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S.B. 246 Enrolled

             1     

SHARE CERTIFICATES IN LAND COMPANIES

             2     
2012 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: Ralph Okerlund

             5     
House Sponsor: Jack R. Draxler

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill modifies the Uniform Commercial Code to address issues related to land
             10      company share certificates that are lost, destroyed, or wrongfully taken.
             11      Highlighted Provisions:
             12          This bill:
             13          .    defines terms;
             14          .    addresses the application of the investment securities provisions of the Uniform
             15      Commercial Code to land companies;
             16          .    establishes procedures for land company share certificates that are lost, destroyed,
             17      or wrongfully taken; and
             18          .    makes technical changes.
             19      Money Appropriated in this Bill:
             20          None
             21      Other Special Clauses:
             22          None
             23      Utah Code Sections Affected:
             24      AMENDS:
             25          70A-8-101, as last amended by Laws of Utah 2011, Chapter 311
             26          70A-8-303, as last amended by Laws of Utah 2011, Chapter 311
             27          70A-8-405, as last amended by Laws of Utah 2011, Chapter 311
             28          70A-8-406, as last amended by Laws of Utah 2011, Chapter 311
             29          70A-8-409, as last amended by Laws of Utah 2011, Chapter 311


             30          70A-8-409.1, as enacted by Laws of Utah 2011, Chapter 311
             31     
             32      Be it enacted by the Legislature of the state of Utah:
             33          Section 1. Section 70A-8-101 is amended to read:
             34           70A-8-101. Definitions.
             35          (1) As used in this chapter:
             36          (a) "Adverse claim" means a claim that a claimant has a property interest in a financial
             37      asset and that it is a violation of the rights of the claimant for another person to hold, transfer,
             38      or deal with the financial asset.
             39          (b) "Bearer form," as applied to a certificated security, means a form in which the
             40      security is payable to the bearer of the security certificate according to its terms but not by
             41      reason of an indorsement.
             42          (c) "Broker" means a person defined as a broker or dealer under the federal securities
             43      laws, but without excluding a bank acting in that capacity.
             44          (d) "Certificated security" means a security that is represented by a certificate.
             45          (e) "Clearing corporation" means:
             46          (i) a person that is registered as a "clearing agency" under the federal securities laws;
             47          (ii) a federal reserve bank; or
             48          (iii) any other person that provides clearance or settlement services with respect to
             49      financial assets that would require it to register as a clearing agency under the federal securities
             50      laws but for an exclusion or exemption from the registration requirement, if its activities as a
             51      clearing corporation, including promulgation of rules, are subject to regulation by a federal or
             52      state governmental authority.
             53          (f) "Communicate" means to:
             54          (i) send a signed writing; or
             55          (ii) transmit information by any mechanism agreed upon by the persons transmitting
             56      and receiving the information.
             57          (g) "Entitlement holder" means a person identified in the records of a securities


             58      intermediary as the person having a security entitlement against the securities intermediary. If
             59      a person acquired a security entitlement by virtue of Subsection 70A-8-501 (2)(b) or (c), that
             60      person is the entitlement holder.
             61          (h) "Entitlement order" means a notification communicated to a securities intermediary
             62      directing transfer or redemption of a financial asset to which the entitlement holder has a
             63      security entitlement.
             64          (i) (i) "Financial asset," except as otherwise provided in Section 70A-8-102 , means:
             65          (A) a security;
             66          (B) an obligation of a person or a share, participation, or other interest in a person or in
             67      property or an enterprise of a person, which is or is of a type, dealt in or traded on financial
             68      markets, or which is recognized in any area in which it is issued or dealt in as a medium for
             69      investment; or
             70          (C) any property that is held by a securities intermediary for another person in a
             71      securities account if that securities intermediary has expressly agreed with the other person that
             72      the property is to be treated as a financial asset under this chapter.
             73          (ii) As context requires, "financial asset" means either the interest itself or the means
             74      by which a person's claim to it is evidenced, including a certificated or uncertificated security, a
             75      security certificate, or a security entitlement.
             76          (j) "Good faith," for purposes of the obligation of good faith in the performance or
             77      enforcement of contracts or duties within this chapter, means honesty in fact and the
             78      observance of reasonable commercial standards of fair dealing.
             79          (k) "Indorsement" means a signature that alone or accompanied by other words is made
             80      on a security certificate in registered form or on a separate document for the purpose of
             81      assigning, transferring, or redeeming the security or granting a power to assign, transfer, or
             82      redeem it.
             83          (l) "Instruction" means a notification communicated to the issuer of an uncertificated
             84      security which directs that the transfer of the security be registered or that the security be
             85      redeemed.


