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84-8-105. Notice of adverse claim. (a) A person has notice of an adverse claim if:

(1) The person knows of the adverse claim;

(2) the person is aware of facts sufficient to indicate that there is a significant probability that the adverse claim exists and deliberately avoids information that would establish the existence of the adverse claim; or

(3) the person has a duty, imposed by statute or regulation, to investigate whether an adverse claim exists, and the investigation so required would establish the existence of the adverse claim.

(b) Having knowledge that a financial asset or interest therein is or has been transferred by a representative imposes no duty of inquiry into the rightfulness of a transaction and is not notice of an adverse claim. However, a person who knows that a representative has transferred a financial asset or interest therein in a transaction that is, or whose proceeds are being used, for the individual benefit of the representative or otherwise in breach of duty has notice of an adverse claim.

(c) An act or event that creates a right to immediate performance of the principal obligation represented by a security certificate or sets a date on or after which the certificate is to be presented or surrendered for redemption or exchange does not itself constitute notice of an adverse claim except in the case of a transfer more than:

(1) One year after a date set for presentment or surrender for redemption or exchange; or

(2) six months after a date set for payment of money against presentation or surrender of the certificate, if money was available for payment on that date.

(d) A purchaser of a certificated security has notice of an adverse claim if the security certificate:

(1) Whether in bearer or registered form, has been indorsed for collection or for surrender or for some other purpose not involving transfer; or

(2) is in bearer form and has on it an unambiguous statement that it is the property of a person other than the transferor, but the mere writing of a name on the certificate is not such a statement.

(e) Filing of a financing statement under article 9 is not notice of an adverse claim to a financial asset.

History: L. 1996, ch. 202, § 32; July 1.

KANSAS COMMENT, 1996

This section is derived from former 84-8-304 and 84-8-305. It should be read in conjunction with 84-8-303 (protected purchasers) and 84-8-502, both of which provide where a person takes free of an adverse claim, an analog of Article 3's holder in due course status, 84-3-302. "Notice" is defined in 84-1-201(25).

Subsection (a) provides that a person has notice of an adverse claim if the person knows of the claim or is willfully ignorant of the adverse claim or the person breaches a statutory or regulatory duty to investigate a possible claim and the investigation would have revealed the claim. Subsection (b) provides that dealing with a representative does not create notice or create a duty to investigate, but knowledge of a representative's benefitting personally or knowledge of a breach of a representative's duty is notice of an adverse claim.

Subsection (c) deals with stale securities. Knowledge that a security is stale is not knowledge of an adverse claim, thus permitting continued trading in such securities after actual or possible default for one year after time for presentment or six months from payment if monies were available to pay it. An indorsement "for collection" or that a bearer security is owned by one other than the transferor is notice of an adverse claim under subsection (d). This will give the owner a method to protect its interests from protected purchasers by giving them notice. Article 9 filings do not constitute notice. See subsection (e) and 84-9-309.

Revisor's Note:

Former section 84-8-105 was repealed by L. 1996, ch. 202, § 91 and the number reassigned to the current text.


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