Transfer of Investment Securities

Commercial Code, in Division 8, Chapter 3, deals with the transfer of certificated and uncertificated securities in California. Section 8301 provides that delivery of a certificated security to a purchaser occurs when any of three specified actions occur. Delivery of an uncertificated security to a purchaser occurs when any of two specified actions occur.

Section 8302 states that a purchaser of a certificated or uncertificated security acquires all rights in the security that the transferor had or had power to transfer. A purchaser of a limited interest acquires rights only to the extent of the interest purchased. And, a purchaser of a certificated security who as a previous holder had notice of an adverse claim does not improve its position by taking from a protected purchaser.

Section 8303 defines the term “protected purchaser.”

Section 8304 states that an endorsement may be in blank or special. An endorsement in blank includes an endorsement to bearer. A special endorsement specifies to whom a security is to be transferred or who has power to transfer it. A holder may convert a blank endorsement to a special endorsement. There are additional rules related to endorsements.

If a security certificate in registered form has been delivered to a purchaser without a necessary endorsement, the purchaser may become a protected purchaser only when the endorsement is supplied. However, against a transferor, a transfer is complete upon delivery and the purchaser has a specifically enforceable right to have any necessary endorsement supplied.

Section 8305 specifies that, if an instruction has been originated by an appropriate person but is incomplete in any other respect, any person may complete it as authorized and the issuer may rely on it as completed, even though it has been completed incorrectly.

Section 8306 provides a person who guarantees a signature of an endorser of a security certificate warrants that at the time of signing all of the three specified conditions were true. A person who guarantees a signature of the originator of an instruction warrants that at the time of signing all of the three specified conditions were true.

In addition, a person who specially guarantees the signature of an originator of an instruction makes the warranties of a signature guarantor and also warrants that at the time the instruction is presented to the issuer that the two specified conditions are true. A person who guarantees an endorsement of a security certificate makes the warranties of a signature guarantor and also warrants the rightfulness of the transfer in all respects.

An issuer may not require a special guaranty of signature, a guaranty of endorsement, or a guaranty of instruction as a condition to registration of transfer. The warranties under this section are made to a person taking or dealing with the security in reliance on the guaranty, and the guarantor is liable to the person for loss resulting from their breach.

Section 8307 provides that the transferor of a security on due demand is required to supply the purchaser with proof of authority to transfer or with any other requisite necessary to obtain registration of the transfer of the security. If the transferor fails within a reasonable time to comply with the demand, the purchaser may reject or rescind the transfer.