PRINTER'S NO. 2335
No. 1826 Session of 1989
INTRODUCED BY BORTNER, CALTAGIRONE, MOEHLMANN, McVERRY,
G. SNYDER, YANDRISEVITS, HAGARTY, McNALLY AND HECKLER,
JUNE 30, 1989
REFERRED TO COMMITTEE ON JUDICIARY, JUNE 30, 1989
AN ACT
1 Amending Title 13 (Commercial Code) of the Pennsylvania
2 Consolidated Statutes, conforming the text of the title to
3 the current official text of the Uniform Commercial Code
4 relating to uncertificated securities.
5 The General Assembly of the Commonwealth of Pennsylvania
6 hereby enacts as follows:
7 Section 1. Short title.--This act shall be known and may be
8 cited as the 1977 UCC Investment Securities and Related Sections
9 Amendments Act.
10 Section 2. Legislative findings.--The General Assembly finds
11 and determines:
12 (1) That the 1977 Amendments to Division 8 of the
13 Uniform Commercial Code relating to uncertificated securities
14 have been adopted by the states of Arkansas, California,
15 Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho,
16 Illinois, Indiana, Kansas, Kentucky, Maine, Maryland,
17 Massachusetts, Michigan, Minnesota, Montana, Nevada, New
18 Hampshire, New Mexico, New York, North Dakota, Ohio,
1 Oklahoma, Oregon, Rhode Island, South Dakota, Tennessee,
2 Texas, Virginia, Washington, West Virginia, Wisconsin and
3 Wyoming and the District of Columbia.
4 (2) The public interest requires that Pennsylvania
5 conform its law to the 1977 uniform text of the Uniform
6 Commercial Code relating to uncertificated securities.
7 Section 3. Amendment of Title 13.--Sections 1201
8 (definitions of "bearer," "delivery" and "holder"), 5114(b)(1),
9 8102, 8103, 8104, 8105, 8106, 8107, 8201, 8202, 8203, 8204,
10 8205, 8206, 8207, 8208, 8301, 8302, 8303, 8304, 8305, 8306,
11 8307, 8308, 8309, 8310, 8311, 8312, 8313, 8314, 8315, 8316,
12 8317, 8318, 8319, 8320, 8401, 8402, 8403, 8404, 8405 and 8406
13 and the heading of Chapter 83 of Title 13 of the Pennsylvania
14 Consolidated Statutes are amended and sections 8108, 8321, 8407
15 and 8408 are added to read:
16 § 1201. General definitions.
17 Subject to additional definitions contained in the subsequent
18 provisions of this title which are applicable to specific
19 provisions of this title, the following words and phrases when
20 used in this title shall have, unless the context clearly
21 indicates otherwise, the meanings given to them in this section:
22 * * *
23 "Bearer." The person in possession of an instrument,
24 document of title, or certificated security payable to bearer or
25 indorsed in blank.
26 * * *
27 "Delivery." With respect to instruments, documents of title,
28 chattel paper or certificated securities, means voluntary
29 transfer of possession.
30 * * *
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1 "Holder." A person who is in possession of a document of
2 title or an instrument or [an] a certificated investment
3 security drawn, issued or indorsed to him or to his order or to
4 bearer or in blank.
5 * * *
6 § 5114. Duty and privilege of issuer to honor; right to
7 reimbursement.
8 * * *
9 (b) Nonconforming document or fraud.--Unless otherwise
10 agreed when documents appear on their face to comply with the
11 terms of a credit but a required document does not in fact
12 conform to the warranties made on negotiation or transfer of a
13 document of title (section 7507) or of a certificated security
14 (section 8306) or is forged or fraudulent or there is fraud in
15 the transaction:
16 (1) the issuer must honor the draft or demand for
17 payment if honor is demanded by a negotiating bank or other
18 holder of the draft or demand which has taken the draft or
19 demand under the credit and under circumstances which would
20 make it a holder in due course (section 3302) and in an
21 appropriate case would make it a person to whom a document of
22 title has been duly negotiated (section 7502) or a bona fide
23 purchaser of a certificated security (section 8302); and
24 * * *
25 § 8102. Definitions and index of definitions.
26 (a) Definitions.--The following words and phrases when used
27 in this division shall have, unless the context clearly
28 indicates otherwise, the meanings given to them in this
29 subsection:
30 "Certificated security."
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1 (1) A share, participation or other interest in property
2 of or an enterprise of the issuer or an obligation of the
3 issuer which is:
4 (i) represented by an instrument issued in bearer or
5 registered form;
6 (ii) of a type commonly dealt in on securities
7 exchanges or markets or commonly recognized in any area
8 in which it is issued or dealt in as a medium for
9 investment; and
10 (iii) either one of a class or series or by its
11 terms divisible into a class or series of shares,
12 participations, interests or obligations.
13 (2) If a partnership interest in a limited partnership
14 is evidenced by a certificate of partnership interest, the
15 certificate is a certificated security.
16 "Clearing corporation." A corporation registered as a
17 "clearing agency" under the Federal securities laws or a
18 corporation:
19 (1) at least 90% of [the] whose capital stock [of which]
20 is held by or for one or more [persons (other than
21 individuals)] organizations, none of which, other than a
22 national securities exchange or association, holds in excess
23 of 20% of the capital stock of the corporation, and each of
24 [whom] which is:
25 (i) [is] subject to supervision or regulation
26 pursuant to the provisions of Federal or State banking
27 laws or State insurance laws;
28 (ii) [is] a broker or dealer or investment company
29 registered under the [Securities Exchange Act of 1934 or
30 the Investment Company Act of 1940] Federal securities
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1 laws; or
2 (iii) [is] a national securities exchange or
3 association registered under [a statute of the United
4 States such as the Securities Exchange Act of 1934] the
5 Federal securities laws;
6 and [none of whom, other than a national securities exchange
7 or association, holds in excess of 20% of the capital stock
8 of such corporation; and]
9 (2) any remaining capital stock of which is held by
10 individuals who have purchased [such capital stock] it at or
11 prior to the time of their taking office as directors of
12 [such] the corporation and who have purchased only so much of
13 such capital stock as [may be] is necessary to permit them to
14 qualify as [such] directors.
15 "Custodian bank." [Any] A bank or trust company [which] that
16 is supervised and examined by State or Federal authority having
17 supervision over banks and [which] is acting as custodian for a
18 clearing corporation.
19 ["Security."
20 (1) A "security" is an instrument which:
21 (i) is issued in bearer or registered form;
22 (ii) is of a type commonly dealt in upon securities
23 exchanges or markets or commonly recognized in any area
24 in which it is issued or dealt in as a medium for
25 investment;
26 (iii) is either one of a class or series or by its
27 terms is divisible into a class or series of instruments;
28 and
29 (iv) evidences a share, participation or other
30 interest in property or in an enterprise or evidences an
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1 obligation of the issuer.]
2 "Security." A security is either a certificated or an
3 uncertificated security:
4 (1) If a security is certificated, the terms "security"
5 and "certificated security" may mean either the intangible
6 interest, the instrument representing that interest, or both,
7 as the context requires.
8 (2) A writing [which] that is a certificated security is
9 governed by this division and not by Division 3 (relating to
10 commercial paper) even though it also meets the requirements
11 of that division. This division does not apply to money.
12 (3) If a certificated security has been retained by or
13 surrendered to the issuer or its transfer agent for reasons
14 other than registration of transfer, other temporary purpose,
15 payment, exchange or acquisition by the issuer, that security
16 shall be treated as an uncertificated security for purposes
17 of this division.
18 (4) A certificated security is in "registered form"
19 [when] if:
20 (i) it specifies a person entitled to the security
21 or to the rights it [evidences] represents; and [when]
22 (ii) its transfer may be registered upon books
23 maintained for that purpose by or on behalf of [an] the
24 issuer or the security so states.
25 [(4)] (5) A certificated security is in "bearer form"
26 [when] if it runs to bearer according to its terms and not by
27 reason of any indorsement.
28 "Subsequent purchaser." A person who takes other than by
29 original issue.
30 "Uncertificated security."
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1 (1) A share, participation or other interest in property
2 or an enterprise of the issuer or an obligation of the issuer
3 which is:
4 (i) not represented by an instrument and the
5 transfer of which is registered upon books maintained for
6 that purpose by or on behalf of the issuer;
7 (ii) of a type commonly dealt in on securities
8 exchanges or markets; and
9 (iii) either one of a class or series or by its
10 terms divisible into a class or series of shares,
11 participations, interests or obligations.
12 (2) Any partnership interest in a limited partnership
13 which is not evidenced by a certificated security is an
14 uncertificated security only if the partnership interest is
15 approved for trading on a national securities exchange
16 registered under the Federal securities laws or for quotation
17 in the automated quotation system of a national securities
18 association registered under the Federal securities laws.
19 (b) Index of other definitions.--Other definitions applying
20 to this division or to specified chapters thereof and the
21 sections in which they appear are:
22 "Adverse claim." Section [8301] 8302.
23 "Bona fide purchaser." Section 8302.
24 "Broker." Section 8303.
25 "Debtor." Section 9105.
26 "Financial intermediary." Section 8313.
27 "Guarantee of the signature." Section 8402.
28 "Initial transaction statement." Section 8408.
29 "Instruction." Section 8308.
30 "Intermediary bank." Section 4105.
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1 "Issuer." Section 8201.
2 "Overissue." Section 8104.
3 "Secured party." Section 9105.
4 "Security agreement." Section 9105.
5 (c) Applicability of general definitions and principles.--In
6 addition Division 1 (relating to general provisions) contains
7 general definitions and principles of construction and
8 interpretation applicable throughout this division.
9 § 8103. Lien of issuer.
10 A lien upon a security in favor of an issuer thereof is valid
11 against a purchaser only if:
12 (1) the security if certificated and the right of the
13 issuer to [such] the lien is noted conspicuously [on the
14 security.] thereon; or
15 (2) the security is uncertificated and a notation of the
16 right of the issuer to the lien is contained in the initial
17 transaction statement sent to the purchaser or, if his
18 interest is transferred to him other than by registration of
19 transfer, pledge or release, the initial transaction
20 statement sent to the registered owner or the registered
21 pledgee.
22 § 8104. Effect of overissue; "overissue."
23 (a) General rule.--The provisions of this division which
24 validate a security or compel its issue or reissue do not apply
25 to the extent that validation, issue or reissue would result in
26 overissue; but, if:
27 (1) [if] an identical security which does not constitute
28 an overissue is reasonably available for purchase, the person
29 entitled to issue or validation may compel the issuer to
30 purchase [and deliver such a] the security [to] for him and
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1 either to deliver a certificated security or to register the
2 transfer of an uncertificated security to him against
3 surrender of [the] any certificated security [, if any,
4 which] he holds; or
5 (2) [if] a security is not so available for purchase,
6 the person entitled to issue or validation may recover from
7 the issuer the price he or the last purchaser for value paid
8 for it with interest from the date of his demand.
9 (b) Definition of "overissue".--"Overissue" means the issue
10 of securities in excess of the amount [which] the issuer has
11 corporate power to issue.
12 § 8105. [Securities] Certificated securities negotiable;
13 statements and instructions not negotiable;
14 presumptions.
15 (a) [Securities] Certificated securities negotiable.--
16 [Securities] Certificated securities governed by this division
17 are negotiable instruments.
18 (b) Statements not negotiable.--Statements (section 8408),
19 notices or the like sent by the issuer of uncertificated
20 securities and instructions (section 8308) are neither
21 negotiable instruments nor certificated securities.
