§ 26-1-8.1-202 — Terms of security; rules on validity; issuer's defenses; cancellation of contracts

Indiana § 26-1-8.1-202

• Jurisdiction: Indiana
• Title 26: COMMERCIAL LAW
• Art. 1: UNIFORM COMMERCIAL CODE
• Ch. 8.1: Investment Securities

Text

(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, a statute, an ordinance, a rule, a
regulation, an 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, a statute, an ordinance, a
rule, a regulation, an order, or the like, under 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 a security 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) Subdivision (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 IC 26-1-8.1-205, 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 under 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.

Legislative History

As added by P.L.247-1995, SEC.10.