             86          (m) "Land company" means a mutual benefit corporation, as defined in Section
             87      16-6a-102 , that bases the use of the corporation's land on issued share ownership.
             88          [(m)] (n) "Registered form," as applied to a certificated security, means a form in
             89      which:
             90          (i) the security certificate specifies a person entitled to the security; and
             91          (ii) a transfer of the security may be registered upon books maintained for that purpose
             92      by or on behalf of the issuer, or the security certificate so states.
             93          [(n)] (o) "Securities intermediary" means:
             94          (i) a clearing corporation; or
             95          (ii) a person, including a bank or broker, that in the ordinary course of its business
             96      maintains securities accounts for others and is acting in that capacity.
             97          [(o)] (p) "Security," except as otherwise provided in Section 70A-8-102 , means an
             98      obligation of an issuer or a share, participation, or other interest in an issuer or in property or an
             99      enterprise of an issuer that:
             100          (i) is represented by a security certificate in bearer or registered form, or the transfer of
             101      which may be registered upon books maintained for that purpose by or on behalf of the issuer;
             102          (ii) is one of a class or series or by its terms is divisible into a class or series of shares,
             103      participations, interests, or obligations; and
             104          (iii) (A) is, or is of a type, dealt in or traded on securities exchanges or securities
             105      markets; or
             106          (B) is a medium for investment and by its terms expressly provides that it is a security
             107      governed by this chapter.
             108          [(p)] (q) "Security certificate" means a certificate representing a security.
             109          [(q)] (r) "Security entitlement" means the rights and property interest of an entitlement
             110      holder with respect to a financial asset specified in Part 5, Security Entitlements.
             111          [(r)] (s) "Uncertificated security" means a security that is not represented by a
             112      certificate.
             113          [(s)] (t) "Water company" is as defined in Section 16-4-102 .


             114          (2) Other definitions applying to this chapter and the sections in which they appear are:
             115          (a) "Appropriate person," Section 70A-8-106 .
             116          (b) "Control," Section 70A-8-105 .
             117          (c) "Delivery," Section 70A-8-301 .
             118          (d) "Investment company security," Section 70A-8-102 .
             119          (e) "Issuer," Section 70A-8-201 .
             120          (f) "Overissue," Section 70A-8-210 .
             121          (g) "Protected purchaser," Section 70A-8-303 .
             122          (h) "Securities account," Section 70A-8-501 .
             123          (3) In addition, Chapter 1a, Uniform Commercial Code - General Provisions, contains
             124      general definitions and principles of construction and interpretation applicable throughout this
             125      chapter.
             126          (4) The characterization of a person, business, or transaction for purposes of this
             127      chapter does not determine the characterization of the person, business, or transaction for
             128      purposes of any other law, regulation, or rule.
             129          Section 2. Section 70A-8-303 is amended to read:
             130           70A-8-303. Protected purchaser.
             131          (1) "Protected purchaser" means a purchaser of a certificated or uncertificated security,
             132      or of an interest in the security, who:
             133          (a) (i) gives value;
             134          (ii) does not have notice of an adverse claim to the security; and
             135          (iii) obtains control of the security; or
             136          (b) for a security issued by a land company or a water company, pays, or whose
             137      predecessors in interest paid, an assessment levied by the land company or the water company
             138      in accordance with Title 16, Chapter 4, Share Assessment Act, against the security at least once
             139      within the five-year period immediately preceding the date it is determined whether the
             140      purchaser is a protected purchaser.
             141          (2) In addition to acquiring the rights of a purchaser, a protected purchaser acquires the