22 (c) Presumptions and burden of proof.--In any action on a
23 security:
24 (1) unless specifically denied in the pleadings, each
25 signature on [the] a certificated security [or], in a
26 necessary indorsement, on an initial transaction statement or
27 on an instruction is admitted;
28 (2) [when] if the effectiveness of a signature is put in
29 issue, the burden of establishing it is on the party claiming
30 under the signature, but the signature is presumed to be
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1 genuine or authorized;
2 (3) [when] if signatures on a certificated security are
3 admitted or established, production of the [instrument]
4 security entitles a holder to recover on it unless the
5 defendant establishes a defense or a defect going to the
6 validity of the security; [and]
7 (4) if signatures on an initial transaction statement
8 are admitted or established, the facts stated in the
9 statement are presumed to be true as of the time of its
10 issuance; and
11 (5) after it is shown that a defense or defect exists
12 the plaintiff has the burden of establishing that he or some
13 person under whom he claims is a person against whom the
14 defense or defect is ineffective (section 8202 [(relating to
15 responsibility and defenses of issuer; notice of defect or
16 defense)]).
17 § 8106. Applicability.
18 The law (including the conflict of laws rules) of the
19 jurisdiction of organization of the issuer governs the validity
20 of a security, the effectiveness of registration by the issuer,
21 and the rights and duties of the issuer with respect to:
22 (1) registration of transfer [are governed by the law
23 (including the conflict of laws rules) of the jurisdiction of
24 organization of the issuer.] of a certificated security;
25 (2) registration of transfer, pledge or release of an
26 uncertificated security; and
27 (3) sending of statements of uncertificated securities.
28 § 8107. Securities [deliverable] transferable; action for
29 price.
30 (a) Securities [deliverable] transferable.--Unless otherwise
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1 agreed and subject to any applicable law or regulation
2 respecting short sales, a person obligated to [deliver] transfer
3 securities may [deliver] transfer any certificated security of
4 the specified issue in bearer form or registered in the name of
5 the transferee, or indorsed to him or in blank, or he may
6 transfer an equivalent uncertificated security to the transferee
7 or a person designated by the transferee.
8 (b) Action for price of securities.--[When] If the buyer
9 fails to pay the price as it comes due under a contract of sale,
10 the seller may recover the price of:
11 (1) [of] certificated securities accepted by the buyer;
12 [and]
13 (2) uncertificated securities that have been transferred
14 to the buyer or a person designated by the buyer; and
15 (3) [of] other securities if efforts at their resale
16 would be unduly burdensome or if there is no readily
17 available market for their resale.
18 § 8108. Registration of pledge and release of uncertificated
19 securities.
20 A security interest in an uncertificated security may be
21 evidenced by the registration of pledge to the secured party or
22 a person designated by him. There can be no more than one
23 registered pledge of an uncertificated security at any time. The
24 registered owner of an uncertificated security is the person in
25 whose name the security is registered, even if the security is
26 subject to a registered pledge. The rights of a registered
27 pledgee of an uncertificated security under this division are
28 terminated by the registration of release.
29 § 8201. "Issuer."
30 (a) General rule.--With respect to obligations on or
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1 defenses to a security, "issuer" includes a person who:
2 (1) places or authorizes the placing of his name on a
3 certificated security (otherwise than as authenticating
4 trustee, registrar, transfer agent or the like) to evidence
5 that it represents a share, participation or other interest
6 in his property or in an enterprise or to evidence his duty
7 to perform an obligation [evidenced] represented by the
8 certificated security;
9 (2) creates shares, participations or other interests in
10 his property or in an enterprise or undertakes obligations,
11 which shares, participations, interests or obligations are
12 uncertificated securities;
13 (3) directly or indirectly creates fractional interests
14 in his rights or property, which fractional interests are
15 [evidenced] represented by certificated securities; or
16 [(3)] (4) becomes responsible for or in place of any
17 other person described as an issuer in this section.
18 (b) Guarantor.--With respect to obligations on or defenses
19 to a security, a guarantor is an issuer to the extent of his
20 guaranty, whether or not his obligation is noted on [the] a
21 certificated security or on statements of uncertificated
22 securities sent pursuant to section 8408 (relating to statements
23 of uncertificated securities).
24 (c) Person for whom transfer books maintained.--With respect
25 to registration of a transfer, pledge or release (Chapter 84),
26 "issuer" means a person on whose behalf transfer books are
27 maintained.
28 § 8202. Responsibility and defenses of issuer; notice of defect
29 or defense.
30 (a) Terms included in security.--Even against a purchaser
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1 for value and without notice, the terms of a security include:
2 (1) if the security is certificated, those stated on the
3 security [and];
4 (2) if the security is uncertificated, those contained
5 in the initial transaction statement sent to such purchaser,
6 or, if his interest is transferred to him other than by
7 registration of transfer, pledge or release, the initial
8 transaction statement sent to the registered owner or
9 registered pledgee; and
10 (3) those made part of the security by reference, on the
11 certificated security or in the initial transaction
12 statement, to another instrument, indenture or document or to
13 a constitution, statute, ordinance, rule, regulation, order
14 or the like, to the extent that the terms [so] referred to do
15 not conflict with the [stated] terms stated on the
16 certificated security or contained in the statement.
17 [Such a] A reference under paragraph (3) does not of itself
18 charge a purchaser for value with notice of a defect going to
19 the validity of the security even though the certificated
20 security or statement expressly states that a person accepting
21 it admits [such] notice.
22 (b) Defect affecting validity of security.--
23 [(1)] A certificated security in the hands of a
24 purchaser for value or an uncertificated security as to which
25 an initial transaction statement has been sent to a purchaser
26 for value, other than [one] a security issued by a government
27 or governmental agency or unit, even though issued with a
28 defect going to its validity, is valid [in the hands of a]
29 with respect to the purchaser [for value and] if he is
30 without notice of the particular defect unless the defect
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1 involves a violation of constitutional provisions, in which
2 case the security is valid [in the hands of] with respect to
3 a subsequent purchaser for value and without notice of the
4 defect.
5 [(2) The rule of paragraph (1)] This subsection applies
6 to an issuer [which] that is a government or governmental
7 agency or unit only if either there has been substantial
8 compliance with the legal requirements governing the issue or
9 the issuer has received a substantial consideration for the
10 issue as a whole or for the particular security and a stated
11 purpose of the issue is one for which the issuer has power to
12 borrow money or issue the security.
13 (c) Lack of genuineness as complete defense.--Except as
14 [otherwise] provided in the case of certain unauthorized
15 signatures [on issue] (section 8205), lack of genuineness of a
16 certificated security or an initial transaction statement is a
17 complete defense, even against a purchaser for value and without
18 notice.
19 (d) Defenses ineffective against purchaser for value without
20 notice.--All other defenses of the issuer of a certificated or
21 uncertificated security, including nondelivery and conditional
22 delivery of [the] a certificated security, are ineffective
23 against a purchaser for value who has taken without notice of
24 the particular defense.
25 (e) Right to cancel certain contracts unaffected.--Nothing
26 in this section shall be construed to affect the right of a
27 party to a "when, as and if issued" or a "when distributed"
28 contract to cancel the contract in the event of a material
29 change in the character of the security [which] that is the
30 subject of the contract or in the plan or arrangement pursuant
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1 to which [such] the security is to be issued or distributed.
2 § 8203. Staleness as notice of defects or defenses.
3 (a) General rule.--After an act or event [which creates]
4 creating a right to immediate performance of the principal
5 obligation [evidenced] represented by [the] a certificated
6 security or [which] that sets a date on or after which the
7 security is to be presented or surrendered for redemption or
8 exchange, a purchaser is charged with notice of any defect in
9 its issue or defense of the issuer if:
10 (1) [if] the act or event is one requiring the payment
11 of money [or], the delivery of certificated securities, the
12 registration of transfer of uncertificated securities, or
13 [both] any of these on presentation or surrender of the
14 certificated security [and such], the funds or securities are
15 available on the date set for payment or exchange, and he
16 takes the security more than one year after that date; and
17 (2) [if] the act or event is not covered by paragraph
18 (1) and he takes the security more than two years after the
19 date set for surrender or presentation or the date on which
20 [such] performance became due.
21 (b) Exception.--A call [which] that has been revoked is not
22 within subsection (a).
23 § 8204. Effect of restrictions by issuer on transfer.
24 [Unless noted conspicuously on the security a] A restriction
25 on transfer of a security imposed by the issuer, even though
26 otherwise lawful, is ineffective [except] against [a] any person
27 [with] without actual knowledge of it unless:
28 (1) the security is certificated and the restriction is
29 noted conspicuously thereon; or
30 (2) the security is uncertificated and a notation of the
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1 restriction is contained in the initial transaction statement
2 sent to the person or, if his interest is transferred to him
3 other than by registration of transfer, pledge or release,
4 the initial transaction statement sent to the registered
5 owner or the registered pledgee.
6 § 8205. Effect of unauthorized signature on [issue]
7 certificated security or initial transaction
8 statement.
9 An unauthorized signature placed on a certificated security
10 prior to or in the course of issue or placed on an initial
11 transaction statement is ineffective [except that], but the
12 signature is effective in favor of a purchaser for value [and]
13 of the certificated security or a purchaser for value of an
14 uncertificated security to whom such initial transaction
15 statement has been sent, if the purchaser is without notice of
16 the lack of authority [if] and the signing has been done by:
17 (1) an authenticating trustee, registrar, transfer agent
18 or other person entrusted by the issuer with the signing of
19 the security [or], of similar securities or [their] of
20 initial transaction statements or the immediate preparation
21 for signing of any of them; or
22 (2) an employee of the issuer, or of any of the
23 foregoing, entrusted with responsible handling of the
24 security or initial transaction statement.
25 § 8206. Completion or alteration of [instrument] certificated
26 security or initial transaction statement.
27 (a) Completion of certificated security [containing
28 necessary signatures.--Where a].--If a certificated security
29 contains the signatures necessary to its issue or transfer but
30 is incomplete in any other respect:
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1 (1) any person may complete it by filling in the blanks
2 as authorized; and
3 (2) even though the blanks are incorrectly filled in,
4 the security as completed is enforceable by a purchaser who
5 took it for value and without notice of [such] the
6 incorrectness.
7 (b) Enforceability of improperly altered certificated
8 security.--A complete certificated security [which] that has
9 been improperly altered, even though fraudulently, remains
10 enforceable but only according to its original terms.
11 (c) Completion of initial transaction statement.--If an
12 initial transaction statement contains the signatures necessary
13 to its validity, but is incomplete in any other respect:
14 (1) any person may complete it by filling in the blanks
15 as authorized; and
16 (2) even though the blanks are incorrectly filled in,
17 the statement as completed is effective in favor of the
18 person to whom it is sent if he purchased the security
19 referred to therein for value and without notice of the
20 incorrectness.
21 (d) Effectiveness of improperly altered initial transaction
22 statement.--A complete initial transaction statement that has
23 been improperly altered, even though fraudulently, is effective
24 in favor of a purchaser to whom it has been sent, but only
25 according to its original terms.
26 § 8207. Rights and duties of issuer with respect to registered
27 owners and registered pledges.
28 (a) [General rule] Registered owner of certificated
29 security.--Prior to due presentment for registration of transfer
30 of a certificated security in registered form, the issuer or
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1 indenture trustee may treat the registered owner as the person
2 exclusively entitled to vote, to receive notifications and
3 otherwise to exercise all the rights and powers of an owner.
4 (b) Registered owner of uncertificated security.--Subject to
5 the provisions of subsections (c), (d) and (f), the issuer or
6 indenture trustee may treat the registered owner of an
7 uncertificated security as the person exclusively entitled to
8 vote, to receive notifications and otherwise to exercise all the
9 rights and powers of an owner.
10 (c) Registered owner of uncertificated security subject to
11 registered pledge.--The registered owner of an uncertificated
12 security that is subject to a registered pledge is not entitled
13 to registration of transfer prior to the due presentment to the
14 issuer of a release instruction. The exercise of conversion
15 rights with respect to a convertible uncertificated security is
16 a transfer within the meaning of this section.
