Also known as: unless context otherwise requires · context otherwise requires
Written by attorneys — see sources below.
A statutory qualifier providing that defined terms or rules apply except when surrounding language indicates a contrary intent. The phrase limits the force of a definition or applicability provision to situations where the broader statutory text does not demand a different reading.
Unity Capital sells manufacturing equipment bundled with a multi-year service contract to Ultra Precision. The buyer later claims breach of the service terms. Because the goods aspects predominate, the sales article governs the transaction to the extent provided in subsection (2) even though services form part of the deal.
TSC Industries issues a proxy statement that omits facts about a merger premium. Northway sues claiming the omission was material. Unless the context otherwise requires, the court applies the statutory definition of materiality to decide whether a reasonable shareholder would view the omitted fact as significantly altering the total mix of information available.
In February 1969 National Industries, Inc. acquired 34% of TSC Industries, Inc.'s voting securities from Charles E. Schmidt and his family. Schmidt, TSC's founder and principal shareholder, resigned from the board along with his son. Five National nominees then joined TSC's board. Stanley R. Yarmuth, National's president and chief executive officer, became chairman of the TSC board. Charles F. Simonelli, National's executive vice president, became chairman of the TSC executive committee. On October 16, 1969, the TSC board, with the National nominees abstaining, approved a proposal to liquidate and sell all of TSC's assets to National in exchange for National Series B preferred stock and warrants. On November 12, 1969, TSC and National issued a joint proxy statement to their shareholders recommending approval of the proposal. The proxy solicitation succeeded. TSC entered liquidation and dissolution, and the share exchange was completed. Northway, Inc., a TSC shareholder, filed suit on December 4, 1969, in the United States District Court for the Northern District of Illinois against TSC and National. The complaint alleged that the joint proxy statement violated section 14(a) of the Securities Exchange Act of 1934 and Rules 14a-3 and 14a-9. It claimed the statement failed to disclose that the Schmidt interests transfer had given National control of TSC. It also claimed the statement omitted material facts concerning the degree of National's control over TSC and the favorability of the transaction terms to TSC shareholders. The District Court denied Northway's motion for summary judgment on liability. The Court of Appeals for the Seventh Circuit affirmed that a genuine issue of fact existed regarding whether National had acquired control through the Schmidt purchase. This precluded summary judgment on the Rule 14a-3 claim. But the court reversed on the Rule 14a-9 claims and ordered partial summary judgment for Northway. It held that certain omissions were material as a matter of law. The Supreme Court granted certiorari to address the standard of materiality applied by the Court of Appeals.
View caseUlysses Maritime issues promissory notes to investors as part of a financing round. When the venture fails, investors sue under the securities laws. Unless the context otherwise requires, the court examines the economic realities of the notes rather than their label to decide whether they qualify as securities.
The Farmers Cooperative of Arkansas and Oklahoma operated as an agricultural cooperative with roughly 23,000 members prior to its 1984 bankruptcy filing. To fund its general business operations, the Co-Op issued promissory notes payable on demand by the holder. These notes carried no collateral or insurance but featured a variable interest rate reset monthly to remain above rates offered by local banks and savings institutions. The Co-Op promoted the notes to both members and nonmembers as part of an "Investment Program," with newsletter advertisements highlighting more than $11 million in assets backing the investments and describing them as safe, secure, and available when needed. After the Co-Op filed for bankruptcy in 1984, more than 1,600 holders possessed notes valued at $10 million in total. Petitioners, a class of these note holders, brought suit against Arthur Young & Co., the accounting firm that had audited the Co-Op's financial statements and the predecessor to respondent Ernst & Young. Petitioners asserted that Arthur Young deliberately deviated from generally accepted accounting principles when valuing one of the Co-Op's principal assets, a gasohol plant, in an effort to overstate the entity's assets and net worth. They further claimed that accurate treatment of the plant in the audits would have disclosed the Co-Op's insolvency and deterred their purchases of the notes. Petitioners succeeded at trial on both their federal claims under the Securities Exchange Act of 1934 and their state securities claims, resulting in a $6.1 million judgment. On appeal, Arthur Young contended that the demand notes did not qualify as securities under either the federal statute or Arkansas law, rendering the antifraud provisions inapplicable. The Eighth Circuit agreed and reversed the judgment. The Supreme Court granted certiorari to consider the federal issue.
View caseThe qualifier prevents application when the surrounding statutory text shows that the legislature intended a narrower or different meaning for that particular provision.
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No. The same qualifier appears in the Securities Act and Exchange Act definitions, where courts must decide whether context overrides the statutory definition of terms such as security or sale.
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It directs courts to apply only the goods-related provisions when the sale-of-goods aspects do not predominate, leaving other aspects governed by non-UCC law.
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