediary or a
person who purchases a security entitlement or interest therein from
an entitlement holder.
(c) The local law of the jurisdiction in which a security
certificate is located at the time of delivery governs whether an
adverse claim can be asserted against a person to whom the security
certificate is delivered.
(d) "Issuer's jurisdiction" means the jurisdiction under which the
issuer of the security is organized or, if permitted by the law of
that jurisdiction, the law of another jurisdiction specified by the
issuer. An issuer organized under the law of this state may specify
the law of another jurisdiction as the law governing the matters
specified in paragraphs (2) to (5), inclusive, of subdivision (a).
(e) The following rules determine a "securities intermediary's
jurisdiction" for purposes of this section:
(1) If an agreement between the securities intermediary and its
entitlement holder governing the securities account expressly
provides that a particular jurisdiction is the security intermediary'
s jurisdiction for purposes of this code, that jurisdiction is the
securities intermediary's jurisdiction.
(2) If paragraph (1) does not apply and an agreement between the
securities intermediary and its entitlement holder governing the
securities account expressly provides that the agreement is governed
by the law of a particular jurisdiction, that jurisdiction is the
securities intermediary's jurisdiction.
(3) If neither paragraph (1) nor paragraph (2) applies and an
agreement between the securities intermediary and its entitlement
holder governing the securities account expressly provides that the
securities account is maintained at an office in a particular
jurisdiction, that jurisdiction is the securities intermediary's
jurisdiction.
(4) If none of the preceding paragraphs applies, the securities
intermediary's jurisdiction is the jurisdiction in which the office
identified in an account statement as the office serving the
entitlement holder's account is located.
(5) If none of the preceding paragraphs applies, the securities
intermediary's jurisdiction is the jurisdiction in which the chief
executive office of the securities intermediary is located.
(f) A securities intermediary's jurisdiction is not determined by
the physical location of certificates representing financial assets,
or by the jurisdiction in which is organized the issuer of the
financial asset with respect to which an entitlement holder has a
security entitlement, or by the location of facilities for data
processing or other record keeping concerning the account.
8111. A rule adopted by a clearing corporation governing rights and
obligations among the clearing corporation and its participants in
the clearing corporation is effective even if the rule conflicts with
this division and affects another party who does not consent to the
rule.
8112. (a) The interest of a debtor in a certificated security may
be reached by a creditor only by actual seizure of the security
certificate by the officer making the attachment or levy, except as
otherwise provided in subdivision (d). However, a certificated
security for which the certificate has been surrendered to the issuer
may be reached by a creditor by legal process upon the issuer.
(b) The interest of a debtor in an uncertificated security may be
reached by a creditor only by legal process upon the issuer at its
chief executive office in the United States, except as otherwise
provided in subdivision (d).
(c) The interest of a debtor in a security entitlement may be
reached by a creditor only by legal process upon the securities
intermediary with whom the debtor's securities account is maintained,
except as otherwise provided in subdivision (d).
(d) The interest of a debtor in a certificated security for which
the certificate is in the possession of a secured party, or in an
uncertificated security registered in the name of a secured party, or
a security entitlement maintained in the name of a secured party,
may be reached by a creditor by legal process upon the secured party.
(e) A creditor whose debtor is the owner of a certificated
security, uncertificated security, or security entitlement is
entitled to aid from a court of competent jurisdiction, by injunction
or otherwise, in reaching the certificated security, uncertificated
security, or security entitlement or in satisfying the claim by means
allowed at law or in equity in regard to property that cannot
readily be reached by other legal process.
8113. A contract or modification of a contract for the sale or
purchase of a security is enforceable whether or not there is a
writing signed or record authenticated by a party against whom
enforcement is sought, even if the contract or modification is not
capable of performance within one year of its making.
8114. The following rules apply in an action on a certificated
security against the issuer:
(a) Unless specifically denied in the pleadings, each signature on
a security certificate or in a necessary endorsement is admitted.
(b) If the effectiveness of a signature is put in issue, the
burden of establishing effectiveness is on the party claiming under
the signature, but the signature is presumed to be genuine or
authorized.
(c) If signatures on a security certificate are admitted or
established, production of the certificate entitles a holder to
recover on it unless the defendant establishes a defense or a defect
going to the validity of the security.
(d) If it is shown that a defense or defect exists, the plaintiff
has the burden of establishing that the plaintiff or some person
under whom the plaintiff claims is a person against whom the defense
or defect cannot be asserted.
