After an act or event, other than a call that has been revoked, creating a right to immediate performance of the principal obligation represented by a certificated security or setting a date on or after which the security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:

(1) requires the payment of money, the delivery of a certificated security, the registration of transfer of an uncertificated security, or any of them, on presentation or surrender of the security certificate, the money or security is available on the date set for payment or exchange, and the purchaser takes the security more than one year after that date; or

(2) is not covered by Paragraph (1) and the purchaser takes the security more than two years after the date set for surrender or presentation or the date on which performance became due.

History: 1978 Comp., § 55-8-203, enacted by Laws 1996, ch. 47, § 23.

OFFICIAL COMMENTS

UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.

1. The problem of matured or called securities is here dealt with in terms of the effect of such events in giving notice of the issuer's defenses and not in terms of "negotiability". The substance of this section applies only to certificated securities because certificates may be transferred to a purchaser by delivery after the security has matured, been called, or become redeemable or exchangeable. It is contemplated that uncertificated securities which have matured or been called will merely be canceled on the books of the issuer and the proceeds sent to the registered owner. Uncertificated securities which have become redeemable or exchangeable, at the option of the owner, may be transferred to a purchaser, but the transfer is effectuated only by registration of transfer, thus necessitating communication with the issuer. If defects or defenses in such securities exist, the issuer will necessarily have the opportunity to bring them to the attention of the purchaser.

2. The fact that a security certificate is in circulation long after it has been called for redemption or exchange must give rise to the question in a purchaser's mind as to why it has not been surrendered. After the lapse of a reasonable period of time a purchaser can no longer claim "no reason to know" of any defects or irregularities in its issue. Where funds are available for the redemption the security certificate is normally turned in more promptly and a shorter time is set as the "reasonable period" than is set where funds are not available.

Defaulted certificated securities may be traded on financial markets in the same manner as unmatured and undefaulted instruments and a purchaser might not be placed upon notice of irregularity by the mere fact of default. An issuer, however, should at some point be placed in a position to determine definitely its liability on an invalid or improper issue, and for this purpose a security under this section becomes "stale" two years after the default. A different rule applies when the question is notice not of issuer's defenses but of claims of ownership. Section 8-105 [55-8-105 NMSA 1978] and Comment.

3. Nothing in this section is designed to extend the life of preferred stocks called for redemption as "shares of stock" beyond the redemption date. After such a call, the security represents only a right to the funds set aside for redemption.

"Certificated security" Section 8-102(a)(4) [55-8-102 NMSA 1978]

"Notice" Section 1-201(25) [55-1-201 NMSA 1978]

"Purchaser" Sections 1-201(33) & 8-116 [55-8-116 NMSA 1978]

"Security" Section 8-102(a)(15)

"Security certificate" Section 8-102(a)(16)

"Uncertificated security" Section 8-102(a)(18)

Repeals and reenactments. — Laws 1996, ch. 47, § 23 repealed former 55-8-203 NMSA 1978, as amended by Laws 1987, ch. 248 § 12, and enacted a new section, effective May 15, 1996.

Am. Jur. 2d, A.L.R. and C.J.S. references. — Validity, construction and effect of provisions of articles of incorporation or certificates of stock relating to redemption or retirement of preferred stock, 88 A.L.R. 1131.

Validity, construction and effect of provisions of article of incorporation of stock certificates relating to call, redemption or retirement of common stock, 48 A.L.R.2d 392.

Change in stock or corporate structure, or split or substitution of stock of corporation, as affecting bequest of stock, 46 A.L.R.3d 7.