# Title 41 — Uniform Commercial Code

## Chapter 41-08 — Investment Securities

### § 41-08-01. (8-101) Short title.

This chapter may be cited as Uniform Commercial Code - Investment Securities.
### § 41-08-02. (8-102) Definitions.

1. In this chapter:
a. "Adverse claim" means a claim that a claimant has a property interest in a
financial asset and that it is a violation of the rights of the claimant for another
person to hold, transfer, or deal with the financial asset.
b. "Bearer form", as applied to a certificated security, means a form in which the
security is payable to the bearer of the security certificate according to its terms
but not by reason of an endorsement.
c. "Broker" means a person defined as a broker or dealer under the federal
securities laws, but without excluding a bank acting in that capacity.
d. "Certificated security" means a security that is represented by a certificate.
e. "Clearing corporation" means:
(1) A person registered as a "clearing agency" under the federal securities laws;
(2) A federal reserve bank; or
(3) Any other person that provides clearance or settlement services with
respect to financial assets that would require it to register as a clearing
agency under the federal securities laws but for an exclusion or exemption
from the registration requirement, if its activities as a clearing corporation,
including promulgation of rules, are subject to regulation by a federal or
state governmental authority.
f. "Communicate" means to:
(1) Send a signed record; or
(2) Transmit information by any mechanism agreed upon by the persons
transmitting and receiving the information.
g. "Endorsement" means a signature that alone or accompanied by other words is
made on a security certificate in registered form or on a separate document for
the purpose of assigning, transferring, or redeeming the security or granting a
power to assign, transfer, or redeem it.
h. "Entitlement holder" means a person identified in the records of a securities
intermediary as the person having a security entitlement against the securities
intermediary. If a person acquires a security entitlement by virtue of subdivision b
or c of subsection 2 of section 41-08-41, that person is the entitlement holder.
i. "Entitlement order" means a notification communicated to a securities
intermediary directing transfer or redemption of a financial asset to which the
entitlement holder has a security entitlement.
j. "Financial asset", except as otherwise provided in section 41-08-03, means:
(1) A security;
(2) An obligation of a person or a share, participation, or other interest in a
person or in property or an enterprise of a person, which is, or is of a type,
dealt in or traded on financial markets, or which is recognized in any area in
which it is issued or dealt in as a medium for investment; or
(3) Any property that is held by a securities intermediary for another person in a
securities account if the securities intermediary has expressly agreed with
the other person that the property is to be treated as a financial asset under
this chapter.
As context requires, the term means either the interest itself or the means by
which a person's claim to it is evidenced, including a certificated or uncertificated
security, a security certificate, or a security entitlement.

k. "Instruction" means a notification communicated to the issuer of an uncertificated
security which directs that the transfer of the security be registered or that the
security be redeemed.
l. "Registered form", as applied to a certificated security, means a form in which:
(1) The security certificate specifies a person entitled to the security; and
(2) A transfer of the security may be registered upon books maintained for that
purpose by or on behalf of the issuer, or the security certificate so states.
m. "Securities intermediary" means:
(1) A clearing corporation; or
(2) A person, including a bank or broker, that in the ordinary course of its
business maintains securities accounts for others and is acting in that
capacity.
n. "Security", except as otherwise provided in section 41-08-03, means an obligation
of an issuer or a share, participation, or other interest in an issuer or in property
or an enterprise of an issuer:
(1) Which is represented by a security certificate in bearer or registered form, or
the transfer of which may be registered upon books maintained for that
purpose by or on behalf of the issuer;
(2) Which is one of a class or series or by its terms is divisible into a class or
series of shares, participations, interests, or obligations; and
(3) Which:
(a) Is, or is of a type, dealt in or traded on securities exchanges or
securities markets; or
(b) Is a medium for investment and by its terms expressly provides that it
is a security governed by this chapter.
o. "Security certificate" means a certificate representing a security.
p. "Security entitlement" means the rights and property interest of an entitlement
holder with respect to a financial asset specified in sections 41-08-41 through
41-08-51.
q. "Uncertificated security" means a security that is not represented by a certificate.
2. The following definitions in this chapter and other chapters apply to this chapter:
a. "Appropriate person". Section 41-08-07.
b. "Control". Section 41-08-06.
c. "Controllable account". Section 41-09-02.
d. "Controllable electronic record". Section 41-12-02.
e. "Controllable payment intangible". Section 41-09-02.
f. "Delivery". Section 41-08-24.
g. "Investment company security". Section 41-08-03.
h. "Issuer". Section 41-08-17.
i. "Overissue". Section 41-08-26.
j. "Protected purchaser". Section 41-08-29.
k. "Securities account". Section 41-08-41.
3. In addition, chapter 41-01 contains general definitions and principles of construction
and interpretation applicable throughout this chapter.
4. The characterization of a person, business, or transaction for purposes of this chapter
does not determine the characterization of the person, business, or transaction for
purposes of any other law, regulation, or rule.
### § 41-08-03. (8-103) Rules for determining whether certain obligations and interests are

securities or financial assets.
In this chapter:
1. A share or similar equity interest issued by a corporation, business trust, joint stock
company, or similar entity is a security.
2. An "investment company security" is a security. "Investment company security" means
a share or similar equity interest issued by an entity that is registered as an investment
company under the federal investment company laws, an interest in a unit investment

trust that is so registered, or a face-amount certificate issued by a face-amount
certificate company that is so registered. "Investment company security" does not
include an insurance policy or endowment policy or annuity contract issued by an
insurance company.
3. An interest in a partnership or limited liability company is not a security unless it is
dealt in or traded on securities exchanges or in securities markets, its terms expressly
provide that it is a security governed by this chapter, or it is an investment company
security. However, an interest in a partnership or limited liability company is a financial
asset if it is held in a securities account.
4. A writing that is a security certificate is governed by this chapter and not by
chapter 41-03, even though it also meets the requirements of that chapter. However, a
negotiable instrument governed by chapter 41-03 is a financial asset if it is held in a
securities account.
5. An option or similar obligation issued by a clearing corporation to its participants is not
a security but is a financial asset.
6. A commodity contract, as defined in section 41-09-02, is not a security or a financial
asset.
7. A document of title is not a financial asset unless paragraph 3 of subdivision j of
subsection 1 of section 41-08-02 applies.
8. A controllable account, controllable electronic record, or controllable payment
intangible is not a financial asset unless paragraph 3 of subdivision j of subsection 1 of
section 41-08-02 applies.
### § 41-08-04. (8-104) Acquisition of security or financial asset or interest therein.