17 (d) Transfer instructions from registered pledgee of
18 uncertificated security.--Upon due presentment of a transfer
19 instruction from the registered pledgee of an uncertificated
20 security, the issuer shall:
21 (1) register the transfer of the security to the new
22 owner free of pledge, if the instruction specifies a new
23 owner (who may be the registered pledgee) and does not
24 specify a pledgee;
25 (2) register the transfer of the security to the new
26 owner subject to the interest of the existing pledgee, if the
27 instruction specifies a new owner and the existing pledgee;
28 or
29 (3) register the release of the security from the
30 existing pledge and register the pledge of the security to
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1 the other pledgee, if the instruction specifies the existing
2 owner and another pledgee.
3 (e) Continuity of perfection of security interest.--
4 Continuity of perfection of a security interest is not broken by
5 registration of transfer under subsection (d)(2) or by
6 registration of release and pledge under subsection (d)(3), if
7 the security interest is assigned.
8 (f) Uncertificated security subject to registered pledge.--
9 If an uncertificated security is subject to a registered pledge:
10 (1) any uncertificated securities issued in exchange for
11 or distributed with respect to the pledged security shall be
12 registered subject to the pledge;
13 (2) any certificated securities issued in exchange for
14 or distributed with respect to the pledged security shall be
15 delivered to the registered pledgee; and
16 (3) any money paid in exchange for or in redemption of
17 part or all of the security shall be paid to the registered
18 pledgee.
19 (g) Liability of registered owner for calls, etc.,
20 unaffected.--Nothing in this division shall be construed to
21 affect the liability of the registered owner of a security for
22 calls, assessments or the like.
23 § 8208. Effect of signature of authenticating trustee,
24 registrar or transfer agent.
25 (a) General rule.--A person placing his signature upon a
26 certificated security or an initial transaction statement as
27 authenticating trustee, registrar, transfer agent or the like
28 warrants to a purchaser for value of the certificated security
29 or a purchaser for value of an uncertificated security to whom
30 the initial transaction statement has been sent, if the
19890H1826B2335 - 19 -
1 purchaser is without notice of the particular defect, that:
2 (1) the certificated security or initial transaction
3 statement is genuine;
4 (2) his own participation in the issue or registration
5 of the transfer, pledge or release of the security is within
6 his capacity and within the scope of the [authorization]
7 authority received by him from the issuer; and
8 (3) he has reasonable grounds to believe that the
9 security is in the form and within the amount the issuer is
10 authorized to issue.
11 (b) Limitation.--Unless otherwise agreed, a person by so
12 placing his signature does not assume responsibility for the
13 validity of the security in other respects.
14 CHAPTER 83
15 [PURCHASE] TRANSFER
16 § 8301. Rights acquired by purchaser[; "adverse claim"; title
17 acquired by bona fide purchaser].
18 (a) Rights acquired by purchaser.--Upon [delivery] transfer
19 of a security to a purchaser (section 8313), the purchaser
20 acquires the rights in the security which his transferor had or
21 had actual authority to convey [except that a purchaser who has
22 himself been a party to any fraud or illegality affecting the
23 security or who as a prior holder had notice of an adverse claim
24 cannot improve his position by taking from a later bona fide
25 purchaser. "Adverse claim" includes a claim that a transfer was
26 or would be wrongful or that a particular adverse person is the
27 owner of or has an interest in the security.] unless the rights
28 of the purchaser are limited by section 8302(d) (relating to
29 limitation on rights acquired from bona fide purchaser).
30 [(b) Rights acquired by bona fide purchaser.--A bona fide
19890H1826B2335 - 20 -
1 purchaser in addition to acquiring the rights of a purchaser
2 also acquires the security free of any adverse claim.
3 (c)] (b) Rights acquired by [purchaser] transferee of
4 limited interest.--A [purchaser] transferee of a limited
5 interest acquires rights only to the extent of the interest
6 [purchased] transferred. The creation or release of a security
7 interest in a security is the transfer of a limited interest in
8 that security.
9 § 8302. "Bona fide purchaser"; "adverse claim"; title acquired
10 by bona fide purchaser.
11 (a) Bona fide purchaser.--A "bona fide purchaser" is a
12 purchaser for value in good faith and without notice of any
13 adverse claim:
14 (1) who takes delivery of a certified security in bearer
15 form or [of one] in registered form, issued [to him] or
16 indorsed to him or in blank[.];
17 (2) to whom the transfer, pledge or release of an
18 uncertificated security is registered on the books of the
19 issuer; or
20 (3) to whom a security is transferred under the
21 provisions of section 8313(a)(3), (4)(i) or (7) (relating to
22 when transfer to purchaser occurs; financial intermediary as
23 bona fide purchaser; "financial intermediary").
24 (b) Adverse claim.--"Adverse claim" includes a claim that a
25 transfer was or would be wrongful or that a particular adverse
26 person is the owner of or has an interest in the security.
27 (c) Rights acquired by bona fide purchaser.--A bona fide
28 purchaser in addition to acquiring the rights of a purchaser
29 (section 8301) also acquires his interest in the security free
30 of any adverse claim.
19890H1826B2335 - 21 -
1 (d) Limitation on rights acquired from bona fide
2 purchaser.--Notwithstanding section 8301(a) (relating to rights
3 acquired by purchaser), the transferee of a particular
4 certificated security who has been a party to any fraud or
5 illegality affecting the security, or who as a prior holder of
6 that certificated security had notice of an adverse claim,
7 cannot improve his position by taking from a bona fide
8 purchaser.
9 § 8303. "Broker."
10 "Broker" means a person engaged for all or part of his time
11 in the business of buying and selling securities, who in the
12 transaction concerned acts for, [or] buys a security from, or
13 sells a security to, a customer. Nothing in this division
14 determines the capacity in which a person acts for purposes of
15 any other statute or rule to which [such] the person is subject.
16 § 8304. Notice to purchaser of adverse claims.
17 (a) [General rule] Notice to purchaser of certificated
18 security.--A purchaser (including a broker for the seller or
19 buyer, but excluding an intermediary bank) of a certificated
20 security is charged with notice of adverse claims if:
21 (1) the security, whether in bearer or registered form,
22 has been indorsed "for collection" or "for surrender" or for
23 some other purpose not involving transfer; or
24 (2) the security is in bearer form and has on it an
25 unambiguous statement that it is the property of a person
26 other than a transferor. The mere writing of a name on a
27 security is not such a statement.
28 (b) Notice to purchaser of uncertificated security.--A
29 purchaser (including a broker for the seller or buyer, but
30 excluding an intermediary bank) to whom the transfer, pledge or
19890H1826B2335 - 22 -
1 release of an uncertificated security is registered is charged
2 with notice of adverse claims as to which the issuer has a duty
3 under section 8403(d) (relating to duty of issuer as to adverse
4 claims, uncertificated security) at the time of registration and
5 which are noted in the initial transaction statement sent to the
6 purchaser or, if his interest is transferred to him other than
7 by registration of transfer, pledge or release, the initial
8 transaction statement sent to the registered owner or the
9 registered pledgee.
10 [(b)] (c) Duty of inquiry in fiduciary transactions.--The
11 fact that the purchaser (including a broker for the seller or
12 buyer) of a certificated or uncertificated security has notice
13 that the security is held for a third person or is registered in
14 the name of or indorsed by a fiduciary does not create a duty of
15 inquiry into the rightfulness of the transfer or constitute
16 constructive notice of adverse claims. [If, however,] However,
17 if the purchaser (excluding an intermediary bank) has knowledge
18 that the proceeds are being used or [that] the transaction is
19 for the individual benefit of the fiduciary or otherwise in
20 breach of duty, the purchaser is charged with notice of adverse
21 claims.
22 § 8305. Staleness as notice of adverse claims.
23 An act or event [which] that creates a right to immediate
24 performance of the principal obligation [evidenced] represented
25 by [the] a certificated security or [which] sets a date on or
26 after which [the] a certificated security is to be presented or
27 surrendered for redemption or exchange does not [of] itself
28 constitute any notice of adverse claims except in the case of a
29 [purchase] transfer:
30 (1) after one year from any date set for [such]
19890H1826B2335 - 23 -
1 presentment or surrender for redemption or exchange; or
2 (2) after six months from any date set for payment of
3 money against presentation or surrender of the security if
4 funds are available for payment on that date.
5 § 8306. Warranties on presentment and transfer of certificated
6 securities; warranties of originators of
7 instructions.
8 (a) Warranties of [presenter to issuer] person presenting
9 certificated security.--A person who presents a certificated
10 security for registration of transfer or for payment or exchange
11 warrants to the issuer that he is entitled to the registration,
12 payment or exchange. But a purchaser for value and without
13 notice of adverse claims who receives a new, reissued or
14 reregistered certificated security on registration of transfer
15 or receives an initial transaction statement confirming the
16 registration of transfer of an equivalent uncertificated
17 security to him warrants only that he has no knowledge of any
18 unauthorized signature (section 8311) in a necessary
19 indorsement.
20 (b) Warranties of person transferring a certificated
21 security to purchaser for value.--A person by transferring a
22 certificated security to a purchaser for value warrants only
23 that:
24 (1) his transfer is effective and rightful;
25 (2) the security is genuine and has not been materially
26 altered; and
27 (3) he knows of no fact which might impair the validity
28 of the security.
29 (c) Warranties of intermediary delivering certificated
30 security.--[Where] If a certificated security is delivered by an
19890H1826B2335 - 24 -
1 intermediary known to be entrusted with delivery of the security
2 on behalf of another or with collection of a draft or other
3 claim against [such] delivery, the intermediary by [such]
4 delivery warrants only his own good faith and authority, even
5 though he has purchased or made advances against the claim to be
6 collected against the delivery.
7 (d) Warranties of pledgee or other holder for security.--A
8 pledgee or other holder for security who redelivers [the] a
9 certificated security received, or after payment and on order of
10 the debtor delivers that security to a third person, makes only
11 the warranties of an intermediary under subsection (c).
12 (e) Warranties of person originating instruction; issuer.--A
13 person who originates an instruction warrants to the issuer
14 that:
15 (1) he is an appropriate person to originate the
16 instruction; and
17 (2) at the time the instruction is presented to the
18 issuer, he will be entitled to the registration of transfer,
19 pledge or release.
20 (f) Warranties of person originating instruction; signature
21 guarantor.--A person who originates an instruction warrants to
22 any person specially guaranteeing his signature (section
23 8312(c)) that:
24 (1) he is an appropriate person to originate the
25 instruction; and
26 (2) at the time the instruction is presented to the
27 issuer:
28 (i) he will be entitled to the registration of
29 transfer, pledge or release; and
30 (ii) the transfer, pledge or release requested in
19890H1826B2335 - 25 -
1 the instruction will be registered by the issuer free
2 from all liens, security interests, restrictions and
3 claims other than those specified in the instruction.
4 (g) Other warranties of person originating instruction.--A
5 person who originates an instruction warrants to a purchaser for
6 value and to any person guaranteeing the instruction (section
7 8312(f)) that:
8 (1) he is an appropriate person to originate the
9 instruction;
10 (2) the uncertificated security referred to therein is
11 valid; and
12 (3) at the time the instruction is presented to the
13 issuer:
14 (i) the transferor will be entitled to the
15 registration of transfer, pledge or release;
16 (ii) the transfer, pledge or release requested in
17 the instruction will be registered by the issuer free
18 from all liens, security interests, restrictions and
19 claims other than those specified in the instruction; and
20 (iii) the requested transfer, pledge or release will
21 be rightful.
22 (h) Warranties of person who originates instruction of
23 release or transfer.--If a secured party is the registered
24 pledgee or the registered owner of an uncertificated security, a
25 person who originates an instruction of release or transfer to
26 the debtor or, after payment and on order of the debtor, a
27 transfer instruction to a third person, warrants to the debtor
28 or the third person only that he is an appropriate person to
29 originate the instruction and, at the time the instruction is
30 presented to the issuer, the transferor will be entitled to the
19890H1826B2335 - 26 -
1 registration of release or transfer. If a transfer instruction
2 to a third person who is a purchaser for value is originated on
3 order of the debtor, the debtor makes to the purchaser the
4 warranties of subsection (g)(2) and (3)(ii) and (iii).