8115. A securities intermediary that has transferred a financial
asset pursuant to an effective entitlement order, or a broker or
other agent or bailee that has dealt with a financial asset at the
direction of its customer or principal, is not liable to a person
having an adverse claim to the financial asset, unless the securities
intermediary, or broker or other agent or bailee did one or more of
the following:
(1) Took the action after it had been served with an injunction,
restraining order, or other legal process enjoining it from doing so,
issued by a court of competent jurisdiction, and had a reasonable
opportunity to act on the injunction, restraining order, or other
legal process.
(2) Acted in collusion with the wrongdoer in violating the rights
of the adverse claimant.
(3) In the case of a security certificate that has been stolen,
acted with notice of the adverse claim.
8116. A securities intermediary that receives a financial asset and
establishes a security entitlement to the financial asset in favor
of an entitlement holder is a purchaser for value of the financial
asset. A securities intermediary that acquires a security
entitlement to a financial asset from another securities intermediary
acquires the security entitlement for value if the securities
intermediary acquiring the security entitlement establishes a
security entitlement to the financial asset in favor of an
entitlement holder.
8201. (a) With respect to an obligation on or a defense to a
security, an "issuer" includes a person that does any of the
following:
(1) Places or authorizes the placing of its name on a security
certificate, other than as authenticating trustee, registrar,
transfer agent, or the like, to evidence a share, participation, or
other interest in its property or in an enterprise, or to evidence
its duty to perform an obligation represented by the certificate.
(2) Creates a share, participation, or other interest in its
property or in an enterprise, or undertakes an obligation, that is an
uncertificated security.
(3) Directly or indirectly creates a fractional interest in its
rights or property, if the fractional interest is represented by a
security certificate.
(4) Becomes responsible for, or in place of, another person
described as an issuer in this section.
(b) With respect to an obligation on or defense to a security, a
guarantor is an issuer to the extent of its guaranty, whether or not
its obligation is noted on a security certificate.
(c) With respect to a registration of a transfer, issuer means a
person on whose behalf transfer books are maintained.
8202. (a) Even against a purchaser for value and without notice,
the terms of a certificated security include terms stated on the
certificate and terms made part 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 not conflict with terms
stated on the certificate. A reference under this subdivision does
not of itself charge a purchaser for value with notice of a defect
going to the validity of the security, even if the certificate
expressly states that a person accepting it admits notice. The terms
of an uncertificated security include those stated in any
instrument, indenture, or document or in a constitution, 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 a security
is not valid:
(1) 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 the hands of
a purchaser for value and without notice of the particular defect
unless the defect involves a violation of a constitutional provision.
In that case, the security is valid in the hands of a purchaser for
value and without notice of the defect, other than one who takes by
original issue.
(2) Paragraph (1) applies to an issuer that is a government or
governmental subdivision, agency, or instrumentality only if there
has been substantial compliance with the legal requirements governing
the issue or the issuer has received a substantial consideration for
the issue as a whole or for the particular security and a stated
purpose of the issue is one for which the issuer has power to borrow
money or issue the security.
(c) Except as otherwise provided in Section 8205, lack of
genuineness of a certificated security is a complete defense, even
against a purchaser for value and without notice.
(d) All other defenses of the issuer of a security, including
nondelivery and conditional delivery of a certificated security, are
ineffective against a purchaser for value who has taken the
certificated security without notice of the particular defense.
(e) 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 character of the security
that is the subject of the contract or in the plan or arrangement
pursuant to which the security is to be issued or distributed.
(f) If a security is held by a securities intermediary against
whom an entitlement holder has a security entitlement with respect to
the security, the issuer may not assert any defense that the issuer
could not assert if the entitlement holder held the security
directly.
8203. After an act or event, other than a call that has been
revoked, creating a right to immediate performance of the principal
obligation represented by a certificated security or setting a date
on or after which the security is to be presented or surrendered for
redemption or exchange, a purchaser is charged with notice of any
defect in its issue or defense of the issuer, if the act or event
either:
(1) Requires the payment of money, the delivery of a certificated
security, the registration of transfer of an uncertificated security,
or any of them on presentation or surrender of the security
certificate, the money or security is available on the date set for
payment or exchange, and the purchaser takes the security more than
one year after that date.
(2) Is not covered by paragraph (1) and the purchaser takes the
security more than two years after the date set for surrender or
presentation or the date on which performance became due.
8204. A restriction on transfer of a security imposed by the
issuer, even if otherwise lawful, is ineffective against a person
without knowledge of the restriction unless either of the following
applies:
(1) The security is certificated and the restriction is noted
conspicuously on the security certificate.
(2) The security is uncertificated and the registered owner has
been notified of the restriction.
