47-8202. Issuer's responsibility and defenses;
notice of defect or defense
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 subsection 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 of this subsection 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 47-8205, 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.
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