1. A person acquires a security or an interest therein, under this chapter, if:
a. The person is a purchaser to whom a security is delivered pursuant to section
41-08-27; or
b. The person acquires a security entitlement to the security pursuant to section
41-08-41.
2. A person acquires a financial asset, other than a security, or an interest therein, under
this chapter, if the person acquires a security entitlement to the financial asset.
3. A person who acquires a security entitlement to a security or other financial asset has
the rights specified in sections 41-08-41 through 41-08-51, but is a purchaser of any
security, security entitlement, or other financial asset held by the securities
intermediary only to the extent provided in section 41-08-43.
4. Unless the context shows that a different meaning is intended, a person who is
required by other law, regulation, rule, or agreement to transfer, deliver, present,
surrender, exchange, or otherwise put in the possession of another person a security
or financial asset satisfies that requirement by causing the other person to acquire an
interest in the security or financial asset pursuant to subsection 1 or 2.
### § 41-08-05. (8-105) Notice of adverse claim.

1. A person has notice of an adverse claim if:
a. The person knows of the adverse claim;
b. The person is aware of facts sufficient to indicate that there is a significant
probability that the adverse claim exists and deliberately avoids information that
would establish the existence of the adverse claim; or
c. The person has a duty, imposed by statute or regulation, to investigate whether
an adverse claim exists, and the investigation required would establish the
existence of the adverse claim.
2. Having knowledge that a financial asset or interest therein is or has been transferred
by a representative imposes no duty of inquiry into the rightfulness of a transaction
and is not notice of an adverse claim. However, a person who knows that a
representative has transferred a financial asset or interest therein in a transaction that
is, or whose proceeds are being used, for the individual benefit of the representative or
otherwise in breach of duty has notice of an adverse claim.

3. An act or event that creates a right to immediate performance of the principal
obligation represented by a security certificate or sets a date on or after which the
certificate is to be presented or surrendered for redemption or exchange does not itself
constitute notice of an adverse claim except in the case of a transfer more than:
a. One year after a date set for presentment or surrender for redemption or
exchange; or
b. Six months after a date set for payment of money against presentation or
surrender of the certificate, if money was available for payment on that date.
4. A purchaser of a certificated security has notice of an adverse claim if the security
certificate:
a. Whether in bearer or registered form, has been endorsed "for collection" or "for
surrender" or for some other purpose not involving transfer; or
b. Is in bearer form and has on it an unambiguous statement that it is the property of
a person other than the transferor, but the mere writing of a name on the
certificate is not such a statement.
5. Filing of a financing statement under chapter 41-09 is not notice of an adverse claim to
a financial asset.
### § 41-08-06. (8-106) Control.

1. A purchaser has "control" of a certificated security in bearer form if the certificated
security is delivered to the purchaser.
2. A purchaser has "control" of a certificated security in registered form if the certificated
security is delivered to the purchaser and:
a. The certificate is endorsed to the purchaser or in blank by an effective
endorsement; or
b. The certificate is registered in the name of the purchaser, upon original issue or
registration of transfer by the issuer.
3. A purchaser has "control" of an uncertificated security if:
a. The uncertificated security is delivered to the purchaser; or
b. The issuer has agreed that it will comply with instructions originated by the
purchaser without further consent by the registered owner.
4. A purchaser has "control" of a security entitlement if:
a. The purchaser becomes the entitlement holder;
b. The securities intermediary has agreed that it will comply with entitlement orders
originated by the purchaser without further consent by the entitlement holder; or
c. Another person, other than the transferor to the purchaser of an interest in the
security entitlement:
(1) Has control of the security entitlement and acknowledges that it has control
on behalf of the purchaser; or
(2) Obtains control of the security entitlement after having acknowledged that it
will obtain control of the security entitlement on behalf of the purchaser.
5. If an interest in a security entitlement is granted by the entitlement holder to the
entitlement holder's own securities intermediary, the securities intermediary has
control.
6. A purchaser who has satisfied the requirements of subsection 3 or 4 has control, even
if the registered owner in the case of subsection 3 or the entitlement holder in the case
of subsection 4 retains the right to make substitutions for the uncertificated security or
security entitlement, to originate instructions or entitlement orders to the issuer or
securities intermediary, or otherwise to deal with the uncertificated security or security
entitlement.
7. An issuer or a securities intermediary may not enter into an agreement of the kind
described in subdivision b of subsection 3 or subdivision b of subsection 4 without the
consent of the registered owner or entitlement holder, but an issuer or a securities
intermediary is not required to enter into such an agreement even though the
registered owner or entitlement holder so directs. An issuer or securities intermediary
that has entered into such an agreement is not required to confirm the existence of the

agreement to another party unless requested to do so by the registered owner or
entitlement holder.
8. A person that has control under this section is not required to acknowledge that it has
control on behalf of a purchaser.
9. If a person acknowledges that it has or will obtain control on behalf of a purchaser,
unless the person otherwise agrees or law other than this chapter or chapter 41-09
otherwise provides, the person does not owe any duty to the purchaser and is not
required to confirm the acknowledgment to any other person.
### § 41-08-07. (8-107) Whether endorsement, instruction, or entitlement order is effective.

1. "Appropriate person" means:
a. With respect to an endorsement, the person specified by a security certificate or
by an effective special endorsement to be entitled to the security;
b. With respect to an instruction, the registered owner of an uncertificated security;
c. With respect to an entitlement order, the entitlement holder;
d. If the person designated in subdivision a, b, or c is deceased, the designated
person's successor taking under other law or the designated person's personal
representative acting for the estate of the decedent; or
e. If the person designated in subdivision a, b, or c lacks capacity, the designated
person's guardian, conservator, or other similar representative who has power
under other law to transfer the security or financial asset.
2. An endorsement, instruction, or entitlement order is effective if:
a. It is made by the appropriate person;
b. It is made by a person who has power under the law of agency to transfer the
security or financial asset on behalf of the appropriate person, including, in the
case of an instruction or entitlement order, a person who has control under
subdivision b of subsection 3 or subdivision b of subsection 4 of section 41-08-06;
or
c. The appropriate person has ratified it or is otherwise precluded from asserting its
ineffectiveness.
3. An endorsement, instruction, or entitlement order made by a representative is effective
even if:
a. The representative has failed to comply with a controlling instrument or with the
law of the state having jurisdiction of the representative relationship, including any
law requiring the representative to obtain court approval of the transaction; or
b. The representative's action in making the endorsement, instruction, or entitlement
order or using the proceeds of the transaction is otherwise a breach of duty.
4. If a security is registered in the name of or specially endorsed to a person described
as a representative, or if a securities account is maintained in the name of a person
described as a representative, an endorsement, instruction, or entitlement order made
by the person is effective even though the person is no longer serving in the described
capacity.
5. Effectiveness of an endorsement, instruction, or entitlement order is determined as of
the date the endorsement, instruction, or entitlement order is made, and an
endorsement, instruction, or entitlement order does not become ineffective by reason
of any later change of circumstances.
### § 41-08-08. (8-108) Warranties in direct holding.

