Demand that issuer not register transfer

84-8-403. Demand that issuer not register transfer. (a) A person who is an appropriate person to make an indorsement 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. (b) 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 (i) the person who initiated the demand at the address provided in the demand and (ii) the person who presented the security for registration of transfer or initiated the instruction requesting registration of transfer a notification stating that: (1) The certificated security has been presented for registration of transfer or instruction for registration of transfer of uncertificated security has been received; (2) a demand that the issuer not register transfer had previously been received; and (3) 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. (c) The period described in subsection (b)(3) may not exceed 30 days after the date of communication of the notification. A shorter period may be specified by the issuer if it is not manifestly unreasonable. (d) 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 indorsement or instruction if the person who initiated the demand does not, within the time stated in the issuer's communication, either: (1) Obtain an appropriate restraining order, injunction or other process from a court of competent jurisdiction enjoining the issuer from registering the transfer; or (2) 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. (e) This section does not relieve an issuer from liability for registering transfer pursuant to an indorsement or instruction that was not effective. History: L. 1996, ch. 202, § 63; July 1. KANSAS COMMENT, 1996 This section is a major modification of the former 84-8-403, reducing potential issuer liability. It is identical to the Official Text. Subsection (a) permits an appropriate person to indorse or originate an order to demand the issuer not register a security, if the demand is made and allows a reasonable time for the issuer to act. Under subsection (b), if the issuer has received such a demand, and then receives a request to register transfer, the issuer shall contact both the person demanding and the person requesting by notifying them. (If the issuer does not comply with subsection (b), the issuer may be liable for wrongful registration under 84-4-404.) The issuer's notification shall inform them of the conflicting demand and request and inform them that registration will be delayed for a reasonable time (but, under subsection (c), not to exceed 30 days). 84-1-201(26) defines the time of receipt. Subsection (d) places the burden on the person demanding the issuer not register to initiate legal process forbidding the issuer to register or to obtain an indemnity bond for the issuer sufficient to convince the issuer not to register. The subsection exonerates the issuer if the legal process is not issued or if the issuer deems the bond inadequate. The Revisor's Note to Article 8 state that the doctrine of issuer liability for wrongful registration set out in Lowery v. Commercial & Farmers' Bank, 15 F. Cas. 1040 (CCCD Md. 1848) (No. 8551) has been rejected. The issuer is not liable for adverse claims unless it has been served with legal process. Subsection (e) makes it clear that if the indorsement or instruction was not effective, the issuer is liable. Revisor's Note: Former section 84-8-403 was repealed by L. 1996, ch. 202, § 91 and the number reassigned to the current text.