Download as PDF
355.8-202 Issuer's responsibility and defenses -- Notice of defect of defense.
(1)
(2)
(3)
(4)
(5)
(6)
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.
The following rules apply if an issuer asserts that a security is not valid:
(a) 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.
(b) Paragraph (a) of this subsection 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.
Except as otherwise provided in KRS 355.8-205, lack of genuineness of a
certificated security is a complete defense, even against a purchaser for value and
without notice.
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.
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.
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.
Effective: January 1, 1997
History: Repealed and reenacted 1996 Ky. Acts ch. 130, sec. 131, effective January 1,
1997. -- Amended 1986 Ky. Acts ch. 118, sec. 18, effective July 1, 1987. -- Created
1958 Ky. Acts ch. 77, sec. 8-202, effective July 1, 1960.
Disclaimer: These codes may not be the most recent version. Kentucky may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.