5 (i) Warranties of person who transfers uncertificated
6 security to purchaser for value.--A person who transfers an
7 uncertificated security to a purchaser for value and does not
8 originate an instruction in connection with the transfer
9 warrants only that:
10 (1) his transfer is effective and rightful; and
11 (2) the uncertificated security is valid.
12 [(e)] (j) Warranties, rights and privileges of broker.--A
13 broker gives to his customer and to the issuer and a purchaser
14 the applicable warranties provided in this section and has the
15 rights and privileges of a purchaser under this section. The
16 warranties of and in favor of the broker acting as an agent are
17 in addition to applicable warranties given by and in favor of
18 his customer.
19 § 8307. Effect of delivery without indorsement; right to compel
20 indorsement.
21 [Where] If a certificated security in registered form has
22 been delivered to a purchaser without a necessary indorsement he
23 may become a bona fide purchaser only as of the time the
24 indorsement is supplied, but against the transferor the transfer
25 is complete upon delivery and the purchaser has a specifically
26 enforceable right to have any necessary indorsement supplied.
27 § 8308. [Indorsement, how made; special indorsement; indorser
28 not a guarantor; partial assignment] Indorsements;
29 instructions.
30 (a) Manner of indorsement.--An indorsement of a certificated
19890H1826B2335 - 27 -
1 security in registered form is made when an appropriate person
2 signs on it or on a separate document an assignment or transfer
3 of the security or a power to assign or transfer it or [when
4 the] his signature [of such person] is written without more upon
5 the back of the security.
6 (b) Blank and special indorsements.--An indorsement may be
7 in blank or special. An indorsement in blank includes an
8 indorsement to bearer. A special indorsement specifies [the
9 person] to whom the security is to be transferred, or who has
10 power to transfer it. A holder may convert a blank indorsement
11 into a special indorsement.
12 [(c) Definition of "appropriate person".--An "appropriate
13 person" in subsection (a) means:
14 (1) the person specified by the security or by special
15 indorsement to be entitled to the security;
16 (2) where the person so specified is described as a
17 fiduciary but is no longer serving in the described
18 capacity,--either that person or his successor;
19 (3) where the security or indorsement so specifies more
20 than one person as fiduciaries and one or more are no longer
21 serving in the described capacity,--the remaining fiduciary
22 or fiduciaries, whether or not a successor has been appointed
23 or qualified;
24 (4) where the person so specified is an individual and
25 is without capacity to act by virtue of death, incompetence,
26 infancy or otherwise, --his executor, administrator, guardian
27 or like fiduciary;
28 (5) where the security or indorsement so specifies more
29 than one person as tenants by the entirety or with right of
30 survivorship and by reason of death all cannot sign,--the
19890H1826B2335 - 28 -
1 survivor or survivors;
2 (6) a person having power to sign under applicable law
3 or controlling instrument; or
4 (7) to the extent that any of the foregoing persons may
5 act through an agent,--his authorized agent.
6 (d) Indorser not a guarantor.--Unless otherwise agreed the
7 indorser by his indorsement assumes no obligation that the
8 security will be honored by the issuer.
9 (e) Effect of partial indorsement.--An indorsement
10 purporting to be only of part of a security representing units
11 intended by the issuer to be separately transferable is
12 effective to the extent of the indorsement.]
13 (c) Effect of partial indorsement.--An indorsement
14 purporting to be only of part of a certificated security
15 representing units intended by the issuer to be separately
16 transferable is effective to the extent of the indorsement.
17 (d) Definition of "instruction."--An "instruction" is an
18 order to the issuer of an uncertificated security requesting
19 that the transfer, pledge or release from pledge of the
20 uncertificated security specified therein be registered.
21 (e) Instruction originated by appropriate person.--An
22 instruction originated by an appropriate person is:
23 (1) a writing signed by an appropriate person; or
24 (2) a communication to the issuer in any form agreed
25 upon in a writing signed by the issuer and an appropriate
26 person.
27 If an instruction has been originated by an appropriate person
28 but is incomplete in any other respect, any person may complete
29 it as authorized, and the issuer may rely on it as completed
30 even though it has been completed incorrectly.
19890H1826B2335 - 29 -
1 (f) Definition of "appropriate person" in certain cases.--An
2 "appropriate person" in subsection (a) means the person
3 specified by the certificated security or by special indorsement
4 to be entitled to the security.
5 (g) Definition of "appropriate person" in other cases.--"An
6 appropriate person" in subsection (e) means:
7 (1) for an instruction to transfer or pledge an
8 uncertificated security which is then not subject to a
9 registered pledge, the registered owner; or
10 (2) for an instruction to transfer or release an
11 uncertificated security which is then subject to a registered
12 pledge, the registered pledgee.
13 (h) Definition of "appropriate person" in additional
14 cases.--In addition to the persons designated in subsections (f)
15 and (g), "an appropriate person" in subsections (a) and (e)
16 includes:
17 (1) if the person designated is described as a fiduciary
18 but is no longer serving in the described capacity, either
19 that person or his successor;
20 (2) if the persons designated are described as more than
21 one person as fiduciaries and one or more are no longer
22 serving in the described capacity, the remaining fiduciary or
23 fiduciaries, whether or not a successor has been appointed or
24 qualified;
25 (3) if the person designated is an individual and is
26 without capacity to act by virtue of death, incompetence,
27 infancy, or otherwise, his executor, administrator, guardian
28 or like fiduciary;
29 (4) if the persons designated are described as more than
30 one person as tenants by the entirety or with right of
19890H1826B2335 - 30 -
1 survivorship and by reason of death all cannot sign, the
2 survivor or survivors;
3 (5) a person having power to sign under applicable law
4 or controlling instrument; and
5 (6) to the extent that the person designated or any of
6 the foregoing persons may act through an agent, his
7 authorized agent.
8 (i) Indorser not a guarantor.--Unless otherwise agreed, the
9 indorser of a certificated security by his indorsement or the
10 originator of an instruction by his origination assumes no
11 obligation that the security will be honored by the issuer but
12 only the obligations provided in section 8306 (relating to
13 warranties on presentment and transfer of certificated
14 securities; warranties of originators of instructions).
15 [(f)] (j) Status of appropriate person.--Whether the person
16 signing is appropriate is determined as of the date of signing
17 and an indorsement made by or an instruction originated by [such
18 a person] him does not become unauthorized for the purposes of
19 this division by virtue of any subsequent change of
20 circumstances.
21 [(g)] (k) Effect of noncompliance by fiduciary on his
22 indorsement.--Failure of a fiduciary to comply with a
23 controlling instrument or with the law of the state having
24 jurisdiction of the fiduciary relationship, including any law
25 requiring the fiduciary to obtain court approval of the
26 transfer, pledge or release, does not render his indorsement or
27 an instruction originated by him unauthorized for the purposes
28 of this division.
29 § 8309. Effect of indorsement without delivery.
30 An indorsement of a certificated security, whether special or
19890H1826B2335 - 31 -
1 in blank, does not constitute a transfer until delivery of the
2 certificated security on which it appears or, if the indorsement
3 is on a separate document, until delivery of both the document
4 and the certificated security.
5 § 8310. Indorsement of certificated security in bearer form.
6 An indorsement of a certificated security in bearer form may
7 give notice of adverse claims (section 8304) but does not
8 otherwise affect any right to registration the holder [may
9 possess] possesses.
10 § 8311. Effect of unauthorized indorsement or instruction.
11 Unless the owner or pledgee has ratified an unauthorized
12 indorsement or instruction or is otherwise precluded from
13 asserting its ineffectiveness:
14 (1) he may assert its ineffectiveness against the issuer
15 or any purchaser, other than a purchaser for value and
16 without notice of adverse claims, who has in good faith
17 received a new, reissued or reregistered certificated
18 security on registration of transfer or received an initial
19 transaction statement confirming the registration of
20 transfer, pledge or release of an equivalent uncertificated
21 security to him; and
22 (2) an issuer who registers the transfer of a
23 certificated security upon the unauthorized indorsement or
24 who registers the transfer, pledge or release of an
25 uncertificated security upon the unauthorized instruction is
26 subject to liability for improper registration (section
27 8404).
28 § 8312. Effect of guaranteeing signature, [or] indorsement or
29 instruction.
30 (a) Warranties of signature guarantor.--Any person
19890H1826B2335 - 32 -
1 guaranteeing a signature of an indorser of a certificated
2 security warrants that at the time of signing:
3 (1) the signature was genuine;
4 (2) the signer was an appropriate person to indorse
5 (section 8308); and
6 (3) the signer had legal capacity to sign.
7 [But the guarantor does not otherwise warrant the rightfulness
8 of the particular transfer.]
9 (b) Warranties of person guaranteeing signature of
10 originator of instruction.--Any person guaranteeing a signature
11 of the originator of an instruction warrants that at the time of
12 signing:
13 (1) the signature was genuine;
14 (2) the signer was an appropriate person to originate
15 the instruction (section 8308) if the person specified in the
16 instruction as the registered owner or registered pledgee of
17 the uncertificated security was, in fact, the registered
18 owner or registered pledgee of such security, as to which
19 fact the signature guarantor makes no warranty;
20 (3) the signer had legal capacity to sign; and
21 (4) the taxpayer identification number, if any,
22 appearing on the instruction as that of the registered owner
23 or registered pledgee was the taxpayer identification number
24 of the signer or of the owner or pledgee for whom the signer
25 was acting.
26 (c) Warranties of person specially guaranteeing signature of
27 originator of an instruction.--Any person specially guaranteeing
28 the signature of the originator of an instruction makes not only
29 the warranties of a signature guarantor (subsection (b)) but
30 also warrants that at the time the instruction is presented to
19890H1826B2335 - 33 -
1 the issuer;
2 (1) the person specified in the instruction as the
3 registered owner or registered pledgee of the uncertificated
4 security will be the registered owner or registered pledgee;
5 and
6 (2) the transfer, pledge or release of the
7 uncertificated security requested in the instruction will be
8 registered by the issuer free from all liens, security
9 interests, restrictions and claims other than those specified
10 in the instruction.
11 (d) Limitations on warranties.--The guarantor under
12 subsections (a) and (b) or the special guarantor under
13 subsection (c) does not otherwise warrant the rightfulness of
14 the particular transfer, pledge or release.
15 [(b)] (e) Warranties of indorsement guarantor.--Any person
16 [may guarantee] guaranteeing an indorsement of a certificated
17 security [and by so doing warrants not only the signature
18 (subsection (a))] makes not only the warranties of a signature
19 guarantor under subsection (a) but also warrants the
20 rightfulness of the particular transfer in all respects. [But no
21 issuer may require a guarantee of indorsement as a condition to
22 registration of transfer.]
23 (f) Warranties of person guaranteeing certain
24 instructions.--Any person guaranteeing an instruction requesting
25 the transfer, pledge or release of an uncertificated security
26 makes not only the warranties of a special signature guarantor
27 under subsection (c) but also warrants the rightfulness of the
28 particular transfer, pledge or release in all respects.
29 (g) Matters which issuer may not require.--No issuer may
30 require a special guarantee of signature (subsection (c)), a
19890H1826B2335 - 34 -
1 guarantee of indorsement (subsection (e)) or a guarantee of
2 instruction (subsection (f)) as a condition to registration of
3 transfer, pledge or release.
4 [(c)] (h) Persons protected by warranties.--The foregoing
5 warranties are made to any person taking or dealing with the
6 security in reliance on the guarantee, and the guarantor is
7 liable to [such] the person for any loss resulting from breach
8 of the warranties.
9 § 8313. When [delivery] transfer to purchaser occurs; [broker
10 of purchaser] financial intermediary as [holder] bona
11 fide purchaser; "financial intermediary".
