A New Literalism? Rejection of the Sale of Business Doctrine
Saint Louis University Law Journal, vol. 30, p. 42, 1986
37 Pages Posted: 25 Oct 2014
Date Written: 1986
The definition of the term ‘security’ is critical to the scope and application of the federal securities laws. Unfortunately, courts have failed to develop a coherent approach to the statutory definition of a security that can be applied in a consistent manner. Judicial construction of the definition of a security is particularly inconsistent as it applies to certain types of instruments or interests that are listed in the statutory definition. The United States Supreme Court furthered this inconsistency recently when it rejected the sale of business doctrine in Landreth Timber Company v. Landreth and Gould v. Ruefenacht.
The issue at the heart of this judicial failure is to what extent, or under what circumstances, instruments and interests that are specifically named in section 2(1) of the Securities Act of 1933 may be excluded from the definition of a security. Commercial notes and general partnership interests are generally excluded from the definition of a security based on the underlying economic transaction in which the instrument or interest is purchased or sold. The Supreme Court, however, in rejecting the sale of business doctrine, held that common stock is a security regardless of the economic transaction in which it is transferred. The purpose of this Article is to outline the history of the sale of business doctrine and to illustrate the problems created for both the bar and the courts by its rejection.
Keywords: Sale of Business Doctrine, Securities
Suggested Citation: Suggested Citation