1. A person who transfers a certificated security to a purchaser for value warrants to the
purchaser, and an endorser, if the transfer is by endorsement, warrants to any
subsequent purchaser, that:
a. The certificate is genuine and has not been materially altered;
b. The transferor or endorser does not know of any fact that might impair the validity
of the security;
c. There is no adverse claim to the security;
d. The transfer does not violate any restriction on transfer;

e. If the transfer is by endorsement, the endorsement is made by an appropriate
person, or if the endorsement is by an agent, the agent has actual authority to act
on behalf of the appropriate person; and
f. The transfer is otherwise effective and rightful.
2. A person who originates an instruction for registration of transfer of an uncertificated
security to a purchaser for value warrants to the purchaser that:
a. 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;
b. The security is valid;
c. There is no adverse claim to the security; and
d. At the time the instruction is presented to the issuer:
(1) The purchaser will be entitled to the registration of transfer;
(2) The transfer will be registered by the issuer free from all liens, security
interests, restrictions, and claims other than those specified in the
instruction;
(3) The transfer will not violate any restriction on transfer; and
(4) The requested transfer will otherwise be effective and rightful.
3. 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:
a. The uncertificated security is valid;
b. There is no adverse claim to the security;
c. The transfer does not violate any restriction on transfer; and
d. The transfer is otherwise effective and rightful.
4. A person who endorses a security certificate warrants to the issuer that:
a. There is no adverse claim to the security; and
b. The endorsement is effective.
5. A person who originates an instruction for registration of transfer of an uncertificated
security warrants to the issuer that:
a. The instruction is effective; and
b. At the time the instruction is presented to the issuer the purchaser will be entitled
to the registration of transfer.
6. 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 endorsement.
7. 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.
8. 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 7.
9. Except as otherwise provided in subsection 7, a broker acting for a customer makes to
the issuer and a purchaser the warranties provided in subsections 1 through 6. 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 1 or 2, 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.

### § 41-08-09. (8-109) Warranties in indirect holding.

1. A person who originates an entitlement order to a securities intermediary warrants to
the securities intermediary that:
a. The entitlement order is made by an appropriate person, or if the entitlement
order is by an agent, the agent has actual authority to act on behalf of the
appropriate person; and
b. There is no adverse claim to the security entitlement.
2. A person who delivers a security certificate to a securities intermediary for credit to a
securities account or originates an instruction with respect to an uncertificated security
directing that the uncertificated security be credited to a securities account makes to
the securities intermediary the warranties specified in subsection 1 or 2 of section
41-08-08.
3. If a securities intermediary delivers a security certificate to its entitlement holder or
causes its entitlement holder to be registered as the owner of an uncertificated
security, the securities intermediary makes to the entitlement holder the warranties
specified in subsection 1 or 2 of section 41-08-08.
### § 41-08-10. (8-110) Applicability - Choice of law.

1. The local law of the issuer's jurisdiction, as specified in subsection 4, governs:
a. The validity of a security;
b. The rights and duties of the issuer with respect to registration of transfer;
c. The effectiveness of registration of transfer by the issuer;
d. Whether the issuer owes any duties to an adverse claimant to a security; and
e. Whether an adverse claim can be asserted against a person to whom transfer of
a certificated or uncertificated security is registered or a person who obtains
control of an uncertificated security.
2. The local law of the securities intermediary's jurisdiction, as specified in subsection 5,
governs:
a. Acquisition of a security entitlement from the securities intermediary;
b. The rights and duties of the securities intermediary and entitlement holder arising
out of a security entitlement;
c. Whether the securities intermediary owes any duties to an adverse claimant to a
security entitlement; and
d. Whether an adverse claim can be asserted against a person who acquires a
security entitlement from the securities intermediary or a person who purchases a
security entitlement or interest therein from an entitlement holder.
3. The local law of the jurisdiction in which a security certificate is located at the time of
delivery governs whether an adverse claim can be asserted against a person to whom
the security certificate is delivered.
4. "Issuer's jurisdiction" means the jurisdiction under which the issuer of the security is
organized or, if permitted by the law of that jurisdiction, the law of another jurisdiction
specified by the issuer. An issuer organized under the law of this state may specify the
law of another jurisdiction as the law governing the matters specified in subdivisions b
through e of subsection 1.
5. The following rules determine a "securities intermediary's jurisdiction" for purposes of
this section:
a. If an agreement between the securities intermediary and its entitlement holder
governing the securities account expressly provides that a particular jurisdiction is
the securities intermediary's jurisdiction for purposes of this part, this chapter, or
this title, that jurisdiction is the securities intermediary's jurisdiction.
b. If subdivision a does not apply and an agreement between the securities
intermediary and its entitlement holder governing the securities account expressly
provides that the agreement is governed by the law of a particular jurisdiction,
that jurisdiction is the securities intermediary's jurisdiction.
c. If neither subdivision a nor b applies and an agreement between the securities
intermediary and its entitlement holder governing the securities account expressly

provides that the securities account is maintained at an office in a particular
jurisdiction, that jurisdiction is the securities intermediary's jurisdiction.
d. If none of the preceding subdivisions applies, the securities intermediary's
jurisdiction is the jurisdiction in which the office identified in an account statement
as the office serving the entitlement holder's account is located.
e. If none of the preceding subdivisions applies, the securities intermediary's
jurisdiction is the jurisdiction in which the chief executive office of the securities
intermediary is located.
6. A securities intermediary's jurisdiction is not determined by the physical location of
certificates representing financial assets, or by the jurisdiction in which is organized
the issuer of the financial asset with respect to which an entitlement holder has a
security entitlement, or by the location of facilities for data processing or other
recordkeeping concerning the account.
7. The local law of the issuer's jurisdiction or the securities intermediary's jurisdiction
governs a matter or transaction specified in subsection 1 or 2 even if the matter or
transaction does not bear any relation to the jurisdiction.
### § 41-08-11. (8-111) Clearing corporation rules.

A rule adopted by a clearing corporation governing rights and obligations among the
clearing corporation and its participants in the clearing corporation is effective even if the rule
conflicts with this chapter and affects another party who does not consent to the rule.
### § 41-08-12. (8-112) Creditor's legal process.