8205. An unauthorized signature placed on a security certificate
before or in the course of issue is ineffective, but the signature is
effective in favor of a purchaser for value of the certificated
security if the purchaser is without notice of the lack of authority
and the signing has been done by one of the following:
(1) An authenticating trustee, registrar, transfer agent, or other
person entrusted by the issuer with the signing of the security
certificate or of similar security certificates, or the immediate
preparation for signing of any of them.
(2) An employee of the issuer, or of any of the persons listed in
paragraph (1), entrusted with responsible handling of the security
certificate.
8206. (a) If a security certificate contains the signatures
necessary to its issue or transfer but is incomplete in any other
respect, the following apply:
(1) Any person may complete it by filling in the blanks as
authorized.
(2) Even if the blanks are incorrectly filled in, the security
certificate as completed is enforceable by a purchaser who took it
for value and without notice of the incorrectness.
(b) A complete security certificate that has been improperly
altered, even if fraudulently, remains enforceable, but only
according to its original terms.
8207. (a) Before due presentment for registration of transfer of a
certificated security in registered form or of an instruction
requesting registration of transfer of an uncertificated security,
the issuer or indenture trustee may treat the registered owner as the
person exclusively entitled to vote, receive notifications, and
otherwise exercise all the rights and powers of an owner.
(b) This division does not affect the liability of the registered
owner of a security for a call, assessment, or the like.
8208. (a) A person signing a security certificate as authenticating
trustee, registrar, transfer agent, or the like, warrants all of the
following to a purchaser for value of the certificated security, if
the purchaser is without notice of a particular defect:
(1) The certificate is genuine.
(2) The person's own participation in the issue of the security is
within the person's capacity and within the scope of the authority
received by the person from the issuer.
(3) The person has reasonable grounds to believe that the
certificated security is in the form and within the amount the issuer
is authorized to issue.
(b) Unless otherwise agreed, a person signing under subdivision
(a) does not assume responsibility for the validity of the security
in other respects.
8209. A lien in favor of an issuer upon a certificated security is
valid against a purchaser only if the right of the issuer to the lien
is noted conspicuously on the security certificate.
8210. (a) In this section, "overissue" means the issue of
securities in excess of the amount the issuer has corporate power to
issue, but an overissue does not occur if appropriate action has
cured the overissue.
(b) Except as otherwise provided in subdivisions (c) and (d), the
provisions of this division that validate a security or compel its
issue or reissue do not apply to the extent that validation, issue,
or reissue would result in overissue.
(c) If an identical security not constituting an overissue is
reasonably available for purchase, a person entitled to issue or
validation may compel the issuer to purchase the security and deliver
it if certificated or register its transfer if uncertificated,
against surrender of any security certificate the person holds.
(d) If a security is not reasonably available for purchase, a
person entitled to issue or validation may recover from the issuer
the price the person or the last purchaser for value paid for it with
interest from the date of the person's demand.
8301. (a) Delivery of a certificated security to a purchaser occurs
when any of the following occur:
(1) The purchaser acquires possession of the security certificate.
(2) Another person, other than a securities intermediary, either
acquires possession of the security certificate on behalf of the
purchaser or, having previously acquired possession of the
certificate, acknowledges that it holds for the purchaser.
(3) A securities intermediary acting on behalf of the purchaser
acquires possession of the security certificate, only if the
certificate is in registered form and is (A) registered in the name
of the purchaser, (B) payable to the order of the purchaser, or (C)
specially endorsed to the purchaser by an effective endorsement and
has not been endorsed to the securities intermediary or in blank.
(b) Delivery of an uncertificated security to a purchaser occurs
when any of the following occur:
(1) The issuer registers the purchaser as the registered owner,
upon original issue or registration of transfer.
(2) Another person, other than a securities intermediary, either
becomes the registered owner of the uncertificated security on behalf
of the purchaser or, having previously become the registered owner,
acknowledges that it holds for the purchaser.
8302. (a) Except as otherwise provided in subdivisions (b) and (c),
a purchaser of a certificated or uncertificated security acquires
all rights in the security that the transferor had or had power to
transfer.
(b) A purchaser of a limited interest acquires rights only to the
extent of the interest purchased.
(c) A purchaser of a certificated security who as a previous
holder had notice of an adverse claim does not improve its position
by taking from a protected purchaser.
8303. (a) "Protected purchaser" means a purchaser of a certificated
or uncertificated security, or of an interest therein, who does all
of the following:
(1) Gives value.
(2) Does not have notice of any adverse claim to the security.
(3) Obtains control of the certificated or uncertificated
security.
(b) In addition to acquiring the rights of a purchaser, a
protected purchaser also acquires its interest in the security free
of any adverse claim.
8304. (a) An endorsement may be in blank or special. An
endorsement in blank includes an endorsement to bearer. A special
endorsement specifies to whom a security is to be transferred or who
has power to transfer it. A holder may convert a blank endorsement
to a special endorsement.
