Also known as: protected purchasers
Written by attorneys · grounded in primary & secondary sources — see below
A purchaser of a certificated or uncertificated security who gives value, takes without notice of any adverse claim, and obtains control of the security. The purchaser acquires its interest free of adverse claims and holds priority over an earlier perfected security interest to the extent provided in Articles 8 and 9.
Pacific Bank holds a perfected security interest in all securities owned by Prosperity Investments. Prosperity sells a block of certificated shares to Pinnacle Holdings for cash. Pinnacle takes delivery, pays value, and has no notice of Pacific Bank's interest. Pinnacle acquires the shares free of the security interest.
Pioneer Energy purchases uncertificated shares from a broker. The broker transfers control of the shares to Pioneer under the applicable control rules. Pioneer pays full value and lacks notice of any prior claim. Pioneer qualifies as a protected purchaser and holds the shares free of adverse claims.
Select any source to read its text and confirm it supports the definition.
The purchaser must buy a certificated or uncertificated security, give value, take without notice of adverse claims, and obtain control. These requirements appear in the controlling definition and determine whether the purchaser takes free of adverse claims.
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Yes. Article 9 does not limit the rights of a protected purchaser, who takes priority over an earlier security interest even if perfected. Filing a financing statement does not constitute notice to the purchaser.
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No. A purchaser of a certificated security who had notice of an adverse claim as a previous holder does not improve its position by taking from a protected purchaser.
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The purchaser may become a protected purchaser only when the indorsement is supplied. Against the transferor, however, the transfer is complete upon delivery and the purchaser has a specifically enforceable right to the indorsement.
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