2023 District of Columbia Code › Title 28 - Commercial Instruments and Transactions. [Enacted title] › Subtitle I - Uniform Commercial Code › Article 8 - Investment Securities › Part I - Short Title and General Matters › § 28:8–108. Warranties in direct holding

§ 28:8–108. Warranties in direct holding.
(a) A person who transfers a certificated security to a purchaser for value warrants to the purchaser, and an indorser, if the transfer is by indorsement, warrants to any subsequent purchaser, that:
(1) The certificate is genuine and has not been materially altered;
(2) The transferor or indorser does not know of any fact that might impair the validity of the security;
(3) There is no adverse claim to the security;
(4) The transfer does not violate any restriction on transfer;
(5) If the transfer is by indorsement, the indorsement is made by an appropriate person, or if the indorsement is by an agent, the agent has actual authority to act on behalf of the appropriate person; and
(6) The transfer is otherwise effective and rightful.
(b) A person who originates an instruction for registration of transfer of an uncertificated security to a purchaser for value warrants to the purchaser that:
(1) The instruction is made by an appropriate person, or if the instruction is by an agent, the agent has actual authority to act on behalf of the appropriate person;
(2) The security is valid;
(3) There is no adverse claim to the security; and
(4) At the time the instruction is presented to the issuer:
(A) The purchaser will be entitled to the registration of transfer;
(B) The transfer will be registered by the issuer free from all liens, security interests, restrictions, and claims other than those specified in the instruction;
(C) The transfer will not violate any restriction on transfer; and
(D) The requested transfer will otherwise be effective and rightful.
(c) A person who transfers an uncertificated security to a purchaser for value and does not originate an instruction in connection with the transfer warrants that:
(1) The uncertificated security is valid;
(2) There is no adverse claim to the security;
(3) The transfer does not violate any restriction on transfer; and
(4) The transfer is otherwise effective and rightful.
(d) A person who indorses a security certificate warrants to the issuer that:
(1) There is no adverse claim to the security; and
(2) The indorsement is effective.
(e) A person who originates an instruction for registration of transfer of an uncertificated security warrants to the issuer that:
(1) The instruction is effective; and
(2) At the time the instruction is presented to the issuer the purchaser will be entitled to the registration of transfer.
(f) A person who presents a certificated security for registration of transfer or for payment or exchange warrants to the issuer that the person is entitled to the registration, payment, or exchange, but a purchaser for value and without notice of adverse claims to whom transfer is registered warrants only that the person has no knowledge of any unauthorized signature in a necessary indorsement.
(g) If a person acts as agent of another in delivering a certificated security to a purchaser, the identity of the principal was known to the person to whom the certificate was delivered, and the certificate delivered by the agent was received by the agent from the principal or received by the agent from another person at the direction of the principal, the person delivering the security certificate warrants only that the delivering person has authority to act for the principal and does not know of any adverse claim to the certificated security.
(h) A secured party who redelivers a security certificate received, or after payment and on order of the debtor delivers the security certificate to another person, makes only the warranties of an agent under subsection (g) of this section.
(i) Except as otherwise provided in subsection (g) of this section, a broker acting for a customer makes to the issuer and a purchaser the warranties provided in subsections (a) through (f) of this section. A broker that delivers a security certificate to its customer, or causes its customer to be registered as the owner of an uncertificated security, makes to the customer the warranties provided in subsection (a) or (b), and has the rights and privileges of a purchaser under this section. The warranties of and in favor of the broker acting as an agent are in addition to applicable warranties given by and in favor of the customer.
(Dec. 30, 1963, 77 Stat. 737, Pub. L. 88-243, § 1; Mar. 16, 1993, D.C. Law 9-196, § 4, 39 DCR 9165; renumbered and amended, Apr. 9, 1997, D.C. Law 11-240, § 2, 44 DCR 1087; Apr. 20, 1999, D.C. Law 12-264, § 26(a), 46 DCR 2118.)
Prior Codifications
1981 Ed., § 28:8-108.
1973 Ed., § 28:8-306.
Section References
This section is referenced in § 28:8-109, § 28:8-304, and § 28:8-305.
Uniform Commercial Code Comment
1. Subsections (a), (b), and (c) deal with warranties by security transferors to purchasers. Subsections (d) and (e) deal with warranties by security transferors to issuers. Subsection (f) deals with presentment warranties.
2. Subsection (a) specifies the warranties made by a person who transfers a certificated security to a purchaser for value. Paragraphs (3), (4), and (5) make explicit several key points that are implicit in the general warranty of paragraph (6) that the transfer is effective and rightful. Subsection (b) sets forth the warranties made to a purchaser for value by one who originates an instruction. These warranties are quite similar to those made by one transferring a certificated security, subsection (a), the principal difference being the absolute warranty of validity. If upon receipt of the instruction the issuer should dispute the validity of the security, the burden of proving validity is upon the transferor. Subsection (c) provides for the limited circumstances in which an uncertificated security could be transferred without an instruction, see Section 8-301(b)(2). Subsections (d) and (e) give the issuer the benefit of the warranties of an indorser or originator on those matters not within the issuer’s knowledge.
3. Subsection (f) limits the warranties made by a purchaser for value without notice whose presentation of a security certificate is defective in some way but to whom the issuer does register transfer. The effect is to deny the issuer a remedy against such a person unless at the time of presentment the person had knowledge of an unauthorized signature in a necessary indorsement. The issuer can protect itself by refusing to make the transfer or, if it registers the transfer before it discovers the defect, by pursuing its remedy against a signature guarantor.
4. Subsection (g) eliminates all substantive warranties in the relatively unusual case of a delivery of certificated security by an agent of a disclosed principal where the agent delivers the exact certificate that it received from or for the principal. Subsection (h) limits the warranties given by a secured party who redelivers a certificate. Subsection (i) specifies the warranties of brokers in the more common scenarios.
5. Under Section 1-102(3) the warranty provisions apply “unless otherwise agreed” and the parties may enter into express agreements to allocate the risks of possible defects. Usual estoppel principles apply with respect to transfers of both certificated and uncertificated securities whenever the purchaser has knowledge of the defect, and these warranties will not be breached in such a case.
Definitional Cross References
“Adverse claim”. Section 8-102(a)(1).
“Appropriate person”. Section 8-107.
“Broker”. Section 8-102(a)(3).
“Certificated security”. Section 8-102(a)(4).
“Indorsement”. Section 8-102(a)(11).
“Instruction”. Section 8-102(a)(12).
“Issuer”. Section 8-201.
“Person”. Section 1-201(30).
“Purchaser”. Sections 1-201(33) and 8-116.
“Secured party”. Section 9-105(1)(m).
“Security”. Section 8-102(a)(15).
“Security certificate”. Section 8-102(a)(16).
“Uncertificated security”. Section 8-102(a)(18).
“Value”. Sections 1-201(44) and 8-116.