(b) An endorsement purporting to be only of part of a security
certificate representing units intended by the issuer to be
separately transferable is effective to the extent of the
endorsement.
(c) An endorsement, whether special or in blank, does not
constitute a transfer until delivery of the certificate on which it
appears or, if the endorsement is on a separate document, until
delivery of both the document and the certificate.
(d) If a security certificate in registered form has been
delivered to a purchaser without a necessary endorsement, the
purchaser may become a protected purchaser only when the endorsement
is supplied. However, against a transferor, a transfer is complete
upon delivery and the purchaser has a specifically enforceable right
to have any necessary endorsement supplied.
(e) An endorsement of a security certificate in bearer form may
give notice of an adverse claim to the certificate, but it does not
otherwise affect a right to registration that the holder possesses.
(f) Unless otherwise agreed, a person making an endorsement
assumes only the obligations provided in Section 8108 and not an
obligation that the security will be honored by the issuer.
8305. (a) If an instruction has been originated by an appropriate
person but is incomplete in any other respect, any person may
complete it as authorized and the issuer may rely on it as completed,
even though it has been completed incorrectly.
(b) Unless otherwise agreed, a person initiating an instruction
assumes only the obligations imposed by Section 8108 and not an
obligation that the security will be honored by the issuer.
8306. (a) A person who guarantees a signature of an endorser of a
security certificate warrants that at the time of signing all of the
following were true:
(1) The signature was genuine.
(2) The signer was an appropriate person to endorse, or if the
signature is by an agent, the agent had actual authority to act on
behalf of the appropriate person.
(3) The signer had legal capacity to sign.
(b) A person who guarantees a signature of the originator of an
instruction warrants that at the time of signing all of the following
were true:
(1) The signature was genuine.
(2) The signer was an appropriate person to originate the
instruction, or if the signature is by an agent, the agent had actual
authority to act on behalf of the appropriate person, if the person
specified in the instruction as the registered owner was, in fact,
the registered owner, as to which fact the signature guarantor does
not make a warranty.
(3) The signer had legal capacity to sign.
(c) A person who specially guarantees the signature of an
originator of an instruction makes the warranties of a signature
guarantor under subdivision (b) and also warrants that at the time
the instruction is presented to the issuer all of the following are
true:
(1) The person specified in the instruction as the registered
owner of the uncertificated security will be the registered owner.
(2) The transfer of the uncertificated security requested in the
instruction will be registered by the issuer free from all liens,
security interests, restrictions, and claims other than those
specified in the instruction.
(d) A guarantor under subdivisions (a) and (b) or a special
guarantor under subdivision (c) does not otherwise warrant the
rightfulness of the transfer.
(e) A person who guarantees an endorsement of a security
certificate makes the warranties of a signature guarantor under
subdivision (a) and also warrants the rightfulness of the transfer in
all respects.
(f) A person who guarantees an instruction requesting the transfer
of an uncertificated security makes the warranties of a special
signature guarantor under subdivision (c) and also warrants the
rightfulness of the transfer in all respects.
(g) An issuer may not require a special guaranty of signature, a
guaranty of endorsement, or a guaranty of instruction as a condition
to registration of transfer.
(h) The warranties under this section are made to a person taking
or dealing with the security in reliance on the guaranty, and the
guarantor is liable to the person for loss resulting from their
breach. An endorser or originator of an instruction whose signature,
endorsement, or instruction has been guaranteed is liable to a
guarantor for any loss suffered by the guarantor as a result of
breach of the warranties of the guarantor.
8307. Unless otherwise agreed, the transferor of a security on due
demand shall supply the purchaser with proof of authority to transfer
or with any other requisite necessary to obtain registration of the
transfer of the security, but if the transfer is not for value, a
transferor need not comply unless the purchaser pays the necessary
expenses. If the transferor fails within a reasonable time to comply
with the demand, the purchaser may reject or rescind the transfer.
8401. (a) If a certificated security in registered form is
presented to an issuer with a request to register transfer or an
instruction is presented to an issuer with a request to register
transfer of an uncertificated security, the issuer shall register the
transfer as requested if the following conditions are met:
(1) Under the terms of the security the person seeking
registration of transfer is eligible to have the security registered
in its name.
(2) The endorsement or instruction is made by the appropriate
person or by an agent who has actual authority to act on behalf of
the appropriate person.
(3) Reasonable assurance is given that the endorsement or
instruction is genuine and authorized (Section 8402).
(4) Any applicable law relating to the collection of taxes has
been complied with.
(5) The transfer does not violate any restriction on transfer
imposed by the issuer in accordance with Section 8204.