1. The interest of a debtor in a certificated security may be reached by a creditor only by
actual seizure of the security certificate by the officer making the attachment or levy,
except as otherwise provided in subsection 4. However, a certificated security for
which the certificate has been surrendered to the issuer may be reached by a creditor
by legal process upon the issuer.
2. The interest of a debtor in an uncertificated security may be reached by a creditor only
by legal process upon the issuer at its chief executive office in the United States,
except as otherwise provided in subsection 4.
3. The interest of a debtor in a security entitlement may be reached by a creditor only by
legal process upon the securities intermediary with whom the debtor's securities
account is maintained, except as otherwise provided in subsection 4.
4. The interest of a debtor in a certificated security for which the certificate is in the
possession of a secured party, or in an uncertificated security registered in the name of
a secured party, or a security entitlement maintained in the name of a secured party,
may be reached by a creditor by legal process upon the secured party.
5. A creditor whose debtor is the owner of a certificated security, uncertificated security,
or security entitlement is entitled to aid from a court of competent jurisdiction, by
injunction or otherwise, in reaching the certificated security, uncertificated security, or
security entitlement or in satisfying the claim by means allowed at law or in equity in
regard to property that cannot readily be reached by other legal process.
### § 41-08-13. (8-113) Statute of frauds inapplicable.

A contract or modification of a contract for the sale or purchase of a security is enforceable
whether or not there is a writing signed or record authenticated by a party against whom
enforcement is sought, even if the contract or modification is not capable of performance within
one year of its making.
### § 41-08-14. (8-114) Evidentiary rules concerning certificated securities.

The following rules apply in an action on a certificated security against the issuer:
1. Unless specifically denied in the pleadings, each signature on a security certificate or
in a necessary endorsement is admitted.

2. If the effectiveness of a signature is put in issue, the burden of establishing
effectiveness is on the party claiming under the signature, but the signature is
presumed to be genuine or authorized.
3. If signatures on a security certificate are admitted or established, production of the
certificate entitles a holder to recover on it unless the defendant establishes a defense
or a defect going to the validity of the security.
4. If it is shown that a defense or defect exists, the plaintiff has the burden of establishing
that the plaintiff, or some person under whom the plaintiff claims, is a person against
whom the defense or defect cannot be asserted.
### § 41-08-15. (8-115) Securities intermediary and others not liable to adverse claimant.

A securities intermediary that has transferred a financial asset pursuant to an effective
entitlement order, or a broker or other agent or bailee that has dealt with a financial asset at the
direction of its customer or principal, is not liable to a person having an adverse claim to the
financial asset, unless the securities intermediary, or broker or other agent or bailee:
1. Took the action after it had been served with an injunction, restraining order, or other
legal process enjoining it from doing so, issued by a court of competent jurisdiction,
and had a reasonable opportunity to act on the injunction, restraining order, or other
legal process;
2. Acted in collusion with the wrongdoer in violating the rights of the adverse claimant; or
3. In the case of a security certificate that has been stolen, acted with notice of the
adverse claim.
### § 41-08-16. (8-116) Securities intermediary as purchaser for value.

A securities intermediary that receives a financial asset and establishes a security
entitlement to the financial asset in favor of an entitlement holder is a purchaser for value of the
financial asset. A securities intermediary that acquires a security entitlement to a financial asset
from another securities intermediary acquires the security entitlement for value if the securities
intermediary acquiring the security entitlement establishes a security entitlement to the financial
asset in favor of an entitlement holder.
### § 41-08-17. (8-201) Issuer.

1. With respect to an obligation on or a defense to a security, an "issuer" includes a
person who:
a. Places or authorizes the placing of its name on a security certificate, other than
as authenticating trustee, registrar, transfer agent, or the like, to evidence a
share, participation, or other interest in its property or in an enterprise, or to
evidence its duty to perform an obligation represented by the certificate;
b. Creates a share, participation, or other interest in its property or in an enterprise,
or undertakes an obligation, that is an uncertificated security;
c. Directly or indirectly creates a fractional interest in its rights or property, if the
fractional interest is represented by a security certificate; or
d. Becomes responsible for, or in place of, another person described as an issuer in
this section.
2. With respect to an obligation on or defense to a security, a guarantor is an issuer to the
extent of its guaranty, whether or not its obligation is noted on a security certificate.
3. With respect to a registration of a transfer, issuer means a person on whose behalf
transfer books are maintained.
### § 41-08-18. (8-202) Issuer's responsibility and defenses - Notice of defect or defense.

1. 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 subsection 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 terms of an uncertificated security include those stated
in any instrument, indenture, or document or in a constitution, statute, ordinance, rule,
regulation, order, or the like, pursuant to which the security is issued.
2. The following rules apply if an issuer asserts that a security is not valid:
a. A security other than one issued by a government or governmental subdivision,
agency, or instrumentality, even though issued with a defect going to its validity, is
valid in the hands of a purchaser for value and without notice of the particular
defect unless the defect involves a violation of a constitutional provision. In that
case, the security is valid in the hands of a purchaser for value and without notice
of the defect, other than one who takes by original issue.
b. Subdivision a applies to an issuer that is a government or governmental
subdivision, agency, or instrumentality only if there has been substantial
compliance with the legal requirements governing the issue or the issuer has
received a substantial consideration for the issue as a whole or for the particular
security and a stated purpose of the issue is one for which the issuer has power
to borrow money or issue the security.
3. Except as otherwise provided in section 41-08-21, lack of genuineness of a certificated
security is a complete defense, even against a purchaser for value and without notice.
4. All other defenses of the issuer of a security, including nondelivery 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.
5. This section does not affect the right of a party to cancel a contract for a security
"when, as and if issued" or "when distributed" in the event of a material change in the
character of the security that is the subject of the contract or in the plan or
arrangement pursuant to which the security is to be issued or distributed.
6. 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.
### § 41-08-19. (8-203) Staleness as notice of defect or defense.

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 subsection 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.
### § 41-08-20. (8-204) Effect of issuer's restriction on transfer.

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:
1. The security is certificated and the restriction is noted conspicuously on the security
certificate; or
2. The security is uncertificated and the registered owner has been notified of the
restriction.

### § 41-08-21. (8-205) Effect of unauthorized signature on security certificate.

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:
1. An authenticating trustee, registrar, transfer agent, or other person entrusted by the
issuer with the signing of the security certificate or of similar security certificates, or the
immediate preparation for signing of any of them; or
2. An employee of the issuer, or of any of the persons listed in subsection 1, entrusted
with responsible handling of the security certificate.
### § 41-08-22. (8-206) Completion or alteration of security certificate.

1. If a security certificate contains the signatures necessary to its issue or transfer but is
incomplete in any other respect:
a. Any person may complete it by filling in the blanks as authorized; and
b. Even if the blanks are incorrectly filled in, the security certificate as completed is
enforceable by a purchaser who took it for value and without notice of the
incorrectness.
2. A complete security certificate that has been improperly altered, even if fraudulently,
remains enforceable, but only according to its original terms.
### § 41-08-23. (8-207) Rights and duties of issuer with respect to registered owners.