             142      purchaser's interest in the certificated or uncertificated security free of any adverse claim.
             143          Section 3. Section 70A-8-405 is amended to read:
             144           70A-8-405. Replacement of lost, destroyed, or wrongfully taken security
             145      certificate.
             146          (1) If an owner of a certificated security, whether in registered or bearer form, claims
             147      that the certificate has been lost, destroyed, or wrongfully taken, the issuer shall issue a new
             148      certificate if the owner:
             149          (a) requests that a new certificate be issued before the issuer has notice that the
             150      certificate has been acquired by a protected purchaser;
             151          (b) files with the issuer a sufficient indemnity bond; and
             152          (c) satisfies other reasonable requirements imposed by the issuer.
             153          (2) (a) If, after the issue of a new certificate, a protected purchaser of the original
             154      certificate presents it for registration of transfer, the issuer shall register the transfer unless an
             155      overissue would result.
             156          (b) If an overissue would result from registration of transfer, the issuer's liability is
             157      governed by Section 70A-8-210 .
             158          (c) In addition to any rights on the indemnity bond, an issuer may recover the new
             159      certificate from a person to whom it was issued or any person taking under that person, except
             160      a protected purchaser.
             161          (3) On and after July 1, 2011, this section does not apply to the replacement of a lost,
             162      destroyed, or wrongfully taken share certificate of a water company. Section 70A-8-409.1
             163      governs replacement of a lost, destroyed, or wrongfully taken share certificate of a water
             164      company.
             165          (4) On and after May 8, 2012, this section does not apply to the replacement of a lost,
             166      destroyed, or wrongfully taken share certificate of a land company. Section 70A-8-409.1
             167      governs the replacement of a lost, destroyed, or wrongfully taken share certificate of a land
             168      company.
             169          Section 4. Section 70A-8-406 is amended to read:


             170           70A-8-406. Obligation to notify issuer of lost, destroyed, or wrongfully taken
             171      security certificate.
             172          (1) If a security certificate has been lost, apparently destroyed, or wrongfully taken, and
             173      the owner fails to notify the issuer of that fact within the reasonable time after the owner has
             174      notice of it and the issuer registers a transfer of the security before receiving notification, the
             175      owner may not assert against the issuer a claim for registering the transfer under Section
             176      70A-8-404 or a claim to a new security certificate under Section 70A-8-405 .
             177          (2) On and after July 1, 2011, Subsection (1) does not apply to the replacement of a
             178      lost, destroyed, or wrongfully taken share certificate of a water company. Section 70A-8-409.1
             179      governs replacement of a lost, destroyed, or wrongfully taken share certificate of a water
             180      company.
             181          (3) On and after May 8, 2012, Subsection (1) does not apply to the replacement of a
             182      lost, destroyed, or wrongfully taken share certificate of a land company. Section 70A-8-409.1
             183      governs the replacement of a lost, destroyed, or wrongfully taken share certificate of a land
             184      company.
             185          Section 5. Section 70A-8-409 is amended to read:
             186           70A-8-409. Application to land or water companies.
             187          The procedures of this chapter apply to shares of stock in a land company or a water
             188      company.
             189          Section 6. Section 70A-8-409.1 is amended to read:
             190           70A-8-409.1. Replacement of lost, destroyed, or wrongfully taken share
             191      certificate of a land company or a water company.
             192          (1) For purposes of this section:
             193          (a) "Affected share" means the share represented by a share certificate that is lost,
             194      destroyed, or wrongfully taken.
             195          (b) "Company" means a land company or a water company.
             196          [(b)] (c) "Distribution area" means:
             197          (i) for a water company, the geographic area where the water company distributes


