Issue and Issuer under the Commercial Code

The Commercial Code, in Division 8, Chapter 2, deals with issue and issuer of investment securities in California. Section 8201 defines an “issuer” to include a person that does any of the four specified acts. A guarantor is an issuer to the extent of its guaranty, whether or not its obligation is noted on a security certificate. And issuer also means a person on whose behalf transfer books are maintained.

Section 8202 explains that, 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 subdivision 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 two specified rules apply if an issuer asserts that a security is not valid. The 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 non-delivery 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. 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.

Section 8203 explains that, after an act or event, creating a right to immediate performance of the principal obligation represented by a certificated security or setting a date on or after which the security is to be presented or surrendered for redemption or exchange, a purchaser is charged with notice of any defect in its issue or defense of the issuer, if the act or event does either of two specified things.

Section 8204 specifies a restriction on transfer of a security imposed by the issuer, even if otherwise lawful, is ineffective against a person without knowledge of the restriction unless either of the specified conditions applies.

Section 8205 states an unauthorized signature placed on a security certificate before or in the course of issue is ineffective, but the signature is effective in favor of a purchaser for value of the certificated security if the purchaser is without notice of the lack of authority and the signing has been done by one of the two specified individuals.

Section 8206 says, if a security certificate contains the signatures necessary to its issue or transfer but is incomplete in any other respect, the two specified requirements apply. Also, a complete security certificate that has been improperly altered, even if fraudulently, remains enforceable, but only according to its original terms.

Section 8207 specifies that, before due presentment for registration of transfer of a certificated security in registered form or of an instruction requesting registration of transfer of an uncertificated security, the issuer or indenture trustee may treat the registered owner as the person exclusively entitled to vote, receive notifications, and otherwise exercise all the rights and powers of an owner.

Section 8208 provides a person signing a security certificate as authenticating trustee, registrar, transfer agent, or the like, warrants all three of the specified items to a purchaser for value of the certificated security, if the purchaser is without notice of a particular defect. A person signing does not assume responsibility for the validity of the security in other respects.

Section 8209 states that a lien in favor of an issuer upon a certificated security is valid against a purchaser only if the right of the issuer to the lien is noted conspicuously on the security certificate.

Section 8210 defines the term “overissue.” Also, the provisions of this division that validate a security or compel its issue or reissue do not apply to the extent that validation, issue, or reissue would result in overissue.