Is Closely Held Stock a “Security” Under the UCC?
Interestingly, Tennessee courts have gone back and forth on this issue over the last few decades. In 1983 our Supreme Court held that closely held stock is not a security and is therefore not governed by the UCC. See Blasingame v. American Materials, Inc., 654 S.W.2d at 664 (Tenn. 1983). More recently, the defendant in Wakefield v. Crawley successfully argued that that the legislature’s adoption of a newer version of the UCC in 1986 superseded the Courts earlier decision. 6 S.W.3d 442 (Tenn. 1999). Accordingly, the court held that the sale of closely held stock is now governed by Chapter 8 of the UCC.
This raises an interesting point. The Wakefield court held that the revised UCC had effectively governed such sales in Tennessee since its adoption in 1986. However, it wasn’t until 13 years later, in 1999, that anyone even thought to make this argument. This just goes to show (a) how the law can change without anyone noticing, and (b) the importance of never taking for granted what you believe to be established law.