(6) A demand that the issuer not register transfer has not become
effective under Section 8403, or the issuer has complied with
subdivision (b) of Section 8403 but no legal process or indemnity
bond is obtained as provided in subdivision (d) of Section 8403.
(7) The transfer is in fact rightful or is to a protected
purchaser.
(b) If an issuer is under a duty to register a transfer of a
security, the issuer is liable to a person presenting a certificated
security or an instruction for registration or to the person's
principal for loss resulting from unreasonable delay in registration
or failure or refusal to register the transfer.
8402. (a) An issuer may require the following assurance that each
necessary endorsement or each instruction is genuine and authorized:
(1) In all cases, a guaranty of the signature of the person making
an endorsement or originating an instruction including, in the case
of an instruction, reasonable assurance of identity.
(2) If the endorsement is made or the instruction is originated by
an agent, appropriate assurance of actual authority to sign.
(3) If the endorsement is made or the instruction is originated by
a fiduciary pursuant to paragraph (4) or (5) of Section 8107,
appropriate evidence of appointment or incumbency.
(4) If there is more than one fiduciary, reasonable assurance that
all who are required to sign have done so.
(5) If the endorsement is made or the instruction is originated by
a person not covered by another provision of this subdivision,
assurance appropriate to the case corresponding as nearly as may be
to the provisions of this subdivision.
(b) An issuer may elect to require reasonable assurance beyond
that specified in this section.
(c) In this section:
(1) "Guaranty of the signature" means a guaranty signed by or on
behalf of a person reasonably believed by the issuer to be
responsible. An issuer may adopt standards with respect to
responsibility if they are not manifestly unreasonable.
(2) "Appropriate evidence of appointment or incumbency" means:
(A) In the case of a fiduciary appointed or qualified by a court,
a certificate issued by or under the direction or supervision of the
court or an officer thereof and dated within 60 days before the date
of presentation for transfer.
(B) In any other case, a copy of a document showing the
appointment or a certificate issued by or on behalf of a person
reasonably believed by an issuer to be responsible or, in the absence
of that document or certificate, other evidence the issuer
reasonably considers appropriate.
8403. (a) A person who is an appropriate person to make an
endorsement or originate an instruction may demand that the issuer
not register transfer of a security by communicating to the issuer a
notification that identifies the registered owner and the issue of
which the security is a part and provides an address for
communications directed to the person making the demand. The demand
is effective only if it is received by the issuer at a time and in a
manner affording the issuer reasonable opportunity to act on it.
(b) If a certificated security in registered form is presented to
an issuer with a request to register transfer or an instruction is
presented to an issuer with a request to register transfer of an
uncertificated security after a demand that the issuer not register
transfer has become effective, the issuer shall promptly communicate
to (A) the person who initiated the demand at the address provided in
the demand and (B) the person who presented the security for
registration of transfer or initiated the instruction requesting
registration of transfer a notification stating all of the following:
(1) The certificated security has been presented for registration
of transfer or the instruction for registration of transfer of the
uncertificated security has been received.
(2) A demand that the issuer not register transfer had previously
been received.
(3) The issuer will withhold registration of transfer for a period
of time stated in the notification in order to provide the person
who initiated the demand an opportunity to obtain legal process or an
indemnity bond.
(c) The period described in paragraph (3) of subdivision (b) may
not exceed 30 days after the date of communication of the
notification. A shorter period may be specified by the issuer if it
is not manifestly unreasonable.
(d) An issuer is not liable to a person who initiated a demand
that the issuer not register transfer for any loss the person suffers
as a result of registration of a transfer pursuant to an effective
endorsement or instruction if the person who initiated the demand
does not, within the time stated in the issuer's communication,
either:
(1) Obtain an appropriate restraining order, injunction, or other
process from a court of competent jurisdiction enjoining the issuer
from registering the transfer.
(2) File with the issuer an indemnity bond, sufficient in the
issuer's judgment to protect the issuer and any transfer agent,
registrar, or other agent of the issuer involved from any loss it or
they may suffer by refusing to register the transfer.
(e) This section does not relieve an issuer from liability for
registering transfer pursuant to an endorsement or instruction that
was not effective.
8404. (a) Except as otherwise provided in Section 8406, an issuer
is liable for wrongful registration of transfer if the issuer has
registered a transfer of a security to a person not entitled to it,
and the transfer was registered in any of the following
circumstances:
(1) Pursuant to an ineffective endorsement or instruction.
(2) After a demand that the issuer not register transfer became
effective under subdivision (a) of Section 8403(a) and the issuer did
not comply with subdivision (b) of Section 8403.
