APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, SECOND DIVISION
510 N.E.2d 48, 157 Ill. App. 3d 97, 109 Ill. Dec. 427 1987.IL.771
Appeal from the Circuit Court of Cook County; the Hon. Richard L. Curry, Judge, presiding.
PRESIDING JUSTICE SCARIANO delivered the opinion of the court. STAMOS and BILANDIC, JJ., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE SCARIANO
Plaintiff John Schuler (Schuler) brought an action in four counts arising from his June 6, 1984, purchase of 10 shares of stock in First Aid Health Care Management Company (First Aid). This appeal involves only count I of the second amended verified complaint which seeks rescission of the sale under the Illinois Securities Law of 1953 (Ill. Rev. Stat. 1983, ch. 121 1/2, par. 137.1 et seq.) (Act) for defendants' failure to file a report of sale with the Secretary of State. On November 21, 1985, the court granted both Schuler's motion for summary judgment on the first count against defendant Beers (Beers) and his petition for attorney fees. Thereafter, Schuler filed his second amended verified complaint against defendants Goswami (Goswami) and Sheth (Sheth). On June 11, 1986, the trial court entered an order granting the motion of Goswami and Sheth to dismiss count I of the second amended verified complaint and vacated its prior orders granting summary judgment and assessing attorney fees against Beers.
The facts as they relate to this appeal are undisputed and rather simple. On June 6, 1984, Schuler purchased 10 shares of stock in First Aid, an Illinois corporation, from Beers for $10,000. Beers, Goswami, and Sheth were First Aid's sole incorporators, directors, and officers. Prior to Schuler's purchase, the three defendants voted in their capacity as directors of First Aid to issue more stock for the purpose of raising additional capital. Schuler met with all three prior to his purchase and each encouraged him to buy the stock.
Schuler alleges that shortly after his purchase he discovered that important information had not been disclosed to him and that numerous misrepresentations had been made to him. He first learned that the transaction might be voidable in December 1984 when he was advised by the Illinois Secretary of State's office that the defendants had not complied with the reporting provisions of the Act. Excluding the failure to file the required report with the Secretary of State, First Aid otherwise satisfied the provisions of the limited offering exemption of the Act. (Ill. Rev. Stat. 1983, ch. 121 1/2, par. 137.4.) In accordance with the Act, Schuler tendered his stock to Beers in a letter dated December 18, 1984, and he filed his suit in March of 1985, which was within six months of his learning of the potential voidableness of the transaction. See Ill. Rev. Stat. 1983, ch. 121 1/2, par. 137.13.
The parties agree that prior to the 1983 amendments to the Act the filing of a report of the sale with the Secretary of State was a condition precedent to its being an exempt transaction pursuant to the limited offering exemption. The statute provided that sales were exempt if sold:
"to not more than 35 persons in this State . . . (1) no commission, discount or other remuneration exceeding 15% of the initial offering price of the securities is paid or given directly or indirectly for or on account of the sale; (2) the securities shall not be offered or sold by any means of general advertising or general solicitation; and (3) the issuer, controlling person or dealer shall file with the Secretary of State a report of sale not later than 30 days after the sale . . .. (Such report of sale shall be deemed confidential and shall not be disclosed to the public except by order of court or in court proceedings.)" (Emphasis added.) Ill. Rev. Stat. 1981, ch. 121 1/2, par. 137.4.
When section 4was read in conjunction with section 12 and section 13, the result was that the buyer could rescind the purchase. In pertinent part, section 12 provided that:
"It shall be a violation of the provision of this Act for any person:
Furthermore, the Act provided that "[every] sale of a security made in violation of the provisions of this Act shall be voidable at the election of the purchaser." (Ill. Rev. Stat. 1981, ch. 121 1/2, par. 137.13.) Consequently, prior to the 1983 amendments a purchaser of securities could rescind the purchase based on the issuer's failure to file the report required in section 4. See, e.g., Sanchez v. Walls (1978), 59 Ill. App. 3d 75, 78-79, 375 N.E.2d 138.
The 1983 amendments, however, confounded the issue of whether the remedy of rescission was still available if the issuer failed to file the report prescribed in section 4. After the statute indicated that the issuer was ...