12 (a) When [delivery] transfer to purchaser occurs.--
13 [Delivery] Transfer of a security or a limited interest
14 (including a security interest) therein to a purchaser occurs
15 [when] only:
16 (1) at the time he or a person designated by him
17 acquires possession of a certificated security;
18 (2) at the time the transfer, pledge or release of an
19 uncertificated security is registered to him or a person
20 designated by him;
21 [(2)] (3) at the time his [broker] financial
22 intermediary acquires possession of a certificated security
23 specially indorsed to or issued in the name of the purchaser;
24 [(3) his broker] (4) at the time a financial
25 intermediary, not a clearing corporation, sends him
26 confirmation of the purchase and also by book entry or
27 otherwise identifies [a specific security in the possession
28 of the broker] as belonging to the purchaser[;]:
29 (i) a specific certificated security in the
30 possession of the financial intermediary;
19890H1826B2335 - 35 -
1 (ii) a quantity of securities that constitute or are
2 part of a fungible bulk of certificated securities in the
3 financial intermediary's possession or of uncertificated
4 securities registered in the name of the financial
5 intermediary; or
6 (iii) a quantity of securities that constitute or
7 are part of a fungible bulk of securities shown on the
8 account of the financial intermediary on the books of
9 another financial intermediary;
10 [(4)] (5) with respect to an identified certificated
11 security to be delivered while still in the possession of a
12 third person [when], not a financial intermediary, at the
13 time that person acknowledges that he holds for the
14 purchaser; [or]
15 (6) with respect to a specific uncertificated security
16 the pledge or transfer of which has been registered to a
17 third person, not a financial intermediary, at the time that
18 person acknowledges that he holds for the purchaser;
19 [(5)] (7) at the time appropriate entries to the account
20 of the purchaser or a person designated by him on the books
21 of a clearing corporation are made under section 8320
22 (relating to transfer or pledge within [a] central depository
23 system)[.];
24 (8) with respect to the transfer of a security interest
25 where the debtor has signed a security agreement containing a
26 description of the security, at the time a written
27 notification, which, in the case of the creation of the
28 security interest, is signed by the debtor (which may be a
29 copy of the security agreement) or which, in the case of the
30 release or assignment of the security interest created
19890H1826B2335 - 36 -
1 pursuant to this paragraph, is signed by the secured party,
2 is received by:
3 (i) a financial intermediary on whose books the
4 interest of the transferor in the security appears;
5 (ii) a third person, not a financial intermediary,
6 in possession of the security, if it is certificated;
7 (iii) a third person, not a financial intermediary,
8 who is the registered owner of the security, if it is
9 uncertificated and not subject to a registered pledge; or
10 (iv) a third person, not a financial intermediary,
11 who is the registered pledgee of the security, if it is
12 uncertificated and subject to a registered pledge;
13 (9) with respect to the transfer of a security interest
14 where the transferor has signed a security agreement
15 containing a description of the security, at the time new
16 value is given by the secured party; or
17 (10) with respect to the transfer of a security interest
18 where the secured party is a financial intermediary and the
19 security has already been transferred to the financial
20 intermediary under paragraph (1), (2), (3), (4) or (7), at
21 the time the transferor has signed a security agreement
22 containing a description of the security and value is given
23 by the secured party.
24 (b) Rights of purchaser in security held by [broker]
25 financial intermediary.--The purchaser is the owner of a
26 security held for him by [his broker,] a financial intermediary,
27 but [is not the holder] cannot be a bona fide purchaser of a
28 security so held except [as] in the circumstances specified in
29 subsection (a)[(2)](3),(4)(i) and [(5)] (7). [Where] If a
30 security so held is part of a fungible bulk, as in the
19890H1826B2335 - 37 -
1 circumstances specified in subsection (a)(4)(ii) and (iii), the
2 purchaser is the owner of a proportionate property interest in
3 the fungible bulk.
4 (c) Notice of adverse claim to security held by [broker]
5 financial intermediary.--Notice of an adverse claim received by
6 the [broker] financial intermediary or by the purchaser after
7 the [broker] financial intermediary takes delivery of a
8 certificated security as a holder for value or after the
9 transfer, pledge or release of an uncertificated security has
10 been registered free of the claim to a financial intermediary
11 who has given value is not effective either as to the [broker]
12 financial intermediary or as to the purchaser. However, as
13 between the [broker] financial intermediary and the purchaser,
14 the purchaser may demand [delivery] transfer of an equivalent
15 security as to which no notice of [an] adverse claim has been
16 received.
17 (d) Definition of "financial intermediary".--A "financial
18 intermediary" is a bank, broker, clearing corporation or other
19 person (or the nominee of any of them) which in the ordinary
20 course of its business maintains security accounts for its
21 customers and is acting in that capacity. A financial
22 intermediary may have a security interest in securities held in
23 account for its customer.
24 § 8314. Duty to [deliver] transfer, when completed.
25 (a) Sale through broker.--Unless otherwise agreed [where],
26 if a sale of a security is made on an exchange or otherwise
27 through brokers:
28 (1) the selling customer fulfills his duty to [deliver
29 when he] transfer at the time he;
30 (i) places [such] a certificated security in the
19890H1826B2335 - 38 -
1 possession of the selling broker or of a person
2 designated by the broker [or if requested causes an
3 acknowledgement to be made to the selling broker that it
4 is held for him; and];
5 (ii) causes an uncertificated security to be
6 registered in the name of the selling broker or a person
7 designated by the broker;
8 (iii) if requested, causes an acknowledgment to be
9 made to the selling broker that a certificated or
10 uncertificated security is held for the broker; or
11 (iv) places in the possession of the selling broker
12 or of a person designated by the broker a transfer
13 instruction for an uncertificated security, providing the
14 issuer does not refuse to register the requested transfer
15 if the instruction is presented to the issuer for
16 registration within 30 days thereafter; and
17 (2) the selling broker, including a correspondent broker
18 acting for a selling customer, fulfills his duty to [deliver
19 by placing the] transfer at the time he;
20 (i) places a certificated security [or a like
21 security] in the possession of the buying broker or a
22 person designated by [him or by effecting] the buying
23 broker;
24 (ii) causes an uncertificated security to be
25 registered in the name of the buying broker or a person
26 designated by the buying broker;
27 (iii) places in the possession of the buying broker
28 or of a person designated by the buying broker a transfer
29 instruction for an uncertificated security, providing the
30 issuer does not refuse to register the requested transfer
19890H1826B2335 - 39 -
1 if the instruction is presented to the issuer for
2 registration within 30 days thereafter; or
3 (iv) effects clearance of the sale in accordance
4 with the rules of the exchange on which the transaction
5 took place.
6 (b) Other sales.--Except as [otherwise] provided in this
7 section and unless otherwise agreed, the duty of a transferor to
8 [deliver] transfer a security under a contract of purchase is
9 not fulfilled until he:
10 (1) places [the] a certificated security in form to be
11 negotiated by the purchaser in the possession of the
12 purchaser or of a person designated by [him or at the request
13 of the purchaser causes an acknowledgment to be made to the
14 purchaser that it is held for him.] the purchaser;
15 (2) causes an uncertificated security to be registered
16 in the name of the purchaser or a person designated by the
17 purchaser; or
18 (3) if the purchaser requests, causes an acknowledgment
19 to be made to the purchaser that a certificated or
20 uncertificated security is held for the purchaser.
21 (c) Sales to brokers.--Unless made on an exchange, a sale to
22 a broker purchasing for his own account is within [this]
23 subsection (b) and not within subsection (a).
24 § 8315. Action against [purchaser] transferee based upon
25 wrongful transfer.
26 (a) General rule.--Any person against whom the transfer of a
27 security is wrongful for any reason, including his incapacity,
28 [may] as against anyone except a bona fide purchaser, may:
29 (1) reclaim possession of the certificated security [or]
30 wrongfully transferred;
19890H1826B2335 - 40 -
1 (2) obtain possession of any new certificated security
2 [evidencing] representing all or part of the same rights
3 [or];
4 (3) compel the origination of an instruction to transfer
5 to him or a person designated by him an uncertificated
6 security constituting all or part of the same rights; or
7 (4) have damages.
8 (b) Unauthorized [endorsement] indorsements.--If the
9 transfer is wrongful because of an unauthorized indorsement of a
10 certificated security, the owner may also reclaim or obtain
11 possession of the security or a new certificated security, even
12 from a bona fide purchaser, if the ineffectiveness of the
13 purported indorsement can be asserted against him under the
14 provisions of this division on unauthorized indorsements
15 (section 8311).
16 (c) Remedies available.--The right to obtain or reclaim
17 possession of a certificated security or to compel the
18 origination of a transfer instruction may be specifically
19 enforced and [its] the transfer of a certificated or
20 uncertificated security enjoined and [the] a certificated
21 security impounded pending the litigation.
22 § 8316. Right of purchaser to requisites for registration of
23 transfer, pledge or release on books.
24 Unless otherwise agreed, the transferor [must] of a
25 certificated security or the transferor, pledgor or pledgee of
26 an uncertificated security on due demand must supply his
27 purchaser with any proof of his authority to transfer, pledge or
28 release or with any other requisite [which may be] necessary to
29 obtain registration of the transfer, pledge or release of the
30 security; but, if the transfer, pledge or release is not for
19890H1826B2335 - 41 -
1 value, a transferor, pledgor or pledgee need not do so unless
2 the purchaser furnishes the necessary expenses. Failure within a
3 reasonable time to comply with a demand made [within a
4 reasonable time] gives the purchaser the right to reject or
5 rescind the transfer, pledge or release.
6 § 8317. [Attachment or levy upon security] Rights of creditor.
7 (a) [Seizure required.--No] General rule for certificated
8 securities.--Subject to the exceptions in subsections (c) and
9 (d), no attachment or levy upon a certificated security or any
10 share or other interest [evidenced] represented thereby which is
11 outstanding [shall be] is valid until the security is actually
12 seized by the officer making the attachment or levy, but a
13 certificated security which has been surrendered to the issuer
14 may be [attached or levied upon at the source.] reached by a
15 creditor by legal process at the chief executive office of the
16 issuer in the United States.
17 (b) General rule for uncertificated securities.--An
18 uncertificated security registered in the name of the debtor may
19 not be reached by a creditor except by legal process at the
20 chief executive office of the issuer in the United States.
21 (c) Reaching interest of debtor when secured party is not
22 financial intermediary.--The interest of a debtor in a
23 certificated security that is in the possession of a secured
24 party not a financial intermediary or in an uncertificated
25 security registered in the name of a secured party not a
26 financial intermediary (or in the name of a nominee of the
27 secured party) may be reached by a creditor by legal process
28 upon the secured party.
29 (d) Reaching interest of debtor when secured party is
30 financial intermediary.--The interest of a debtor in a
19890H1826B2335 - 42 -
1 certificated security that is in the possession of or registered
2 in the name of a financial intermediary or in an uncertificated
3 security registered in the name of a financial intermediary may
4 be reached by a creditor by legal process upon the financial
5 intermediary on whose books the interest of the debtor appears.
6 (e) Effect of lien upon transfer of security to third
7 party.--Unless otherwise provided by law, the lien of a creditor
8 upon the interest of a debtor in a security obtained pursuant to
9 subsection (c) or (d) is not a restraint on the transfer of the
10 security, free of the lien, to a third party for new value; but,
11 in the event of a transfer, the lien applies to the proceeds of
12 the transfer in the hands of the secured party or financial
13 intermediary, subject to any claims having priority.
14 [(b)] (f) Remedies available.--A creditor whose debtor is
15 the owner of a security [shall be] is entitled to [such] aid
16 from courts of appropriate jurisdiction, by injunction or
17 otherwise, in reaching [such] the security or in satisfying the
18 claim by means [thereof as is] allowed at law or in equity in
19 regard to property [which] that cannot readily be [attached or
20 levied upon] reached by ordinary legal process.
21 § 8318. No conversion by good faith [delivery] conduct.