1. 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.
2. This chapter does not affect the liability of the registered owner of a security for a call,
assessment, or the like.
### § 41-08-24. (8-208) Effect of signature of authenticating trustee, registrar, or transfer

agent.
1. A person signing a security certificate as authenticating trustee, registrar, transfer
agent, or the like, warrants to a purchaser for value of the certificated security, if the
purchaser is without notice of a particular defect, that:
a. The certificate is genuine;
b. The person's own participation in the issue of the security is within the person's
capacity and within the scope of the authority received by the person from the
issuer; and
c. The person has reasonable grounds to believe that the certificated security is in
the form and within the amount the issuer is authorized to issue.
2. Unless otherwise agreed, a person signing under subsection 1 does not assume
responsibility for the validity of the security in other respects.
### § 41-08-25. (8-209) Issuer's lien.

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.
### § 41-08-26. (8-210) Overissue.

1. In this section, "overissue" means the issue of securities in excess of the amount the
issuer has corporate power to issue, but an overissue does not occur if appropriate
action has cured the overissue.
2. Except as otherwise provided in subsections 3 and 4, the provisions of this chapter
which validate a security or compel its issue or reissue do not apply to the extent that
validation, issue, or reissue would result in overissue.

3. If an identical security not constituting an overissue is reasonably available for
purchase, a person entitled to issue or validation may compel the issuer to purchase
the security and deliver it if certificated or register its transfer if uncertificated against
surrender of any security certificate the person holds.
4. If a security is not reasonably available for purchase, a person entitled to issue or
validation may recover from the issuer the price the person or the last purchaser for
value paid for it with interest from the date of the person's demand.
### § 41-08-27. (8-301) Delivery.

1. Delivery of a certificated security to a purchaser occurs when:
a. The purchaser acquires possession of the security certificate;
b. Another person, other than a securities intermediary, either acquires possession
of the security certificate on behalf of the purchaser or, having previously
acquired possession of the certificate, acknowledges that it holds for the
purchaser; or
c. A securities intermediary acting on behalf of the purchaser acquires possession
of the security certificate, only if the certificate is in registered form and is:
(1) Registered in the name of the purchaser;
(2) Payable to the order of the purchaser; or
(3) Specially indorsed to the purchaser by an effective indorsement and has not
been indorsed to the securities intermediary or in blank.
2. Delivery of an uncertificated security to a purchaser occurs when:
a. The issuer registers the purchaser as the registered owner, upon original issue or
registration of transfer; or
b. Another person, other than a securities intermediary, either becomes the
registered owner of the uncertificated security on behalf of the purchaser or,
having previously become the registered owner, acknowledges that it holds for
the purchaser.
### § 41-08-28. (8-302) Rights of purchaser.

1. Except as otherwise provided in subsections 2 and 3, a purchaser of a certificated or
uncertificated security acquires all rights in the security that the transferor had or had
power to transfer.
2. A purchaser of a limited interest acquires rights only to the extent of the interest
purchased.
3. 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.
### § 41-08-29. (8-303) Protected purchaser.

1. "Protected purchaser" means a purchaser of a certificated or uncertificated security, or
of an interest therein, who:
a. Gives value;
b. Does not have notice of any adverse claim to the security; and
c. Obtains control of the certificated or uncertificated security.
2. A protected purchaser acquires its interest in the security free of any adverse claim.
### § 41-08-30. (8-304) Endorsement.

1. 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.
2. An endorsement purporting to be only of part of a security certificate representing units
intended by the issuer to be separately transferable is effective to the extent of the
endorsement.

3. An endorsement, whether special or in blank, does not constitute a transfer until
delivery of the certificate on which it appears or, if the endorsement is on a separate
document, until delivery of both the document and the certificate.
4. 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.
5. An endorsement of a security certificate in bearer form may give notice of an adverse
claim to the certificate, but it does not otherwise affect a right to registration that the
holder possesses.
6. Unless otherwise agreed, a person making an endorsement assumes only the
obligations provided in section 41-08-08 and not an obligation that the security will be
honored by the issuer.
### § 41-08-31. (8-305) Instruction.

1. 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.
2. Unless otherwise agreed, a person initiating an instruction assumes only the
obligations imposed by section 41-08-08 and not an obligation that the security will be
honored by the issuer.
### § 41-08-32. (8-306) Effect of guaranteeing signature, endorsement, or instruction.

1. A person who guarantees a signature of an endorser of a security certificate warrants
that at the time of signing:
a. The signature was genuine;
b. The signer was an appropriate person to endorse, or if the signature is by an
agent, the agent had actual authority to act on behalf of the appropriate person;
and
c. The signer had legal capacity to sign.
2. A person who guarantees a signature of the originator of an instruction warrants that at
the time of signing:
a. The signature was genuine;
b. The signer was an appropriate person to originate the instruction, or if the
signature is by an agent, the agent had actual authority to act on behalf of the
appropriate person, if the person specified in the instruction as the registered
owner was, in fact, the registered owner, as to which fact the signature guarantor
does not make a warranty; and
c. The signer had legal capacity to sign.
3. A person who specially guarantees the signature of an originator of an instruction
makes the warranties of a signature guarantor under subsection 2 and also warrants
that at the time the instruction is presented to the issuer:
a. The person specified in the instruction as the registered owner of the
uncertificated security will be the registered owner; and
b. The transfer of the uncertificated security requested in the instruction will be
registered by the issuer free from all liens, security interests, restrictions, and
claims other than those specified in the instruction.
4. A guarantor under subsections 1 and 2 or a special guarantor under subsection 3 does
not otherwise warrant the rightfulness of the transfer.
5. A person who guarantees an endorsement of a security certificate makes the
warranties of a signature guarantor under subsection 1 and also warrants the
rightfulness of the transfer in all respects.
6. A person who guarantees an instruction requesting the transfer of an uncertificated
security makes the warranties of a special signature guarantor under subsection 3 and
also warrants the rightfulness of the transfer in all respects.

7. 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.
8. 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. An endorser or originator of an instruction whose signature,
endorsement, or instruction has been guaranteed is liable to a guarantor for any loss
suffered by the guarantor as a result of breach of the warranties of the guarantor.
### § 41-08-33. (8-307) Purchaser's right to requisites for registration of transfer.

