(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 (a) 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, ordin
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(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 (a) 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 (b) 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 4-8-205, 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.