22 An agent or bailee who in good faith (including observance of
23 reasonable commercial standards if he is in the business of
24 buying, selling or otherwise dealing with securities) has
25 received certificated securities and sold, pledged or delivered
26 them or has sold or caused the transfer or pledge of
27 uncertificated securities over which he had control according to
28 the instructions of his principal is not liable for conversion
29 or for participation in breach of fiduciary duty although the
30 principal had no right [to dispose of them] so to deal with the
19890H1826B2335 - 43 -
1 securities.
2 § 8319. Statute of frauds.
3 A contract for the sale of securities is not enforceable by
4 way of action or defense unless:
5 (1) there is some writing signed by the party against
6 whom enforcement is sought or by his authorized agent or
7 broker sufficient to indicate that a contract has been made
8 for sale of a stated quantity of described securities at a
9 defined or stated price;
10 (2) delivery of [the] a certificated security or
11 transfer instruction has been accepted, or transfer of an
12 uncertificated security has been registered and the
13 transferee has failed to send written objection to the issuer
14 within ten days after receipt of the initial transaction
15 statement confirming the registration, or payment has been
16 made, but the contract is enforceable under this paragraph
17 only to the extent of [such] the delivery, registration or
18 payment;
19 (3) within a reasonable time a writing in confirmation
20 of the sale or purchase and sufficient against the sender
21 under paragraph (1) has been received by the party against
22 whom enforcement is sought and he has failed to send written
23 objection to its contents within ten days after its receipt;
24 or
25 (4) the party against whom enforcement is sought admits
26 in his pleadings, testimony or otherwise in court that a
27 contract was made for the sale of a stated quantity of
28 described securities at a defined or stated price.
29 § 8320. Transfer or pledge within [a] central depository
30 system.
19890H1826B2335 - 44 -
1 (a) Manner of effecting transfer [or], pledge or release.--
2 [If a security:] In addition to other methods, a transfer,
3 pledge or release of a security or any interest therein may be
4 effected by the making of appropriate entries on the books of a
5 clearing corporation reducing the account of the transferor,
6 pledgor or pledgee and increasing the account of the transferee,
7 pledgee or pledgor by the amount of the obligation, or the
8 number of shares or rights transferred, pledged or released, if
9 the security is shown on the account of a transferor, pledgor or
10 pledgee on the books of the clearing corporation, is subject to
11 the control of the clearing corporation and:
12 (1) if certificated:
13 (i) is in the custody of [a] the clearing
14 corporation [or of], another clearing corporation, a
15 custodian bank or a nominee of [either subject to the
16 instructions of the clearing corporation;] any of them;
17 and
18 [(2)] (ii) is in bearer form or indorsed in blank by
19 an appropriate person or registered in the name of the
20 clearing corporation [or], a custodian bank or a nominee
21 of [either; and] any of them; or
22 (2) if uncertificated, is registered in the name of the
23 clearing corporation, another clearing corporation, a
24 custodian bank or a nominee of any of them.
25 [(3) is shown on the account of a transferor or pledgor
26 on the books of the clearing corporation;
27 then, in addition to other methods, a transfer or pledge of the
28 security or any interest therein may be effected by the making
29 of appropriate entries on the books of the clearing corporation
30 reducing the account of the transferor or pledgor and increasing
19890H1826B2335 - 45 -
1 the account of the transferee or pledgee by the amount of the
2 obligation or the number of shares or rights transferred or
3 pledged.]
4 (b) Requisites for book entries.--Under this section entries
5 may be made with respect to like securities or interests therein
6 as a part of a fungible bulk and may refer merely to a quantity
7 of a particular security without reference to the name of the
8 registered owner, certificate or bond number or the like and, in
9 appropriate cases, may be on a net basis taking into account
10 other transfers [or], pledges or releases of the same security.
11 (c) Effect of transfer [or], pledge or release.--A transfer
12 [or pledge] under this section [has the effect of a delivery of
13 a security in bearer form or duly indorsed in blank (section
14 8301 (relating to rights acquired by purchaser; "adverse claim";
15 title acquired by bona fide purchaser)) representing the amount
16 of the obligation or the number of shares or rights transferred
17 or pledged.] is effective (section 8313) and the purchaser
18 acquires the rights of the transferor (section 8301). A pledge
19 or release under this section is the transfer of a limited
20 interest. If a pledge or the creation of a security interest is
21 intended, [the making of entries has the effect of a taking of
22 delivery by the pledgee or a secured party (section 9304
23 (relating to perfection of security interest in instruments,
24 documents and goods covered by documents) and section 9305
25 (relating to when possession by secured party perfects security
26 interest without filing)).] the security interest is perfected
27 at the time when both value is given by the pledgee and the
28 appropriate entries are made (section 8321). A transferee or
29 pledgee under this section [is a holder] may be a bona fide
30 purchaser (section 8302).
19890H1826B2335 - 46 -
1 (d) Transfer or pledge not a registration.--A transfer or
2 pledge under this section [does] is not [constitute] a
3 registration of transfer under Chapter 84 (relating to
4 registration).
5 (e) Effect of inappropriate entries.--That entries made on
6 the books of the clearing corporation as provided in subsection
7 (a) are not appropriate does not affect the validity or effect
8 of the entries [nor] or the liabilities or obligations of the
9 clearing corporation to any person adversely affected thereby.
10 § 8321. Enforceability, attachment, perfection and termination
11 of security interests.
12 (a) Enforceability and attachment.--A security interest in a
13 security is enforceable and can attach only if it is transferred
14 to the secured party or a person designated by him pursuant to a
15 provision of section 8313(a) (relating to when transfer to
16 purchaser occurs).
17 (b) Perfection.--A security interest so transferred pursuant
18 to agreement by a transferor who has rights in the security to a
19 transferee who has given value is a perfected security interest,
20 but a security interest that has been transferred solely under
21 section 8313(a)(9) becomes unperfected after 21 days unless,
22 within that time, the requirements for transfer under any other
23 provision of section 8313(a) are satisfied.
24 (c) Other provisions.--A security interest in a security is
25 subject to the provisions of Division 9 (relating to secured
26 transactions sales of accounts; contract rights and chattel
27 paper), but:
28 (1) no filing is required to perfect the security
29 interest; and
30 (2) no written security agreement signed by the debtor
19890H1826B2335 - 47 -
1 is necessary to make the security interest enforceable,
2 except as otherwise provided in section 8313(a)(8), (9) or
3 (10).
4 The secured party has the rights and duties provided under
5 section 9207 (relating to rights and duties when collateral in
6 possession of secured party), to the extent they are applicable,
7 whether or not the security is certificated, and, if
8 certificated, whether or not it is in his possession.
9 (d) Termination and temporary perfection.--Unless otherwise
10 agreed, a security interest in a security is terminated by
11 transfer to the debtor or a person designated by him pursuant to
12 a provision of section 8313(a). If a security is thus
13 transferred, the security interest, if not terminated, becomes
14 unperfected unless the security is certificated and is delivered
15 to the debtor for the purpose of ultimate sale or exchange or
16 presentation, collection, renewal or registration of transfer.
17 In that case, the security interest becomes unperfected after 21
18 days unless, within that time, the security (or securities for
19 which it has been exchanged) is transferred to the secured party
20 or a person designated by him pursuant to a provision of section
21 8313(a).
22 § 8401. Duty of issuer to register transfer, pledge or release.
23 (a) General rule.--[Where] If a certificated security in
24 registered form is presented to the issuer with a request to
25 register transfer or an instruction is presented to the issuer
26 with a request to register transfer, pledge or release, the
27 issuer [is under a duty to] shall register the transfer, pledge
28 or release as requested if:
29 (1) the security is indorsed or the instruction was
30 originated by the appropriate person or persons (section
19890H1826B2335 - 48 -
1 8308);
2 (2) reasonable assurance is given that those
3 indorsements or instructions are genuine and effective
4 (section 8402);
5 (3) the issuer has no duty [to inquire into] as to
6 adverse claims or has discharged [any such] the duty (section
7 8403);
8 (4) any applicable law relating to the collection of
9 taxes has been complied with; and
10 (5) the transfer, pledge or release is in fact rightful
11 or is to a bona fide purchaser.
12 (b) Liability for failure or delay in [registering transfer]
13 registration.--[Where] If an issuer is under a duty to register
14 a transfer, pledge or release of a security, the issuer is also
15 liable to the person presenting [it] a certificated security or
16 an instruction for registration or his principal for loss
17 resulting from any unreasonable delay in registration or from
18 failure or refusal to register the transfer, pledge or release.
19 § 8402. Assurance that indorsements and instructions are
20 effective.
21 (a) Assurances that issuer may require.--The issuer may
22 require the following assurance that each necessary indorsement
23 of a certificated security or each instruction (section 8308) is
24 genuine and effective:
25 (1) In all cases, a guarantee of the signature (section
26 8312(a) or (b)) of the person indorsing a certificated
27 security or originating an instruction, including, in the
28 case of an instruction, a warranty of the taxpayer
29 identification number or, in the absence thereof, other
30 reasonable assurance of identity.
19890H1826B2335 - 49 -
1 (2) [Where] If the indorsement is made or the
2 instruction is originated by an agent, appropriate assurance
3 of authority to sign.
4 (3) [Where] If the indorsement is made or the
5 instruction is originated by a fiduciary, appropriate
6 evidence of appointment or incumbency.
7 (4) [Where] If there is more than one fiduciary,
8 reasonable assurance that all who are required to sign have
9 done so.
10 (5) [Where] If the indorsement is made or the
11 instruction is originated by a person not covered by any of
12 the foregoing, assurance appropriate to the case
13 corresponding as nearly as may be to the foregoing.
14 (b) Guarantee of the signature.--A "guarantee of the
15 signature" in subsection (a) means a guarantee signed by or on
16 behalf of a person reasonably believed by the issuer to be
17 responsible. The issuer may adopt standards with respect to
18 responsibility [provided such standards] if they are not
19 manifestly unreasonable.
20 (c) Appropriate evidence of appointment or incumbency.--
21 "Appropriate evidence of appointment or incumbency" in
22 subsection (a) means:
23 (1) in the case of a fiduciary appointed or qualified by
24 a court, a certificate issued by or under the direction or
25 supervision of that court or an officer thereof and dated
26 within 60 days before the date of presentation for transfer,
27 pledge or release; or
28 (2) in any other case, a copy of a document showing the
29 appointment or a certificate issued by or on behalf of a
30 person reasonably believed by the issuer to be responsible
19890H1826B2335 - 50 -
1 or, in the absence of [such a] that document or certificate,
2 other evidence reasonably deemed by the issuer to be
3 appropriate. The issuer may adopt standards with respect to
4 [such] the evidence [provided such standards] if they are not
5 manifestly unreasonable. The issuer is not charged with
6 notice of the contents of any document obtained pursuant to
7 this paragraph [(2)] except to the extent that the contents
8 relate directly to the appointment or incumbency.
9 (d) Additional assurances that issuer may require.--The
10 issuer may elect to require reasonable assurance beyond that
11 specified in this section, but if it does so and, for a purpose
12 other than that specified in subsection (c)(2), both requires
13 and obtains a copy of a will, trust, indenture, articles of
14 copartnership, bylaws or other controlling instrument, it is
15 charged with notice of all matters contained therein affecting
16 the transfer, pledge or release.
17 § 8403. [Limited duty of inquiry] Duty of issuer as to adverse
18 claims.
19 (a) [General rule] Duty of issuer as to certificated
20 security.--An issuer to whom a certificated security is
21 presented for registration [is under a duty to] shall inquire
22 into adverse claims if:
23 (1) a written notification of an adverse claim is
24 received at a time and in a manner [which affords] affording
25 the issuer a reasonable opportunity to act on it prior to the
26 issuance of a new, reissued or re-registered certificated
27 security, and the notification identifies the claimant, the
28 registered owner and the issue of which the security is a
29 part, and provides an address for communications directed to
30 the claimant; or
19890H1826B2335 - 51 -
1 (2) the issuer is charged with notice of an adverse
2 claim from a controlling instrument [which] it has elected to
3 require under section 8402(d) (relating to additional
4 assurances that issuer may require).