Unless otherwise agreed, the transferor of a security on due demand shall supply the
purchaser with proof of authority to transfer or with any other requisite necessary to obtain
registration of the transfer of the security, but if the transfer is not for value, a transferor need not
comply unless the purchaser pays the necessary expenses. If the transferor fails within a
reasonable time to comply with the demand, the purchaser may reject or rescind the transfer.
### § 41-08-34. (8-401) Duty of issuer to register transfer.

1. If a certificated security in registered form is presented to an issuer with a request to
register transfer or an instruction is presented to an issuer with a request to register
transfer of an uncertificated security, the issuer shall register the transfer as requested
if:
a. Under the terms of the security the person seeking registration of transfer is
eligible to have the security registered in its name;
b. The endorsement or instruction is made by the appropriate person or by an agent
who has actual authority to act on behalf of the appropriate person;
c. Reasonable assurance is given that the endorsement or instruction is genuine
and authorized (section 41-08-35);
d. Any applicable law relating to the collection of taxes has been complied with;
e. The transfer does not violate any restriction on transfer imposed by the issuer in
accordance with section 41-08-20;
f. A demand that the issuer not register transfer has not become effective under
section 41-08-36, or the issuer has complied with subsection 2 of section
subsection 4 of section 41-08-36; and
g. The transfer is in fact rightful or is to a protected purchaser.
2. If an issuer is under a duty to register a transfer of a security, the issuer is liable to a
person presenting a certificated security or an instruction for registration or to the
person's principal for loss resulting from unreasonable delay in registration or failure or
refusal to register the transfer.
### § 41-08-35. (8-402) Assurance that endorsement or instruction is effective.

1. An issuer may require the following assurance that each necessary endorsement or
each instruction is genuine and authorized:
a. In all cases, a guaranty of the signature of the person making an endorsement or
originating an instruction including, in the case of an instruction, reasonable
assurance of identity;
b. If the endorsement is made or the instruction is originated by an agent,
appropriate assurance of actual authority to sign;
c. If the endorsement is made or the instruction is originated by a fiduciary pursuant
to subdivision d or e of subsection 1 of section 41-08-07, appropriate evidence of
appointment or incumbency;
d. If there is more than one fiduciary, reasonable assurance that all who are
required to sign have done so; and
e. If the endorsement is made or the instruction is originated by a person not
covered by another provision of this subsection, assurance appropriate to the
case corresponding as nearly as may be to the provisions of this subsection.

2. An issuer may elect to require reasonable assurance beyond that specified in this
section.
3. In this section:
a. "Appropriate evidence of appointment or incumbency" means:
(1) In the case of a fiduciary appointed or qualified by a court, a certificate
issued by or under the direction or supervision of the court or an officer
thereof and dated within sixty days before the date of presentation for
transfer; or
(2) In any other case, a copy of a document showing the appointment or a
certificate issued by or on behalf of a person reasonably believed by an
issuer to be responsible or, in the absence of that document or certificate,
other evidence the issuer reasonably considers appropriate.
b. "Guaranty of the signature" means a guaranty signed by or on behalf of a person
reasonably believed by the issuer to be responsible. An issuer may adopt
standards with respect to responsibility if they are not manifestly unreasonable.
### § 41-08-36. (8-403) Demand that issuer not register transfer.

1. A person who is an appropriate person to make an endorsement or originate an
instruction may demand that the issuer not register transfer of a security by
communicating to the issuer a notification that identifies the registered owner and the
issue of which the security is a part and provides an address for communications
directed to the person making the demand. The demand is effective only if it is
received by the issuer at a time and in a manner affording the issuer reasonable
opportunity to act on it.
2. If a certificated security in registered form is presented to an issuer with a request to
register transfer or an instruction is presented to an issuer with a request to register
transfer of an uncertificated security after a demand that the issuer not register transfer
has become effective, the issuer shall promptly communicate to the person who
initiated the demand at the address provided in the demand and the person who
presented the security for registration of transfer or initiated the instruction requesting
registration of transfer a notification stating that:
a. The certificated security has been presented for registration of transfer or the
instruction for registration of transfer of the uncertificated security has been
received;
b. A demand that the issuer not register transfer had previously been received; and
c. The issuer will withhold registration of transfer for a period of time stated in the
notification in order to provide the person who initiated the demand an opportunity
to obtain legal process or an indemnity bond.
3. The period described in subdivision c of subsection 2 may not exceed thirty days after
the date of communication of the notification. A shorter period may be specified by the
issuer if it is not manifestly unreasonable.
4. An issuer is not liable to a person who initiated a demand that the issuer not register
transfer for any loss the person suffers as a result of registration of a transfer pursuant
to an effective endorsement or instruction if the person who initiated the demand does
not, within the time stated in the issuer's communication, either:
a. Obtain an appropriate restraining order, injunction, or other process from a court
of competent jurisdiction enjoining the issuer from registering the transfer; or
b. File with the issuer an indemnity bond, sufficient in the issuer's judgment to
protect the issuer and any transfer agent, registrar, or other agent of the issuer
involved from any loss it or they may suffer by refusing to register the transfer.
5. This section does not relieve an issuer from liability for registering transfer pursuant to
an endorsement or instruction that was not effective.

### § 41-08-37. (8-404) Wrongful registration.

1. Except as otherwise provided in section 41-08-39, an issuer is liable for wrongful
registration of transfer if the issuer has registered a transfer of a security to a person
not entitled to it, and the transfer was registered:
a. Pursuant to an ineffective endorsement or instruction;
b. After a demand that the issuer not register transfer became effective under
subsection 1 of section 41-08-36 and the issuer did not comply with subsection 2
of section 41-08-36;
c. After the issuer had been served with an injunction, restraining order, or other
legal process enjoining it from registering the transfer, issued by a court of
competent jurisdiction, and the issuer had a reasonable opportunity to act on the
injunction, restraining order, or other legal process; or
d. By an issuer acting in collusion with the wrongdoer.
2. An issuer that is liable for wrongful registration of transfer under subsection 1 on
demand shall provide the person entitled to the security with a like certificated or
uncertificated security, and any payments or distributions that the person did not
receive as a result of the wrongful registration. If an overissue would result, the
issuer's liability to provide the person with a like security is governed by section
41-08-26.
3. Except as otherwise provided in subsection 1 or in a law relating to the collection of
taxes, an issuer is not liable to an owner or other person suffering loss as a result of
the registration of a transfer of a security if registration was made pursuant to an
effective endorsement or instruction.
### § 41-08-38. (8-405) Replacement of lost, destroyed, or wrongfully taken security