             198      water[.]; or
             199          (ii) for a land company, the geographic area owned by the land company.
             200          [(c)] (d) "Original share certificate" means a share certificate that is alleged to be lost,
             201      destroyed, or wrongfully taken.
             202          [(d)] (e) "Person" means:
             203          (i) an individual;
             204          (ii) a corporation;
             205          (iii) a business entity;
             206          (iv) a political subdivision of the state, including a municipality;
             207          (v) an agency of the state; or
             208          (vi) an agency of the federal government.
             209          [(e)] (f) "Replacement share certificate" means a share certificate issued to replace a
             210      share certificate that is lost, destroyed, or wrongfully taken.
             211          [(f)] (g) "Share certificate" means a certificated share of stock in a [water] company.
             212          (2) (a) [On and after July 1, 2011, this] This section applies to the replacement of a
             213      lost, destroyed, or wrongfully taken share certificate.
             214          (b) Unless the articles of incorporation or bylaws of a [water] company address the
             215      replacement of a lost, destroyed, or wrongfully taken share certificate, this section governs the
             216      replacement of a lost, destroyed, or wrongfully taken share certificate.
             217          (3) A [water] company shall issue a replacement share certificate to a person claiming
             218      to be the owner of a share certificate that is lost, destroyed, or wrongfully taken, and cancel the
             219      original share certificate on the records of the [water] company, if:
             220          (a) the person represents to the [water] company that the original share certificate is
             221      lost, destroyed, or wrongfully taken;
             222          (b) (i) (A) the person is the registered owner of the affected share; and
             223          (B) before the [water] company receives notice that the share certificate has been
             224      acquired by a protected purchaser, the person requests that a replacement share certificate be
             225      issued; or


             226          (ii) (A) the person is not the registered owner of the affected share; and
             227          (B) the person establishes ownership of the affected share, including by presenting to
             228      the [water] company written documentation that demonstrates to the reasonable satisfaction of
             229      the [water] company that the person is the rightful owner of the affected share through
             230      purchase, gift, inheritance, foreclosure, bankruptcy, or reorganization;
             231          (c) the assessments to which the affected share is subject are paid current;
             232          (d) except as provided in Subsection (5), the person files with the [water] company a
             233      sufficient indemnity bond or other security acceptable to the [water] company; and
             234          (e) the person satisfies any other reasonable requirement imposed by the [water]
             235      company, including the payment of a reasonable transfer fee.
             236          (4) (a) If after a replacement share certificate is issued a protected purchaser of the
             237      original share certificate presents the original share certificate for registration of transfer, the
             238      [water] company shall register the transfer unless an overissue would result.
             239          (b) If an overissue would result when there is a registration of transfer of an original
             240      share certificate, a [water] company may recover the replacement share certificate from the
             241      person to whom it is issued, or any person taking under that person, except a protected
             242      purchaser.
             243          (c) If a [water] company elects to follow the procedures of Subsection (5), to assert an
             244      ownership interest in the affected share, a protected purchaser shall file a written notice of
             245      objection within the 60-day period described in Subsection (5)(d). A protected purchaser's
             246      failure to file a written notice of objection within the 60-day period eliminates any claim of the
             247      protected purchaser.
             248          (5) As an alternative to requiring an indemnity bond or other acceptable security under
             249      Subsection (3)(d), a [water] company is considered to have followed a fair and reasonable
             250      procedure without the necessity of a written policy or bylaw otherwise required by Section
             251      16-6a-609 , if the [water] company follows the following procedure:
             252          (a) The [water] company shall publish written notice at least once a week for three
             253      consecutive weeks:


             254          (i) (A) in a newspaper of general circulation in the area that reasonably includes the
             255      distribution area of the [water] company; and
             256          (B) as required in Section 45-1-101 ;
             257          (ii) with at least seven days between each publication date under Subsection
             258      (5)(a)(i)(A); and
             259          (iii) beginning no later than 20 days after submission of the request to issue the
             260      replacement share certificate.
             261          (b) The [water] company shall post written notice in at least three conspicuous places
             262      within the distribution area of the [water] company.
             263          (c) No later than 20 days after the day on which the [water] company receives a request
             264      to issue a replacement share certificate, the [water] company shall mail written notice:
             265          (i) to the last known address of the owner of the affected share shown on the records of
             266      the [water] company;
             267          (ii) if a [water] company maintains a record of who pays annual assessments, to any
             268      person who, within the five-year period immediately preceding the day the written notice is
             269      mailed, pays an assessment levied against the affected share; and
             270          (iii) to any person that has notified the [water] company in writing of an interest in the
             271      affected share, including a financial institution.
             272          (d) A notice required under Subsections (5)(a) through (c) shall:
             273          (i) identify the person who is requesting that a replacement share certificate be issued;
             274          (ii) state that an interested person may file a written notice of objection with the [water]
             275      company; and
             276          (iii) state that unless a written notice of objection to the issuance of a replacement share
             277      certificate is filed within 60 days after the last day of publication under Subsection (5)(a)(i)(A),
             278      including a written notice of objection from a protected purchaser:
             279          (A) a replacement share certificate will be issued to the person requesting that the
             280      replacement share certificate be issued; and
             281          (B) the original share certificate will be permanently canceled on the records of the