5 (b) [Method of inquiry] Discharge of duty as to certificated
6 security.--The issuer may discharge any duty of inquiry by any
7 reasonable means, including notifying an adverse claimant by
8 registered or certified mail at the address furnished by him or,
9 if there be no such address, at his residence or regular place
10 of business that the certificated security has been presented
11 for registration of transfer by a named person, and that the
12 transfer will be registered unless within 30 days from the date
13 of mailing the notification, either:
14 (1) an appropriate restraining order, injunction or
15 other process issues from a court of competent jurisdiction;
16 or
17 (2) there is filed with the issuer an indemnity bond
18 sufficient in the judgment of the issuer to protect the
19 issuer and any transfer agent, registrar or other agent of
20 the issuer involved from any loss [which] it or they may
21 suffer by complying with the adverse claim [is filed with the
22 issuer].
23 (c) When inquiry unnecessary.--Unless an issuer is charged
24 with notice of an adverse claim from a controlling instrument
25 which it has elected to require under section 8402(d) or
26 receives notification of an adverse claim under subsection (a),
27 [where] if a certificated security presented for registration is
28 indorsed by the appropriate person or persons the issuer is
29 under no duty to inquire into adverse claims. In particular:
30 (1) an issuer registering a certificated security in the
19890H1826B2335 - 52 -
1 name of a person who is a fiduciary or who is described as a
2 fiduciary is not bound to inquire into the existence, extent,
3 or correct description of the fiduciary relationship; and
4 thereafter the issuer may assume without inquiry that the
5 newly registered owner continues to be the fiduciary until
6 the issuer receives written notice that the fiduciary is no
7 longer acting as such with respect to the particular
8 security;
9 (2) an issuer registering transfer on an indorsement by
10 a fiduciary is not bound to inquire whether the transfer is
11 made in compliance with a controlling instrument or with the
12 law of the state having jurisdiction of the fiduciary
13 relationship, including any law requiring the fiduciary to
14 obtain court approval of the transfer; and
15 (3) the issuer is not charged with notice of the
16 contents of any court record or file or other recorded or
17 unrecorded document even though the document is in its
18 possession and even though the transfer is made on the
19 indorsement of a fiduciary to the fiduciary himself or to his
20 nominee.
21 (d) Duty of issuer as to uncertificated security.--An issuer
22 is under no duty as to adverse claims with respect to an
23 uncertificated security except:
24 (1) claims embodied in a restraining order, injunction
25 or other legal process served upon the issuer if the process
26 was served at a time and in a manner affording the issuer a
27 reasonable opportunity to act on it in accordance with the
28 requirements of subsection (e);
29 (2) claims of which the issuer has received a written
30 notification from the registered owner or the registered
19890H1826B2335 - 53 -
1 pledgee if the notification was received at a time and in a
2 manner affording the issuer a reasonable opportunity to act
3 on it in accordance with the requirements of subsection (e);
4 (3) claims (including restrictions on transfer not
5 imposed by the issuer) to which the registration of transfer
6 to the present registered owner was subject and were so noted
7 in the initial transaction statement sent to him; and
8 (4) claims as to which an issuer is charged with notice
9 from a controlling instrument it has elected to require under
10 section 8402(d).
11 (e) Discharge of duty as to uncertificated security.--If the
12 issuer of an uncertificated security is under a duty as to an
13 adverse claim, he discharges that duty by:
14 (1) Including a notation of the claim in any statements
15 sent with respect to the security under section 8408(c), (f)
16 and (g) (relating to statements of uncertificated
17 securities).
18 (2) Refusing to register the transfer or pledge of the
19 security unless the nature of the claim does not preclude
20 transfer or pledge subject thereto.
21 (f) Notation of adverse claim.--If the transfer or pledge of
22 the security is registered subject to an adverse claim, a
23 notation of the claim must be included in the initial
24 transaction statement and all subsequent statements sent to the
25 transferee and pledgee under section 8408.
26 (g) Exceptions to duty of issuer.--Notwithstanding
27 subsections (d) and (e), if an uncertificated security was
28 subject to a registered pledge at the time the issuer first came
29 under a duty as to a particular adverse claim, the issuer has no
30 duty as to that claim if transfer of the security is requested
19890H1826B2335 - 54 -
1 by the registered pledgee or an appropriate person acting for
2 the registered pledgee unless:
3 (1) the claim was embodied in legal process which
4 expressly provides otherwise;
5 (2) the claim was asserted in a written notification
6 from the registered pledgee;
7 (3) the claim was one as to which the issuer was charged
8 with notice from a controlling instrument it required under
9 section 8402(d) (relating to additional assurances that
10 issuer may require) in connection with the pledgee's request
11 for transfer; or
12 (4) the transfer requested is to the registered owner.
13 § 8404. Liability and nonliability for registration.
14 (a) General rule.--Except as [otherwise] provided in any law
15 relating to the collection of taxes, the issuer is not liable to
16 the owner, pledgee or any other person suffering loss as a
17 result of the registration of a transfer, pledge or release of a
18 security if:
19 (1) there were on or with [the] a certificated security
20 the necessary indorsements or the issuer has received an
21 instruction originated by an appropriate person (section
22 8308); and
23 (2) the issuer had no duty [to inquire into] as to
24 adverse claims or has discharged [any such] the duty (section
25 8403).
26 (b) Transfer to person not entitled.--[Where] If an issuer
27 has registered a transfer of a certificated security to a person
28 not entitled to it, the issuer on demand [must] shall deliver a
29 like security to the true owner unless:
30 (1) the registration was pursuant to subsection (a);
19890H1826B2335 - 55 -
1 (2) the owner is precluded from asserting any claim for
2 registering the transfer under section 8405(a) (relating to
3 lost, destroyed and stolen certificated securities); or
4 (3) [such] the delivery would result in overissue, in
5 which case the liability of the issuer is governed by section
6 8104 (relating to effect of overissue).
7 (c) Improper registration.--If an issuer has improperly
8 registered a transfer, pledge or release of an uncertificated
9 security, the issuer on demand from the injured party shall
10 restore the records as to the injured party to the condition
11 that would have obtained if the improper registration had not
12 been made unless:
13 (1) the registration was pursuant to subsection (a); or
14 (2) the registration would result in overissue, in which
15 case the liability of the issuer is governed by section 8104.
16 § 8405. Lost, destroyed and stolen certificated securities.
17 (a) Failure of owner to notify issuer.--[Where] If a
18 certificated security has been lost, apparently destroyed or
19 wrongfully taken, and the owner fails to notify the issuer of
20 that fact within a reasonable time after he has notice of it and
21 the issuer registers a transfer of the security before receiving
22 [such a] notification, the owner is precluded from asserting
23 against the issuer any claim for registering the transfer under
24 section 8404 (relating to liability and nonliability for
25 registration) or any claim to a new security under this section.
26 (b) When owner entitled to new security.--[Where] If the
27 owner of a certificated security claims that the security has
28 been lost, destroyed or wrongfully taken, the issuer [must]
29 shall issue a new certificated security or, at the option of the
30 issuer, an equivalent uncertificated security in place of the
19890H1826B2335 - 56 -
1 original security if the owner:
2 (1) so requests before the issuer has notice that the
3 security has been acquired by a bona fide purchaser;
4 (2) files with the issuer a sufficient indemnity bond;
5 and
6 (3) satisfies any other reasonable requirements imposed
7 by the issuer.
8 (c) Rights and duties of issuer when original certificated
9 security presented for transfer.--If, after the issue of [the] a
10 new certificated or uncertificated security, a bona fide
11 purchaser of the original certificated security presents it for
12 registration of transfer, the issuer [must] shall register the
13 transfer, unless registration would result in overissue, in
14 which event the liability of the issuer is governed by section
15 8104 (relating to effect of overissue). In addition to any
16 rights on the indemnity bond, the issuer may recover the new
17 certificated security from the person to whom it was issued or
18 any person taking under him except a bona fide purchaser or may
19 cancel the uncertificated security unless a bona fide purchaser
20 or any person taking under a bona fide purchaser is then the
21 registered owner or registered pledgee thereof.
22 § 8406. Duty of authenticating trustee, transfer agent or
23 registrar.
24 (a) General rule.--[Where] If a person acts as
25 authenticating trustee, transfer agent, registrar, or other
26 agent for an issuer in the registration of transfers of its
27 certificated securities or in the registration of transfers,
28 pledges and releases of its uncertificated securities, in the
29 issue of new securities or in the cancellation of surrendered
30 securities:
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1 (1) he is under a duty to the issuer to exercise good
2 faith and due diligence in performing his functions; and
3 (2) [he has] with regard to the particular functions he
4 performs, he has the same obligation to the holder or owner
5 of [the] a certificated security or to the owner or pledgee
6 of an uncertificated security and has the same rights and
7 privileges as the issuer has in regard to those functions.
8 (b) Notice to agent is notice to issuer.--Notice to an
9 authenticating trustee, transfer agent, registrar or other
10 [such] agent is notice to the issuer with respect to the
11 functions performed by the agent.
12 § 8407. Exchangeability of securities.
13 (a) Applicability of section.--No issuer is subject to the
14 requirements of this section unless it regularly maintains a
15 system for issuing the class of securities involved under which
16 both certificated and uncertificated securities are regularly
17 issued to the category of owners, which includes the person in
18 whose name the new security is to be registered.
19 (b) Duty to issue uncertificated security for certificated
20 security.--Upon surrender of a certificated security with all
21 necessary indorsements and presentation of a written request by
22 the person surrendering the security, the issuer, if he has no
23 duty as to adverse claims or has discharged the duty (section
24 8403), shall issue to the person or a person designated by him
25 an equivalent uncertificated security subject to all liens,
26 restrictions and claims that were noted on the certificated
27 security.
28 (c) Duty to issue certificated security for uncertificated
29 security.--Upon receipt of a transfer instruction originated by
30 an appropriate person who so requests, the issuer of an
19890H1826B2335 - 58 -
1 uncertificated security shall cancel the uncertificated security
2 and issue an equivalent certificated security on which must be
3 noted conspicuously any liens and restrictions of the issuer and
4 any adverse claims as to which the issuer has a duty under
5 section 8403(d) (relating to duty of issuer as to adverse
6 claims) to which the uncertificated security was subject. The
7 certificated security shall be registered in the name of and
8 delivered to:
9 (1) the registered owner, if the uncertificated security
10 was not subject to a registered pledge; or
11 (2) the registered pledgee, if the uncertificated
12 security was subject to a registered pledge.
13 § 8408. Statements of uncertificated securities.
14 (a) Initial transaction statement for transfer.--Within two
15 business days after the transfer of an uncertificated security
16 has been registered, the issuer shall send to the new registered
17 owner and, if the security has been transferred subject to a
18 registered pledge, to the registered pledgee a written statement
19 containing:
20 (1) a description of the issue of which the
21 uncertificated security is a part;
22 (2) the number of shares or units transferred;
23 (3) the name and address and any taxpayer identification
24 number of the new registered owner and, if the security has
25 been transferred subject to a registered pledge, the name and
26 address and any taxpayer identification number of the
27 registered pledgee;
28 (4) a notation of any liens and restrictions of the
29 issuer and any adverse claims (as to which the issuer has a
30 duty under section 8403(d) (relating to duty of issuer as to
19890H1826B2335 - 59 -
1 adverse claims)) to which the uncertificated security is or
2 may be subject at the time of registration or a statement
3 that there are none of those liens, restrictions or adverse
4 claims; and
5 (5) the date the transfer was registered.