(3) After the issuer had been served with an injunction,
restraining order, or other legal process enjoining it from
registering the transfer, issued by a court of competent
jurisdiction, and the issuer had a reasonable opportunity to act on
the injunction, restraining order, or other legal process.
(4) By an issuer acting in collusion with the wrongdoer.
(b) An issuer that is liable for wrongful registration of transfer
under subdivision (a) on demand shall provide the person entitled to
the security with a like certificated or uncertificated security,
and any payments or distributions that the person did not receive as
a result of the wrongful registration. If an overissue would result,
the issuer's liability to provide the person with a like security is
governed by Section 8210.
(c) Except as otherwise provided in subdivision (a) or in a law
relating to the collection of taxes, an issuer is not liable to an
owner or other person suffering loss as a result of the registration
of a transfer of a security if registration was made pursuant to an
effective endorsement or instruction.
8405. (a) If an owner of a certificated security, whether in
registered or bearer form, claims that the certificate has been lost,
destroyed, or wrongfully taken, the issuer shall issue a new
certificate if the owner does all of the following:
(1) So requests before the issuer has notice that the certificate
has been acquired by a protected purchaser.
(2) Files with the issuer a sufficient indemnity bond.
(3) Satisfies other reasonable requirements imposed by the issuer.
(b) If, after the issue of a new security certificate, a protected
purchaser of the original certificate presents it for registration
of transfer, the issuer shall register the transfer unless an
overissue would result. In that case, the issuer's liability is
governed by Section 8210. In addition to any rights on the indemnity
bond, an issuer may recover the new certificate from a person to
whom it was issued or any person taking under that person, except a
protected purchaser.
8406. If a security certificate has been lost, apparently
destroyed, or wrongfully taken, and the owner fails to notify the
issuer of that fact within a reasonable time after the owner has
notice of it and the issuer registers a transfer of the security
before receiving notification, the owner may not assert against the
issuer a claim for registering the transfer under Section 8404 or a
claim to a new security certificate under Section 8405.
8407. A person acting as authenticating trustee, transfer agent,
registrar, or other agent for an issuer in the registration of a
transfer of its securities, in the issue of new security certificates
or uncertificated securities, or in the cancellation of surrendered
security certificates has the same obligation to the holder or owner
of a certificated or uncertificated security with regard to the
particular functions performed as the issuer has in regard to those
functions.
8501. (a) "Securities account" means an account to which a
financial asset is or may be credited in accordance with an agreement
under which the person maintaining the account undertakes to treat
the person for whom the account is maintained as entitled to exercise
the rights that comprise the financial asset.
(b) Except as otherwise provided in subdivisions (d) and (e), a
person acquires a security entitlement if a securities intermediary
does any of the following:
(1) Indicates by book entry that a financial asset has been
credited to the person's securities account.
(2) Receives a financial asset from the person or acquires a
financial asset for the person and, in either case, accepts it for
credit to the person's securities account.
(3) Becomes obligated under other law, regulation, or rule to
credit a financial asset to the person's securities account.
(c) If a condition of subdivision (b) has been met, a person has a
security entitlement even though the securities intermediary does
not itself hold the financial asset.
(d) If a securities intermediary holds a financial asset for
another person, and the financial asset is registered in the name of,
payable to the order of, or specially endorsed to the other person,
and has not been endorsed to the securities intermediary or in blank,
the other person is treated as holding the financial asset directly
rather than as having a security entitlement with respect to the
financial asset.
(e) Issuance of a security is not establishment of a security
entitlement.
8502. An action based on an adverse claim to a financial asset,
whether framed in conversion, replevin, constructive trust, equitable
lien, or other theory, may not be asserted against a person who
acquires a security entitlement under Section 8501 for value and
without notice of the adverse claim.
8503. (a) To the extent necessary for a securities intermediary to
satisfy all security entitlements with respect to a particular
financial asset, all interests in that financial asset held by the
securities intermediary are held by the securities intermediary for
the entitlement holders, are not property of the securities
intermediary, and are not subject to claims of creditors of the
securities intermediary, except as otherwise provided in Section
8511.
(b) An entitlement holder's property interest with respect to a
particular financial asset under subdivision (a) is a pro rata
property interest in all interests in that financial asset held by
the securities intermediary, without regard to the time the
entitlement holder acquired the security entitlement or the time the
securities intermediary acquired the interest in that financial
asset.
(c) An entitlement holder's property interest with respect to a
particular financial asset under subdivision (a) may be enforced
against the securities intermediary only by exercise of the
entitlement holder's rights under Sections 8505 to 8508, inclusive.
