Colorado § 4-8-204 - Effect of issuer's restriction on transfer.

§ 4-8-204. 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.

Source: L. 96: Entire article R&RE, p. 218, § 2, effective July 1.

Editor's note: This section is similar to former § 4-8-204 as it existed prior to 1996.

ANNOTATION

Law reviews. For article, "Buyer-Secured Party Conflicts Under Section 9-307(1) of the Uniform Commercial Code", see 46 U. Colo. L. Rev. 333 (1974-75).

Annotator's note. The following annotations include cases decided under former provisions similar to this section.

Unless this section is followed, any restriction is void, and a purchaser can compel transfer. Age Publ'g Co. v. Becker, 110 Colo. 319, 134 P.2d 205 (1943) (decided under repealed CSA, C. 41, § 100, uniform stock transfer act).

Comments on this section emphasize that it imposes strict requirement for notice on issuer. Edina State Bank v. Mr. Steak, Inc., 487 F.2d 640 (10th Cir. 1973).

This section represents a change in phraseology, but not in the practical effect. Irwin v. W. End Dev. Co., 342 F. Supp. 687 (D. Colo. 1972).

Failure to note the transfer restriction on certificates is no bar to enforcement against one who had actual notice of it. Irwin v. W. End Dev. Co., 342 F. Supp. 687 (D. Colo. 1972).

Section does not protect those with actual notice. The purpose of this section was to make ineffective restrictions on transfers to persons without notice. The failure to note the restriction on the certificates is no bar to its enforcement against a person who had actual notice of it. Irwin v. W. End Dev. Co., 481 F.2d 34 (10th Cir. 1973).

Those on inquiry notice not denied protection of section. This section clearly placed the duty on the issuer to note the restriction conspicuously on the certificate, not on the bank to inquire. And the statute's protection was extended to all against an unnoted restriction except those with "actual knowledge of it". Those who are only on inquiry notice are not denied protection by the code. Edina State Bank v. Mr. Steak, Inc., 487 F.2d 640 (10th Cir. 1973).

Bank as pledgee was among the persons protected generally by this section against a restriction not conspicuously noted on the security, except as to a person with actual knowledge. The wrongful refusal to transfer gave rise to a right to sue as for conversion by the bank as transferor. Edina State Bank v. Mr. Steak, Inc., 487 F.2d 640 (10th Cir. 1973).

Federal securities act does not override section. The absence of a requirement for a notation of the restriction in the federal securities act does not override this section under the doctrine of preemption. This important provision of the code may be read in harmony with the federal statute. Both regulations can be enforced without impairing federal superintendence of the field and thus the state statute need not give way. The securities act shows no intent to prevent such significant regulation by state law. Edina State Bank v. Mr. Steak, Inc., 487 F.2d 640 (10th Cir. 1973).

Bank's right to damages not defeated by federal statute. The prohibition of the federal statute against carrying out transfers of unregistered stock did not defeat the bank's right to damages under this section. The court did not have to decide whether the bank as a bona fide pledgee could enforce specifically the transfer of the collateral to the purchaser. The only question was whether the bank was entitled to damages when the issuer asserted its own restriction which was not conspicuously noted on its stock certificate as a ground for refusing to register a transfer. In these circumstances the bank was entitled to damages for its loss and the recovery of them was not violative of the federal prohibition against transfer. Edina State Bank v. Mr. Steak, Inc., 487 F.2d 640 (10th Cir. 1973).