CO Code § 4-8-303 (2021)
2021 Colorado Code|Title 4 - Uniform Commercial Code|Article 8 - Investment Securities|Part 3 - Transfer of Certificated and Uncertificated Securities|§ 4-8-303. Protected Purchaser

  “Protected purchaser” means a purchaser of a certificated or uncertificated security, or of an interest therein, who:   Gives value;    Does not have notice of any adverse claim to the security; and    Obtains control of the certificated or uncertificated security.       In addition to acquiring the rights of a purchaser, a protected purchaser also acquires its interest in the security free of any adverse claim.     History. Source: L. 96: Entire article R&RE, p. 221, § 2, effective July 1.    Editor's note:   This section is similar to former §§ 4-8-302 and 4-8-311 as they existed prior to 1996.   OFFICIAL COMMENT   1. Subsection (a) lists the requirements that a purchaser must meet to qualify as a “protected purchaser.” Subsection (b) provides that a protected purchaser takes its interest free from adverse claims. “Purchaser” is defined broadly in Section 1-201. A secured party as well as an outright buyer can qualify as a protected purchaser. Also, “purchase” includes taking by issue, so a person to whom a security is originally issued can qualify as a protected purchaser.   2. To qualify as a protected purchaser, a purchaser must give value, take without notice of any adverse claim, and obtain control. Value is used in the broad sense defined in Section 1-201(44). See also Section 8-116 (securities intermediary as purchaser for value). Adverse claim is defined in Section 8-102(a)(1). Section 8-105 specifies whether a purchaser has notice of an adverse claim. Control is defined in Section 8-106. To qualify as a protected purchaser there must be a time at which all of the requirements are satisfied. Thus if a purchaser obtains notice of an adverse claim before giving value or satisfying the requirements for control, the purchaser cannot be a protected purchaser. See also Section 8-304(d).   The requirement that a protected purchaser obtain control expresses the point that to qualify for the adverse claim cut-off rule a purchaser must take through a transaction that is implemented by the appropriate mechanism. By contrast, the rules in Part 2 provide that any purchaser for value of a security without notice of a defense may take free of the issuer's defense based on that defense. See Section 8-202.   3. The requirements for control differ depending on the form of the security. For securities represented by bearer certificates, a purchaser obtains control by delivery. See Sections 8-106(a) and 8-301(a). For securities represented by certificates in registered form, the requirements for control are: (1) delivery as defined in Section 8-301(b), plus (2) either an effective indorsement or registration of transfer by the issuer. See Section 8-106(b). Thus, a person who takes through a forged indorsement does not qualify as a protected purchaser by virtue of the delivery alone. If, however, the purchaser presents the certificate to the issuer for registration of transfer, and the issuer registers transfer over the forged indorsement, the purchaser can qualify as a protected purchaser of the new certificate. If the issuer registers transfer on a forged indorsement, the true owner will be able to recover from the issuer for wrongful registration, see Section 8-404, unless the owner's delay in notifying the issuer of a loss or theft of the certificate results in preclusion under Section 8-406.   For uncertificated securities, a purchaser can obtain control either by delivery, see Sections 8-106(c)(1) and 8-301(b), or by obtaining an agreement pursuant to which the issuer agrees to act on instructions from the purchaser without further consent from the registered owner, see Section 8-106(c)(2). The control agreement device of Section 8-106(c)(2) takes the place of the “registered pledge” concept of the 1978 version of Article 8. A secured lender who obtains a control agreement under Section 8-106(c)(2) can qualify as a protected purchaser of an uncertificated security.   4. This section states directly the rules determining whether one takes free from adverse claims without using the phrase “good faith.” Whether a person who takes under suspicious circumstances is disqualified is determined by the rules of Section 8-105 on notice of adverse claims. The term “protected purchaser,” which replaces the term “bona fide purchaser” used in the prior version of Article 8, is derived from the term “protected holder” used in the Convention on International Bills and Notes prepared by the United Nations Commission on International Trade Law (“UNCITRAL”).   Definitional Cross References:   “Adverse claim”. Section 8-102(a)(1)   “Certificated security”. Section 8-102(a)(4)   “Control”. Section 8-106   “Notice of adverse claim”. Section 8-105   “Purchaser”. Sections 1-201(33) 8-116   “Uncertificated security”. Section 8-102(a)(18)   “Value”. Sections 1-201(44) 8-116   ANNOTATION   Annotator's note. Since § 4-8-303 is similar to § 4-8-302 as it existed prior to the 1996 repeal and reenactment of this article, relevant cases construing that provision have been included in the annotations to this section.   Where evidence establishes that one had been informed that stock certificates were not validly issued before he accepted delivery, and that he had not acquired them for value and in good faith, he is not a bona fide purchaser. Folsom v. Sec. Nat'l Bank, 32 Colo. App. 91, 507 P.2d 1114 .   Lenders were purchasers of security interest rather than bailees or holders of stock where stock owner voluntarily delivered and pledged stock as security for loans made to third parties and where lender gave value in exchange for pledge. Under the circumstances, lender was entitled to sell stock to recover losses upon third party default. Knappenberger v. Shea, 874 P.2d 498 (Colo. App. 1994).   Lenders were “bona fide purchasers” in absence of evidence that lender associated with or had notice of alleged fraud prior to completion of loan and stock transactions and in absence of evidence establishing unconscionability of stock pledge agreement. Knappenberger v. Shea, 874 P.2d 498 (Colo. App. 1994).   Lenders who were “bona fide purchasers” belonged to favored sub-class of purchasers who prevail against all other claimants in the exercise of security interest where stock pledge agreement specifically authorized lender to sell or transfer stock and retain profits in the event of loan default. Knappenberger v. Shea, 874 P.2d 498 (Colo. App. 1994).   A party requesting reissuance of a stock certificate cannot claim status as a purchaser for value. Am. Sec. Transfer, Inc. v. Pantheon Indus., Inc., 871 F. Supp. 400 (D. Colo. 1994 ).   Purchaser of limited tax bond was not a “protected purchaser” acquiring rights greater than the seller held because purchaser had prior notice of another's adverse claim. Meadow Homes Dev. Corp. v. Bowens, 211 P.3d 743 (Colo. App. 2009).