             282      [water] company.
             283          (e) A notice of objection under Subsection (5)(d) shall:
             284          (i) state the basis for objecting to the claim of ownership of the affected share;
             285          (ii) identify a person that the objecting person believes has a stronger claim of
             286      ownership to the affected share; and
             287          (iii) be accompanied by written evidence that reasonably documents the basis of the
             288      objection to the claim of ownership.
             289          (f) If the [water] company receives a notice of objection within the 60-day period
             290      described in Subsection (5)(d), the [water] company may review the disputed claim and:
             291          (i) deny in writing the objection to the claim of ownership and issue a replacement
             292      share certificate to the person requesting the replacement share certificate;
             293          (ii) accept in writing a claim of ownership asserted by a notice of objection and issue a
             294      replacement share certificate to the person the objecting person asserts owns the affected share;
             295          (iii) file an interpleader action in accordance with Utah Rules of Civil Procedure, Rule
             296      22, joining the persons claiming an interest in the affected share and depositing a replacement
             297      share certificate with the court; or
             298          (iv) require the persons claiming an interest in the affected share to resolve the
             299      ownership dispute.
             300          (g) Upon receipt, the [water] company shall act in accordance with:
             301          (i) a written agreement acceptable to the [water] company among the persons who
             302      claim interest in the affected share; or
             303          (ii) a court order declaring ownership in the affected share.
             304          (h) The following are entitled to receive from a nonprevailing person the costs for
             305      resolution of a dispute under this Subsection (5), including reasonable attorney fees when
             306      attorney fees are necessary:
             307          (i) a prevailing person; and
             308          (ii) the [water] company, if the [water] company acts in good faith.
             309          (i) The person requesting that a replacement share certificate be issued shall reimburse


             310      the [water] company for the costs reasonably incurred by the [water] company under this
             311      Subsection (5) that are not paid under this Subsection (5)(i) including:
             312          (i) legal and other professional fees; and
             313          (ii) costs incurred by the [water] company in response to a notice of objection.
             314          (j) A [water] company shall comply with this Subsection (5) before issuance of a
             315      replacement share certificate:
             316          (i) upon request from the person requesting a replacement share certificate be issued;
             317      and
             318          (ii) if the person requesting the replacement share certificate provides indemnification
             319      satisfactory to the [water] company against liability and costs of proceeding under this
             320      Subsection (5).
             321          (k) A determination made under this Subsection (5) is considered to be a final and
             322      conclusive determination of ownership of a disputed replacement share certificate.
             323          (6) (a) A [water] company shall:
             324          (i) make a decision to approve or deny the issuance of a replacement share certificate in
             325      writing; and
             326          (ii) deliver the written decision to:
             327          (A) the person requesting a replacement share certificate be issued;
             328          (B) a person who files a notice of objection under Subsection (5); and
             329          (C) any other person the [water] company determines is involved in the request for a
             330      replacement share certificate.
             331          (b) A decision of a [water] company described in Subsection (6)(a) is subject to de
             332      novo judicial review in the district court in which the [water] company has its principal place
             333      of business.
             334          (c) A person may not seek judicial review under Subsection (6)(b) more than 30 days
             335      after the day on which the written decision is delivered under Subsection (6)(a). If no action
             336      for judicial review is filed within the 30-day period, absent fraud, the issuance of a replacement
             337      share certificate or the decision to not issue a replacement share certificate is final and


             338      conclusive evidence of ownership of the affected share.
             339          (d) (i) In a judicial action brought under this Subsection (6), the prevailing person as
             340      determined by court order, is entitled to payment by a nonprevailing person of:
             341          (A) the costs of successfully defending its ownership claim; and
             342          (B) reasonable attorney fees.
             343          (ii) Notwithstanding Subsection (6)(d)(i), an award of costs or attorney fees may not be
             344      granted against a [water] company if the [water] company acts in good faith.


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