(d) An entitlement holder's property interest with respect to a
particular financial asset under subdivision (a) may be enforced
against a purchaser of the financial asset or interest therein only
if all of the following conditions are met:
(1) Insolvency proceedings have been initiated by or against the
securities intermediary.
(2) The securities intermediary does not have sufficient interests
in the financial asset to satisfy the security entitlements of all
of its entitlement holders to that financial asset.
(3) The securities intermediary violated its obligations under
Section 8504 by transferring the financial asset or interest therein
to the purchaser.
(4) The purchaser is not protected under subdivision (e). The
trustee or other liquidator, acting on behalf of all entitlement
holders having security entitlements with respect to a particular
financial asset, may recover the financial asset, or interest
therein, from the purchaser. If the trustee or other liquidator
elects not to pursue that right, an entitlement holder whose security
entitlement remains unsatisfied has the right to recover its
interest in the financial asset from the purchaser.
(e) An action based on the entitlement holder's property interest
with respect to a particular financial asset under subdivision (a),
whether framed in conversion, replevin, constructive trust, equitable
lien, or other theory, may not be asserted against any purchaser of
a financial asset or interest therein who gives value, obtains
control, and does not act in collusion with the securities
intermediary in violating the securities intermediary's obligations
under Section 8504.
8504. (a) A securities intermediary shall promptly obtain and
thereafter maintain a financial asset in a quantity corresponding to
the aggregate of all security entitlements it has established in
favor of its entitlement holders with respect to that financial
asset. The securities intermediary may maintain those financial
assets directly or through one or more other securities
intermediaries.
(b) Except to the extent otherwise agreed by its entitlement
holder, a securities intermediary may not grant any security
interests in a financial asset it is obligated to maintain pursuant
to subdivision (a).
(c) A securities intermediary satisfies the duty in subdivision
(a) if it does either of the following:
(1) The securities intermediary acts with respect to the duty as
agreed upon by the entitlement holder and the securities
intermediary.
(2) In the absence of agreement, the securities intermediary
exercises due care in accordance with reasonable commercial standards
to obtain and maintain the financial asset.
(d) This section does not apply to a clearing corporation that is
itself the obligor of an option or similar obligation to which its
entitlement holders have security entitlements.
8505. (a) A securities intermediary shall take action to obtain a
payment or distribution made by the issuer of a financial asset. A
securities intermediary satisfies the duty if it does either of the
following:
(1) The securities intermediary acts with respect to the duty as
agreed upon by the entitlement holder and the securities
intermediary.
(2) In the absence of agreement, the securities intermediary
exercises due care in accordance with reasonable commercial standards
to attempt to obtain the payment or distribution.
(b) A securities intermediary is obligated to its entitlement
holder for a payment or distribution made by the issuer of a
financial asset if the payment or distribution is received by the
securities intermediary.
8506. A securities intermediary shall exercise rights with respect
to a financial asset if directed to do so by an entitlement holder.
A securities intermediary satisfies the duty if it does either of the
following:
(1) The securities intermediary acts with respect to the duty as
agreed upon by the entitlement holder and the securities
intermediary.
(2) In the absence of agreement, the securities intermediary
either places the entitlement holder in a position to exercise the
rights directly or exercises due care in accordance with reasonable
commercial standards to follow the direction of the entitlement
holder.
8507. (a) A securities intermediary shall comply with an
entitlement order if the entitlement order is originated by the
appropriate person, the securities intermediary has had reasonable
opportunity to assure itself that the entitlement order is genuine
and authorized, and the securities intermediary has had reasonable
opportunity to comply with the entitlement order. A securities
intermediary satisfies the duty if it does either of the following:
(1) The securities intermediary acts with respect to the duty as
agreed upon by the entitlement holder and the securities
intermediary.
(2) In the absence of agreement, the securities intermediary
exercises due care in accordance with reasonable commercial standards
to comply with the entitlement order.
(b) If a securities intermediary transfers a financial asset
pursuant to an ineffective entitlement order, the securities
intermediary shall reestablish a security entitlement in favor of the
person entitled to it, and pay or credit any payments or
distributions that the person did not receive as a result of the
wrongful transfer. If the securities intermediary does not
reestablish a security entitlement, the securities intermediary is
liable to the entitlement holder for damages.
8508. A securities intermediary shall act at the direction of an
entitlement holder to change a security entitlement into another
available form of holding for which the entitlement holder is
eligible, or to cause the financial asset to be transferred to a
securities account of the entitlement holder with another securities
intermediary. A securities intermediary satisfies the duty if it
does either of the following:
(1) The securities intermediary acts as agreed upon by the
entitlement holder and the securities intermediary.
(2) In the absence of agreement, the securities intermediary
exercises due care in accordance with reasonable commercial standards
to follow the direction of the entitlement holder.