certificate.
1. If an owner of a certificated security, whether in registered or bearer form, claims that
the certificate has been lost, destroyed, or wrongfully taken, the issuer shall issue a
new certificate if the owner:
a. So requests before the issuer has notice that the certificate has been acquired by
a protected purchaser;
b. Files with the issuer a sufficient indemnity bond; and
c. Satisfies other reasonable requirements imposed by the issuer.
2. If, after the issue of a new security certificate, a protected purchaser of the original
certificate presents it for registration of transfer, the issuer shall register the transfer
unless an overissue would result. In that case, the issuer's liability is governed by
section 41-08-26. In addition to any rights on the indemnity bond, an issuer may
recover the new certificate from a person to whom it was issued or any person taking
under that person, except a protected purchaser.
### § 41-08-39. (8-406) Obligation to notify issuer of lost, destroyed, or wrongfully taken

security certificate.
If a security certificate has been lost, apparently destroyed, or wrongfully taken, and the
owner fails to notify the issuer of that fact within a reasonable time after the owner has notice of
it and the issuer registers a transfer of the security before receiving notification, the owner may
not assert against the issuer a claim for registering the transfer under section 41-08-37 or a
claim to a new security certificate under section 41-08-38.
### § 41-08-40. (8-407) Authenticating trustee, transfer agent, and registrar.

A person acting as authenticating trustee, transfer agent, registrar, or other agent for an
issuer in the registration of a transfer of its securities, in the issue of new security certificates or
uncertificated securities, or in the cancellation of surrendered security certificates has the same
obligation to the holder or owner of a certificated or uncertificated security with regard to the
particular functions performed as the issuer has in regard to those functions.

### § 41-08-41. (8-501) Securities account - Acquisition of security entitlement from

securities intermediary.
1. "Securities account" means an account to which a financial asset is or may be credited
in accordance with an agreement under which the person maintaining the account
undertakes to treat the person for whom the account is maintained as entitled to
exercise the rights that comprise the financial asset.
2. Except as otherwise provided in subsections 4 and 5, a person acquires a security
entitlement if a securities intermediary:
a. Indicates by book entry that a financial asset has been credited to the person's
securities account;
b. Receives a financial asset from the person or acquires a financial asset for the
person and, in either case, accepts it for credit to the person's securities account;
or
c. Becomes obligated under other law, regulation, or rule to credit a financial asset
to the person's securities account.
3. If a condition of subsection 2 has been met, a person has a security entitlement even
though the securities intermediary does not itself hold the financial asset.
4. If a securities intermediary holds a financial asset for another person, and the financial
asset is registered in the name of, payable to the order of, or specially endorsed to the
other person, and has not been endorsed to the securities intermediary or in blank, the
other person is treated as holding the financial asset directly rather than as having a
security entitlement with respect to the financial asset.
5. Issuance of a security is not establishment of a security entitlement.
### § 41-08-42. (8-502) Assertion of adverse claim against entitlement holder.

An action based on an adverse claim to a financial asset, whether framed in conversion,
replevin, constructive trust, equitable lien, or other theory, may not be asserted against a person
who acquires a security entitlement under section 41-08-41 for value and without notice of the
adverse claim.
### § 41-08-43. (8-503) Property interest of entitlement holder in financial asset held by

securities intermediary.
1. To the extent necessary for a securities intermediary to satisfy all security entitlements
with respect to a particular financial asset, all interests in that financial asset held by
the securities intermediary are held by the securities intermediary for the entitlement
holders, are not property of the securities intermediary, and are not subject to claims of
creditors of the securities intermediary, except as otherwise provided in section
41-08-51.
2. An entitlement holder's property interest with respect to a particular financial asset
under subsection 1 is a pro rata property interest in all interests in that financial asset
held by the securities intermediary, without regard to the time the entitlement holder
acquired the security entitlement or the time the securities intermediary acquired the
interest in that financial asset.
3. An entitlement holder's property interest with respect to a particular financial asset
under subsection 1 may be enforced against the securities intermediary only by
exercise of the entitlement holder's rights under sections 41-08-45 through 41-08-48.
4. An entitlement holder's property interest with respect to a particular financial asset
under subsection 1 may be enforced against a purchaser of the financial asset or
interest therein only if:
a. Insolvency proceedings have been initiated by or against the securities
intermediary;
b. The securities intermediary does not have sufficient interests in the financial
asset to satisfy the security entitlements of all of its entitlement holders to that
financial asset;
c. The securities intermediary violated its obligations under section 41-08-44 by
transferring the financial asset or interest therein to the purchaser; and

d. The purchaser is not protected under subsection 5.
The trustee or other liquidator, acting on behalf of all entitlement holders having
security entitlements with respect to a particular financial asset, may recover the
financial asset, or interest therein, from the purchaser. If the trustee or other liquidator
elects not to pursue that right, an entitlement holder whose security entitlement
remains unsatisfied has the right to recover its interest in the financial asset from the
purchaser.
5. An action based on the entitlement holder's property interest with respect to a
particular financial asset under subsection 1, whether framed in conversion, replevin,
constructive trust, equitable lien, or other theory, may not be asserted against any
purchaser of a financial asset or interest therein who gives value, obtains control, and
does not act in collusion with the securities intermediary in violating the securities
intermediary's obligations under section 41-08-44.
### § 41-08-44. (8-504) Duty of securities intermediary to maintain financial asset.

1. A securities intermediary shall promptly obtain and thereafter maintain a financial asset
in a quantity corresponding to the aggregate of all security entitlements it has
established in favor of its entitlement holders with respect to that financial asset. The
securities intermediary may maintain those financial assets directly or through one or
more other securities intermediaries.
2. Except to the extent otherwise agreed by its entitlement holder, a securities
intermediary may not grant any security interests in a financial asset it is obligated to
maintain pursuant to subsection 1.
3. A securities intermediary satisfies the duty in subsection 1 if:
a. The securities intermediary acts with respect to the duty as agreed upon by the
entitlement holder and the securities intermediary; or
b. In the absence of agreement, the securities intermediary exercises due care in
accordance with reasonable commercial standards to obtain and maintain the
financial asset.
4. This section does not apply to a clearing corporation that is itself the obligor of an
option or similar obligation to which its entitlement holders have security entitlements.
### § 41-08-45. (8-505) Duty of securities intermediary with respect to payments and

distributions.
1. A securities intermediary shall take action to obtain a payment or distribution made by
the issuer of a financial asset. A securities intermediary satisfies the duty if:
a. The securities intermediary acts with respect to the duty as agreed upon by the
entitlement holder and the securities intermediary; or
b. In the absence of agreement, the securities intermediary exercises due care in
accordance with reasonable commercial standards to attempt to obtain the
payment or distribution.
2. A securities intermediary is obligated to its entitlement holder for a payment or
distribution made by the issuer of a financial asset if the payment or distribution is
received by the securities intermediary.
### § 41-08-46. (8-506) Duty of securities intermediary to exercise rights as directed by

entitlement holder.
A securities intermediary shall exercise rights with respect to a financial asset if directed to
do so by an entitlement holder. A securities intermediary satisfies the duty if:
1. The securities intermediary acts with respect to the duty as agreed upon by the
entitlement holder and the securities intermediary; or
2. In the absence of agreement, the securities intermediary either places the entitlement
holder in a position to exercise the rights directly or exercises due care in accordance
with reasonable commercial standards to follow the direction of the entitlement holder.

