Securities are written certificates by which their issuer assumes a duty to fulfill the obligation inscribed in such certificate to its legal owner.
Securities must contain the following essential constitutive elements:
- designation as to the kind of securities
- indication of the firm, or name and registered office and/or name and domicile of the issuer of securities
- indication of the firm or title, or name of the person to whom, or at whose order, securities are made out, or a designation that securities are made out to its bearer
- exact designation of the obligation of the issuer resulting from the securities
- indication of the place and date of issue of the securities, and in case of securities issued in series, their serial number
- signature of the issuer of the securities, or the facsimile of signature of the issuer of securities issued in series.
For some kinds of securities other essential constitutive elements may also be determined by particular law.
A certificate not containing any of the essential constitutive elements shall not be accepted as security. Securities issued in series and not containing any of the essential constitutive elements thereof, shall have no legal effect.
Securities may be made out to the bearer, to a name, or to order.
An obligation out of securities shall originate at the moment the issuer of securities hands them over to their beneficiary.
Other terms and conditions of issuing securities in series shall be determined by particular law.
Realisation of rights
Who Is Entitled to a Right Arising from Securities
A claim arising from securities shall be connected to the paper itself and shall belong to its legal possessor.
A bearer of the securities made out to bearer shall be considered to be their legal possessor.
A person to whom the securities are made out, or one receiving duly transferred securities, shall be a legal possessor of securities made out to name or to order.
An honest acquirer of securities made out to bearer shall become their legal possessor and he shall be entitled to the claim inscribed on their face even after the securities go out of the control of their issuer, or previous possessor without his agreement.
Who Is Entitled to Request Fulfilment
Fulfilment of a claim arising from the securities may be requested, after their presentation for the purpose, only by their legal possessor, or by a person authorized by him.
Transfer of Securities
Transfer of a Right Arising from Securities Made out to Bearer
A right arising from securities made out to bearer shall be transferred by their being handed over.
Transfer of a Right Arising from Securities Made out to Name
A right arising from securities made out to name shall be transferred by way of assignment. It may be prescribed by particular law that a right arising from securities made out to name may also be transferred by endorsement.
The transfer of a right arising from securities made out to name shall be put into effect by inscribing on the face of the paper an indication as to the firm or title or name of the new possessor, by the transferrer’s signature, and by inscribing an indication of the transfer into the securities register should such a register be kept by the issuer.
Transfer of a Right Arising from Securities Made out to Order
A right arising from the securities made out to order shall be transferred by endorsement.
Kinds of Endorsement
An endorsement may be full, general or made out to bearer.
A full endorsement shall contain a statement of the transfer and an indication of the firm, or the title or name of the person receiving the right arising from the securities transferred (the endorsee), and the signature of the transferor (the endorser), and it may also contain other data (such as place and date).
A blank endorsement shall contain only the signature of the endorser.
In case of a transfer to bearer the word “to the bearer” shall be inscribed instead of the indication of the name of the endorsee. An endorsement made out to bearer shall be valid as a general endorsement.
A partial endorsement shall be invalid.
Transfer of Authorization and Transfer for Guarantee
Securities may also be transferred in the form of transfer of authorization, or as a transfer for guarantee. In the case of a transfer of authorization the clause “value in the authorization”, while in case of transfer for guarantee a clause such as – “value for guarantee” shall be indicated.
Effect of the Transfer of a Right
By transferring a right arising from securities their new possessor shall acquire all rights otherwise pertaining to the previous possessor.
A transfer of a right arising from securities made out to name, effected either by assignment or endorsement, shall have no effect as regards the issuer, unless he is informed thereof in writing or unless such transfer has been inscribed in the register for securities made out to name, should such register be kept by the issuer.
A transferor or endorser, shall not be liable for an issuer’s failure to fulfil the obligation, except in the case of a different statutory provision, or of a term to the contrary inscribed on the face of the security.
Effect of Transfer of Authorization and of Transfer for Guarantee
A possessor of securities transferred to him as a “transfer of authorization” or “transfer for guarantee” may effect all rights arising from such paper, but the paper may be transferred by him to another only as a transfer of authorization.
Proving the Legality of a Transfer
The last endorsee shall prove his right arising from securities by an uninterrupted series of endorsements. This rule shall also apply accordingly to the last transferor.
Prohibition of Transfer
A prohibition of transfer by endorsement of the securities made out to order shall be effected by inscribing the indication “not by order”, or by putting a similar clause with the same meaning. A right arising from securities whose transfer by endorsement is prohibited may be transferred only by assignment.
A transfer by endorsement may be prohibited by an issuer and an endorser. Every transfer of securities made out to name may be prohibited by particular law or by statement of the issuer inscribed on the face of such securities.
Alterations of Securities
Alterations Effected by Issuer
Securities made out to bearer or to order may be altered by the issuer, at the request and at the expense of the possessor of the paper, into securities made out to name. Should alteration be not expressly prohibited by him, the issuer of securities made out to name may, at the request and at the expense of the possessor, alter them into ones made out to bearer or to order.
Alterations Effected by Possessor at Transfer
Securities made out to order may be transferred by the endorser by means of endorsement to the bearer, unless otherwise provided by particular law.
Securities made out to name may only be transferred by the transferor, or endorser, to a specific person.
Securities made out to bearer may also be transferred by endorsement to a specific person.
Compounding and Dividing of Securities
Securities issued in a series may, at the request and at the expense of the possessor, be compounded into single or several securities.
Securities may, at the request and at the expense of the possessor, be divided into several securities of smaller amount, but they shall not be made out to an amount lower than the lowest denomination of securities issued in such series.
Performance of duties out of securities
Termination of Duty
A duty from securities ceases by their performance by the issuer of the securities to the legal possessor.
A claim from securities shall also cease when they come into the issuer’s possession unless otherwise provided by particular law.
An honest issuer of securities made out to bearer shall be discharged from duty by performing them for the benefit of the bearer, even should such bearer fail to be legal possessor of the securities.
Prohibition of Performance
An issuer of securities made out to bearer knowing or having a duty to know that the bearer is not legal possessor of the securities or not authorized thereof by the legal possessor, shall be bound to refuse performance, or shall otherwise be liable for ensuing loss. An issuer of securities shall not perform his duties when this has been prohibited by the competent agency, or if he knew or had a duty to know that proceedings for redemption or annulment of the securities were in progress.
Payment of Interest or other Profits After Payment of the Principal
A debtor paying off the principal to the possessor of securities shall be bound to pay off also the interest coupons, or other profits from the same principal submitted for payment, upon payment of the principal, should such claims not be time barred.
Objections to Request for Performance of a Duty
An issuer of securities may only raise to a request by its possessor only those objections which are confined to the issue of the securities, such as forgery, objections stemming from the contents of securities, such as a time limit or conditions, and objections he is entitled to against the possessor of the securities, such as settlement per contra, a defect in the acquisition of the securities and lack of authorization.
An issuer may raise objection to the request by the possessor to whom he has assigned the securities, regarding a defect in the legal transaction being a ground for the transfer, but such defects may not be used against the request of a subsequent possessor. However, if the possessor of securities, while receiving the certificate from his predecessor, knew or had a duty to know that the former was handing him over the securities only to avoid an objection otherwise raised against him by the issuer, the issuer may also raise the objection against the possessor of the paper.
Other kinds of objections may also be established by a particular law regarding specific kinds of securities.