KANSAS OFFICE of
  REVISOR of STATUTES

  

Home >> Statutes >> Back


Click to open printable format in new window.Printable Format
 | Next

84-8-202. Issuer's responsibility and defenses; notice of defect or defense. (a) Even against a purchaser for value and without notice, the terms of a certificated security include terms stated on the certificate and terms made part of the security by reference on the certificate to another instrument, indenture or document or to a constitution, statute, ordinance, rule, regulation, order, or the like, to the extent the terms referred to do not conflict with terms stated on the certificate. A reference under this subsection does not of itself charge a purchaser for value with notice of a defect going to the validity of the security, even if the certificate expressly states that a person accepting it admits notice. The terms of an uncertificated security include those stated in any instrument, indenture or document, or in a constitution, statute, ordinance, rule, regulation, order, or the like, pursuant to which the security is issued.

(b) The following rules apply if an issuer asserts that a security is not valid:

(1) A security other than one issued by a government or governmental subdivision, agency or instrumentality, even though issued with a defect going to its validity, is valid in the hands of a purchaser for value and without notice of the particular defect unless the defect involves a violation of a constitutional provision. In that case, the security is valid in the hands of a purchaser for value and without notice of the defect, other than one who takes by original issue.

(2) Paragraph (1) applies to an issuer that is a government or governmental subdivision, agency or instrumentality only if there has been substantial compliance with the legal requirements governing the issue or the issuer has received a substantial consideration for the issue as a whole or for the particular security and a stated purpose of the issue is one for which the issuer has power to borrow money or issue the security.

(c) Except as otherwise provided in section 49 [84-8-205], lack of genuineness of a certificated security is a complete defense, even against a purchaser for value and without notice.

(d) All other defenses of the issuer of a security, including nondelivery and conditional delivery of a certificated security, are ineffective against a purchaser for value who has taken the certificated security without notice of the particular defense.

(e) This section does not affect the right of a party to cancel a contract for a security when, as and if issued, or when distributed in the event of a material change in the character of the security that is the subject of the contract or in the plan or arrangement pursuant to which the security is to be issued or distributed.

(f) If a security is held by a securities intermediary against whom an entitlement holder has a security entitlement with respect to the security, the issuer may not assert any defense that the issuer could not assert if the entitlement holder held the security directly.

History: L. 1996, ch. 202, § 45; July 1.

KANSAS COMMENT, 1996

This section is a modified version of the former 84-8-202. Subsection (a) states the familiar rule that a purchaser of a security takes it subject to the terms stated on it and also subject to terms incorporated by reference unless such terms conflict with the stated express terms. A reference in the security to other documents does not of itself charge a purchaser for value with notice of a defect going to the validity of the security, even though the security expressly states that a person accepting it admits such notice. Compare Part 1 of Article 3, which states similar concepts applicable to commercial paper. Uncertificated securities are subject to the terms, laws and regulations by which they were issued.

Subsection (b) distinguishes governmental issues from other securities because of the public interest involved. Paragraph (b)(1) covers nongovernmental securities. A purchaser for value without notice is protected against defects affecting the validity of the security, but if the defect is constitutional, original purchasers are subject to the defects.

Paragraph (b)(2) covers governmental securities. The rule of paragraph (b)(2) protecting purchasers still applies, but with additional limitations. If the issuer has substantially complied with the legal requirements governing the issue or has received a substantial consideration for either the issue as a whole or for the particular security, the security is valid in the hands of a purchaser for value without notice. In addition, the issuer must have had authority to borrow the money or issue the security involved. The requirement of substantial compliance under this paragraph protects an innocent purchaser in cases in which the issuer committed a mere technical violation, such as in the manner of publishing election notices. Kansas decisions have generally permitted the innocent purchaser to rely on the recitals of compliance in municipal bonds. See State ex rel. Robb v. Commissioners of Kiowa County, 39 K. 657, 19 P. 925 (1888); State v. Wichita County, 62 K. 494, 64 P. 45 (1901); City of Kanopolis v. Mountain, 147 K. 322, 76 P.2d 803 (1938). For a more modern illustration of the operation of paragraph (2)(b), see Farmers State Bank v. City of Yates Center, 229 K. 330, 624 P.2d 971 (1981).

Under subsection (c) and subject to minor exceptions, forgery is a complete defense, even against a purchaser for value without notice. For an illustration of subsection (c), see New Jersey Bank, N.A. v. Bradford Securities Operations, Inc., 32 U.C.C. Rep. Serv. 524 (D.N.J. 1981). "Genuine" is defined in 84-1-201(18).

Subsection (d) states the general rule that a purchaser for value without notice takes free of most of the issuer's defenses. It is the analog to 84-3-302 and 84-3-305(b) dealing with the rights of a holder in due course of commercial paper.

Under subsection (e), a contract providing "when, as and if issued," or the like, is recognized, but such a contract may be cancelled in case of a material change in the character of the security or the plan of issuance.

Subsection (f) is new. It gives the entitlement holder the same rights against the securities intermediary as the holder of a certificated security has against the issuer.

Revisor's Note:

Former section 84-8-202 was repealed by L. 1996, ch. 202, § 91 and the number reassigned to the current text.


 | Next

LEGISLATIVE COORDINATING COUNCIL
  6/03/2024 Meeting Notice 

  LCC Policies

REVISOR OF STATUTES
  2023 New, Amended and Repealed by KSA
  2023 New, Amended and Repealed by Bill
  2024 Valid Section Numbers
  Chapter 72 Statute Transfer List
  Kansas School Equity & Enhancement Act
  Gannon v. State
  Information for Special Session 2021
  General Info., Legal Analysis & Research
  2022 Amended & Repealed Statutes
  2021 Amended & Repealed Statutes
  2020 Amended & repealed Statutes
  2019 Amended & Repealed Statutes

USEFUL LINKS
Session Laws

OTHER LEGISLATIVE SITES
Kansas Legislature
Administrative Services
Division of Post Audit
Research Department