### § 41-08-47. (8-507) Duty of securities intermediary to comply with entitlement order.

1. A securities intermediary shall comply with an entitlement order if the entitlement order
is originated by the appropriate person, the securities intermediary has had reasonable
opportunity to assure itself that the entitlement order is genuine and authorized, and
the securities intermediary has had reasonable opportunity to comply with the
entitlement order. A securities intermediary satisfies the duty if:
a. The securities intermediary acts with respect to the duty as agreed upon by the
entitlement holder and the securities intermediary; or
b. In the absence of agreement, the securities intermediary exercises due care in
accordance with reasonable commercial standards to comply with the entitlement
order.
2. If a securities intermediary transfers a financial asset pursuant to an ineffective
entitlement order, the securities intermediary shall re-establish a security entitlement in
favor of the person entitled to it, and pay or credit any payments or distributions that
the person did not receive as a result of the wrongful transfer. If the securities
intermediary does not re-establish a security entitlement, the securities intermediary is
liable to the entitlement holder for damages.
### § 41-08-48. (8-508) Duty of securities intermediary to change entitlement holder's

position to other form of security holding.
A securities intermediary shall act at the direction of an entitlement holder to change a
security entitlement into another available form of holding for which the entitlement holder is
eligible, or to cause the financial asset to be transferred to a securities account of the
entitlement holder with another securities intermediary. A securities intermediary satisfies the
duty if:
1. The securities intermediary acts as agreed upon by the entitlement holder and the
securities intermediary; or
2. In the absence of agreement, the securities intermediary exercises due care in
accordance with reasonable commercial standards to follow the direction of the
entitlement holder.
### § 41-08-49. (8-509) Specification of duties of securities intermediary by other statute or

regulation - Manner of performance of duties of securities intermediary and exercise of
rights of entitlement holder.
1. If the substance of a duty imposed upon a securities intermediary by sections
compliance with that statute, regulation, or rule satisfies the duty.
2. To the extent that specific standards for the performance of the duties of a securities
intermediary or the exercise of the rights of an entitlement holder are not specified by
other statute, regulation, or rule or by agreement between the securities intermediary
and entitlement holder, the securities intermediary shall perform its duties and the
entitlement holder shall exercise its rights in a commercially reasonable manner.
3. The obligation of a securities intermediary to perform the duties imposed by sections
a. Rights of the securities intermediary arising out of a security interest under a
security agreement with the entitlement holder or otherwise; and
b. Rights of the securities intermediary under other law, regulation, rule, or
agreement to withhold performance of its duties as a result of unfulfilled
obligations of the entitlement holder to the securities intermediary.
4. Sections 41-08-44 through 41-08-48 do not require a securities intermediary to take
any action that is prohibited by other statute, regulation, or rule.
### § 41-08-50. (8-510) Rights of purchaser of security entitlement from entitlement holder.

1. In a case not covered by the priority rules in chapter 41-09 or the rules stated in
subsection 3, an action based on an adverse claim to a financial asset or security

entitlement, whether framed in conversion, replevin, constructive trust, equitable lien,
or other theory, may not be asserted against a person who purchases a security
entitlement, or an interest therein, from an entitlement holder if the purchaser gives
value, does not have notice of the adverse claim, and obtains control.
2. If an adverse claim could not have been asserted against an entitlement holder under
section 41-08-42, the adverse claim cannot be asserted against a person who
purchases a security entitlement, or an interest therein, from the entitlement holder.
3. In a case not covered by the priority rules in chapter 41-09, a purchaser for value of a
security entitlement, or an interest therein, who obtains control has priority over a
purchaser of a security entitlement, or an interest therein, who does not obtain control.
Except as otherwise provided in subsection 4, purchasers who have control rank
according to priority in time of:
a. The purchaser's becoming the person for whom the securities account, in which
the security entitlement is carried, is maintained, if the purchaser obtained control
under subdivision a of subsection 4 of section 41-08-06;
b. The securities intermediary's agreement to comply with the purchaser's
entitlement orders with respect to security entitlements carried or to be carried in
the securities account in which the security entitlement is carried, if the purchaser
obtained control under subdivision b of subsection 4 of section 41-08-06; or
c. If the purchaser obtained control through another person under subdivision c of
subsection 4 of section 41-08-06, the time on which priority would be based
under this subsection if the other person were the secured party.
4. A securities intermediary as purchaser has priority over a conflicting purchaser who
has control unless otherwise agreed by the securities intermediary.
### § 41-08-51. (8-511) Priority among security interests and entitlement holders.

1. Except as otherwise provided in subsections 2 and 3, if a securities intermediary does
not have sufficient interests in a particular financial asset to satisfy both its obligations
to entitlement holders who have security entitlements to that financial asset and its
obligation to a creditor of the securities intermediary who has a security interest in that
financial asset, the claims of entitlement holders, other than the creditor, have priority
over the claim of the creditor.
2. A claim of a creditor of a securities intermediary who has a security interest in a
financial asset held by a securities intermediary has priority over claims of the
securities intermediary's entitlement holders who have security entitlements with
respect to that financial asset if the creditor has control over the financial asset.
3. If a clearing corporation does not have sufficient financial assets to satisfy both its
obligations to entitlement holders who have security entitlements with respect to a
financial asset and its obligation to a creditor of the clearing corporation who has a
security interest in that financial asset, the claim of the creditor has priority over the
claims of entitlement holders.
### § 41-08-52. (8-603) Savings clause.

1. This chapter does not affect an action or proceeding commenced before August 1,
1997.
2. If a security interest in a security is perfected by August 1, 1997, and the action by
which the security interest was perfected would suffice to perfect a security interest
under this chapter, no further action is required to continue perfection. If a security
interest in a security is perfected by August 1, 1997, but the action by which the
security interest was perfected would not suffice to perfect a security interest under
this chapter, the security interest remains perfected for a period of six months after
August 1, 1997, and continues perfected thereafter if appropriate action to perfect
under this chapter is taken within that period. If a security interest is perfected by
August 1, 1997, and the security interest can be perfected by filing under this chapter,
a financing statement signed by the secured party instead of the debtor may be filed
within that period to continue perfection or thereafter to perfect.