8509. (a) If the substance of a duty imposed upon a securities
intermediary by Sections 8504 to 8508, inclusive, is the subject of a
federal statute, regulation, or rule, compliance with that statute,
regulation, or rule satisfies the duty.
(b) To the extent that specific standards for the performance of
the duties of a securities intermediary or the exercise of the rights
of an entitlement holder are not specified by other statute,
regulation, or rule or by agreement between the securities
intermediary and entitlement holder, the securities intermediary
shall perform its duties and the entitlement holder shall exercise
its rights in a commercially reasonable manner.
(c) The obligation of a securities intermediary to perform the
duties imposed by Sections 8504 to 8508, inclusive, is subject to the
following:
(1) Rights of the securities intermediary arising out of a
security interest under a security agreement with the entitlement
holder or otherwise.
(2) Rights of the securities intermediary under other law,
regulation, rule, or agreement to withhold performance of its duties
as a result of unfulfilled obligations of the entitlement holder to
the securities intermediary.
(d) Sections 8504 to 8508, inclusive, do not require a securities
intermediary to take any action that is prohibited by other statute,
regulation, or rule.
8510. (a) In a case not covered by the priority rules in Division 9
(commencing with Section 9101) or the rules stated in subdivision
(c), an action based on an adverse claim to a financial asset or
security entitlement, whether framed in conversion, replevin,
constructive trust, equitable lien, or other theory, may not be
asserted against a person who purchases a security entitlement, or an
interest therein, from an entitlement holder if the purchaser gives
value, does not have notice of the adverse claim, and obtains
control.
(b) If an adverse claim could not have been asserted against an
entitlement holder under Section 8502, the adverse claim cannot be
asserted against a person who purchases a security entitlement, or an
interest therein, from the entitlement holder.
(c) In a case not covered by the priority rules in Division 9
(commencing with Section 9101), a purchaser for value of a security
entitlement, or an interest therein, who obtains control has priority
over a purchaser of a security entitlement, or an interest therein,
who does not obtain control. Except as otherwise provided in
subdivision (d), purchasers who have control rank according to
priority in time of any of the following:
(1) The purchaser's becoming the person for whom the securities
account, in which the security entitlement is carried, is maintained,
if the purchaser obtained control under paragraph (1) of subdivision
(d) of Section 8106.
(2) The securities intermediary's agreement to comply with the
purchaser's entitlement orders with respect to security entitlements
carried or to be carried in the securities account in which the
security entitlement is carried, if the purchaser obtained control
under paragraph (2) of subdivision (d) of Section 8106.
(3) If the purchaser obtained control through another person under
paragraph (3) of subdivision (d) of Section 8106, the time on which
priority would be based under this subdivision if the other person
were the secured party.
(d) A securities intermediary as purchaser has priority over a
conflicting purchaser who has control unless otherwise agreed by the
securities intermediary.
8511. (a) Except as otherwise provided in subdivisions (b) and (c),
if a securities intermediary does not have sufficient interests in a
particular financial asset to satisfy both its obligations to
entitlement holders who have security entitlements to that financial
asset and its obligation to a creditor of the securities intermediary
who has a security interest in that financial asset, the claims of
entitlement holders, other than the creditor, have priority over the
claim of the creditor.
(b) A claim of a creditor of a securities intermediary who has a
security interest in a financial asset held by a securities
intermediary has priority over claims of the securities intermediary'
s entitlement holders who have security entitlements with respect to
that financial asset if the creditor has control over the financial
asset.
(c) If a clearing corporation does not have sufficient financial
assets to satisfy both its obligations to entitlement holders who
have security entitlements with respect to a financial asset and its
obligation to a creditor of the clearing corporation who has a
security interest in that financial asset, the claim of the creditor
has priority over the claims of entitlement holders.
8601. This division becomes operative January 1, 1997.
8603. (a) This division does not affect an action or proceeding
commenced before this division becomes operative.
(b) If a security interest in a security is perfected at the date
this division becomes operative, and the action by which the security
interest was perfected would suffice to perfect a security interest
under this division, no further action is required to continue
perfection. If a security interest in a security is perfected at the
date this division takes effect but the action by which the security
interest was perfected would not suffice to perfect a security
interest under this division, the security interest remains perfected
for a period of four months after the operative date and continues
perfected thereafter if appropriate action to perfect under this
division is taken within that period. If a security interest is
perfected at the date this division becomes operative and the
security interest can be perfected by filing under Division 9
(commencing with Section 9101), a financing statement signed by the
secured party instead of the debtor may be filed within that period
to continue perfection or thereafter to perfect and that financing
statement shall contain a statement that it is being filed pursuant
to this section.