6 (b) Initial transaction statement for pledge.--Within two
7 business days after the pledge of an uncertificated security has
8 been registered, the issuer shall send to the registered owner
9 and the registered pledgee a written statement containing:
10 (1) a description of the issue of which the
11 uncertificated security is a part;
12 (2) the number of shares or units pledged;
13 (3) the name and address and any taxpayer identification
14 number of the registered owner and the registered pledgee;
15 (4) a notation of any liens and restrictions of the
16 issuer and any adverse claims (as to which the issuer has
17 duty under section 8403(d)) to which the uncertificated
18 security is or may be subject at the time of registration or
19 a statement that there are none of those liens, restrictions
20 or adverse claims; and
21 (5) the date the pledge was registered.
22 (c) Initial transaction statement for release.--Within two
23 business days after the release from pledge of an uncertificated
24 security has been registered, the issuer shall send to the
25 registered owner and the pledgee whose interest was released a
26 written statement containing:
27 (1) a description of the issue of which the
28 uncertificated security is a part;
29 (2) the number of shares or units released from pledge;
30 (3) the name and address and any taxpayer identification
19890H1826B2335 - 60 -
1 number of the registered owner and the pledgee whose interest
2 was released;
3 (4) a notation of any liens and restrictions of the
4 issuer and any adverse claims (as to which the issuer has a
5 duty under section 8403(d)) to which the uncertificated
6 security is or may be subject at the time of registration or
7 a statement that there are none of those liens, restrictions
8 or adverse claims; and
9 (5) the date the release was registered.
10 (d) What constitutes initial transaction statement.--An
11 "initial transaction statement" is the statement sent to:
12 (1) the new registered owner and, if applicable, to the
13 registered pledgee pursuant to subsection (a);
14 (2) the registered pledgee pursuant to subsection (b);
15 or
16 (3) the registered owner pursuant to subsection (c).
17 Each initial transaction statement shall be signed by or on
18 behalf of the issuer and must be identified as "initial
19 transaction statement."
20 (e) Statement of transfer.--Within two business days after
21 the transfer of an uncertificated security has been registered,
22 the issuer shall send to the former registered owner and the
23 former registered pledgee, if any, a written statement
24 containing:
25 (1) a description of the issue of which the
26 uncertificated security is a part;
27 (2) the number of shares or units transferred;
28 (3) the name and address and any taxpayer identification
29 number of the former registered owner and of any former
30 registered pledgee; and
19890H1826B2335 - 61 -
1 (4) the date the transfer was registered.
2 (f) Periodic statement of registered owner.--At periodic
3 intervals no less frequent than annually and at any time upon
4 the reasonable written request of the registered owner, the
5 issuer shall send to the registered owner of each uncertificated
6 security a dated written statement containing:
7 (1) a description of the issue of which the
8 uncertificated security is a part;
9 (2) the name and address and any taxpayer identification
10 number of the registered owner;
11 (3) the number of shares or units of the uncertificated
12 security registered in the name of the registered owner on
13 the date of the statement;
14 (4) the name and address and any taxpayer identification
15 number of any registered pledgee and the number of shares or
16 units subject to the pledge; and
17 (5) a notation of any liens and restrictions of the
18 issuer and any adverse claims (as to which the issuer has a
19 duty under section 8403(d)) to which the uncertificated
20 security is or may be subject or a statement that there are
21 none of those liens, restrictions or adverse claims.
22 (g) Periodic statement to registered pledgee.--At periodic
23 intervals no less frequent than annually and at any time upon
24 the reasonable written request of the registered pledgee, the
25 issuer shall send to the registered pledgee of each
26 uncertificated security a dated written statement containing:
27 (1) a description of the issue of which the
28 uncertificated security is a part;
29 (2) the name and address and any taxpayer identification
30 number of the registered owner;
19890H1826B2335 - 62 -
1 (3) the name and address and any taxpayer identification
2 number of the registered pledgee;
3 (4) the number of shares or units subject to the pledge;
4 and
5 (5) a notation of any liens and restrictions of the
6 issuer and any adverse claims (as to which the issuer has a
7 duty under section 8403(d)) to which the uncertificated
8 security is or may be subject or a statement that there are
9 none of those liens, restrictions or adverse claims.
10 (h) Limitation on duty to such statements.--If the issuer
11 sends the statements described in subsections (f) and (g) at
12 periodic intervals no less frequent than quarterly, the issuer
13 is not obliged to send additional statements upon request unless
14 the owner or pledgee requesting them pays to the issuer the
15 reasonable cost of furnishing them.
16 (i) Legend required on statements.--Each statement sent
17 pursuant to this section must bear a conspicuous legend reading
18 substantially as follows: "This statement is merely a record of
19 the rights of the addressee as of the time of its issuance.
20 Delivery of this statement of itself, confers no rights on the
21 recipient. This statement is neither a negotiable instrument nor
22 a security."
23 Section 4. Section 9103(c) and (f) of Title 13, amended
24 December 21, 1988 (P.L.1444, No.177), are amended to read:
25 § 9103. Perfection of security interests in multiple state
26 transactions.
27 * * *
28 (c) Accounts, general intangibles and mobile goods.--
29 (1) This subsection applies to accounts (other than an
30 account described in subsection (e) relating to minerals) and
19890H1826B2335 - 63 -
1 general intangibles (other than uncertificated securities)
2 and to goods which are mobile and which are of a type
3 normally used in more than one jurisdiction, such as motor
4 vehicles, trailers, rolling stock, airplanes, shipping
5 containers, road building and construction machinery and
6 commercial harvesting machinery and the like, if the goods
7 are equipment or are inventory leased or held for lease by
8 the debtor to others and are not covered by a certificate of
9 title described in subsection (b).
10 * * *
11 (f) Uncertificated securities.--
12 [(1) Except as provided in paragraph (2), the] The law
13 (including the conflict of laws rules) of the jurisdiction of
14 organization of the issuer governs the perfection and the
15 effect of perfection or nonperfection of a security interest
16 in uncertificated securities.
17 [(2) In the case of a registered corporation as defined
18 in 15 Pa.C.S. § 2502 (relating to registered corporation
19 status), which has a class of uncertificated securities
20 listed on the New York Stock Exchange or the American Stock
21 Exchange, the law (including the conflict of laws rules) of
22 the jurisdiction in which those exchanges are located governs
23 the perfection and the effect of perfection or nonperfection
24 of a security interest in such uncertificated securities.]
25 Section 5. Sections 9105 (definition of "instrument"),
26 9203(a), 9302(a)(6), 9304(a), (d), (e) and (f), 9305, 9309 and
27 9312(g) are amended to read:
28 § 9105. Definitions and index of definitions.
29 (a) Definitions.--The following words and phrases when used
30 in this division shall have, unless the context clearly
19890H1826B2335 - 64 -
1 indicates otherwise, the meanings given to them in this
2 subsection:
3 * * *
4 "Instrument." A negotiable instrument (defined in section
5 3104), or a certificated security (defined in section 8102) or
6 any other writing which evidences a right to the payment of
7 money and is not itself a security agreement or lease and is of
8 a type which is in ordinary course of business transferred by
9 delivery with any necessary indorsement or assignment.
10 * * *
11 § 9203. Attachment and enforceability of security interest;
12 proceeds, formal requisites.
13 (a) Enforceability.--Subject to the provisions of section
14 4208 on the security interest of a collecting bank, section 8321
15 on security interests in securities and section 9113 on a
16 security interest arising under the division on sales, a
17 security interest is not enforceable against the debtor or third
18 parties with respect to the collateral and does not attach
19 unless:
20 (1) the collateral is in the possession of the secured
21 party pursuant to agreement, or the debtor has signed a
22 security agreement which contains a description of the
23 collateral and in addition, when the security interest covers
24 crops growing or to be grown or timber to be cut, a
25 description of the land concerned;
26 (2) value has been given; and
27 (3) the debtor has rights in the collateral.
28 * * *
29 § 9302. When filing is required to perfect security interest;
30 security interests to which filing provisions of
19890H1826B2335 - 65 -
1 division do not apply.
2 (a) General rule.--A financing statement must be filed to
3 perfect all security interests except the following:
4 * * *
5 (6) a security interest of a collecting bank (section
6 4208) or in securities (section 8321) or arising under
7 Division 2 (relating to sales) (see section 9113) or covered
8 in subsection (c); and
9 * * *
10 § 9304. Perfection of security interest in instruments,
11 documents and goods covered by documents; perfection
12 by permissive filing; temporary perfection without
13 filing or transfer of possession.
14 (a) Chattel paper, negotiable documents, money and
15 instruments.--A security interest in chattel paper or negotiable
16 documents may be perfected by filing. A security interest in
17 money or instruments (other than certificated securities or
18 instruments which constitute part of chattel paper) can be
19 perfected only by the secured party's taking possession, except
20 as provided in subsections (d) and (e) and section 9306(b) and
21 (c) (relating to "proceeds"; rights of secured party on
22 disposition of collateral).
23 * * *
24 (d) Temporary perfection for new value given.--A security
25 interest in instruments (other than certificated securities) or
26 negotiable documents is perfected without filing or the taking
27 of possession for a period of 21 days from the time it attaches
28 to the extent that it arises for new value given under a written
29 security agreement.
30 (e) Temporary perfection on transfer of possession.--A
19890H1826B2335 - 66 -
1 security interest remains perfected for a period of 21 days
2 without filing where a secured party having a perfected security
3 interest in an instrument (other than a certificated security),
4 a negotiable document or goods in possession of a bailee other
5 than one who has issued a negotiable document therefor:
6 (1) makes available to the debtor the goods or documents
7 representing the goods for the purpose of ultimate sale or
8 exchange or for the purpose of loading, unloading, storing,
9 shipping, transshipping, manufacturing, processing or
10 otherwise dealing with them in a manner preliminary to their
11 sale or exchange, but priority between conflicting security
12 interests in the goods is subject to section 9312(c)
13 (relating to priorities among conflicting security interests
14 in same collateral); or
15 (2) delivers the instrument to the debtor for the
16 purpose of ultimate sale or exchange or of presentation,
17 collection, renewal or registration of transfer.
18 (f) Expiration of period of temporary perfection.--After the
19 21-day period in subsections (d) and (e) perfection depends upon
20 compliance with applicable provisions of this division.
21 § 9305. When possession by secured party perfects security
22 interest without filing.
23 A security interest in letters of credit and advices of
24 credit (section 5116(b)(1)), goods, instruments (other than
25 certificated securities), money, negotiable documents or chattel
26 paper may be perfected by the secured party's taking possession
27 of the collateral. If such collateral other than goods covered
28 by a negotiable document is held by a bailee, the secured party
29 is deemed to have possession from the time the bailee receives
30 notification of the interest of the secured party. A security
19890H1826B2335 - 67 -
1 interest is perfected by possession from the time possession is
2 taken without relation back and continues only so long as
3 possession is retained, unless otherwise specified in this
4 division.
5 The security interest may be otherwise perfected as provided
6 in this division before or after the period of possession by the
7 secured party.
8 § 9309. Protection of purchasers of instruments and documents.
9 Nothing in this division limits the rights of a holder in due
10 course of a negotiable instrument (section 3302) or a holder to
11 whom a negotiable document of title has been duly negotiated
12 (section 7501) or a bona fide purchaser of a security (section
13 [8301] 8302) and such holders or purchasers take priority over
14 an earlier security interest even though perfected. Filing under
15 this division does not constitute notice of the security
16 interest to such holders or purchasers.
17 § 9312. Priorities among conflicting security interests in same
18 collateral.
19 * * *
20 (g) Future advances.--If future advances are made while a
21 security interest is perfected by filing or the taking of
22 possession or under section 8321 (relating to enforceability,
23 attachment, perfection and termination of security interests),
24 the security interest has the same priority for the purposes of
25 subsection (e) with respect to the future advances as it does
26 with respect to the first advance. If a commitment is made
27 before or while the security interest is so perfected, the
28 security interest has the same priority with respect to advances
29 made pursuant thereto. In other cases a perfected security
30 interest has priority from the date the advance is made.
19890H1826B2335 - 68 -
1 Section 6. Effective date.--This act shall take effect in 90
2 days.
E5L13CM/19890H1826B2335 - 69 -