Opinion ID: 315788
Heading Depth: 1
Heading Rank: 4

Heading: The Measure of Recovery

Text: 52 Damages were assessed on the theory of rescission effective at the time of the merger. Defendants maintain that the rescission relates back to the original investment and cannot take effect at the later date when plaintiff exercised the option to rescind. Defendants would thus return to plaintiff his original investment. 53 The security statutes which defendants have violated all permit a rescission type of remedy. See 15 U.S.C. 77l (Claims 1 and 2: statute specifically permits a rescission remedy for violations of 12(1) and 12(2) of the Securities Act of 1933); 15 U.S.C. 78j, 17 C.F.R. 240.10b-5, and 15 U.S.C. 78cc(b) (Claim 3: statute makes contracts or transactions void when they violate the statute); and 1963 C.R.S. 125-1-21 (Claim 4: Colorado Securities Act specifically permits rescission remedy.) 54 Defendants' effort to relate back to the original investment is understandable. It is difference between $36,899.22, the amount invested, and over $100,000, which the court considered to be 20 percent of the net proceeds of the sale. 55 The trial court correctly selected the later date. Obviously plaintiff did not have a right to rescind until the attempt was made to give him stock which had a value which was far out of proportion to the value of the property. There can be no question about the issue of shares in the merged corporation being a purchase or sale. 8 56 Ordinarily, of course, the consequence of rescission would be return of the property. But the real estate had been sold to a bona fide purchaser; hence the next best solution was to give plaintiff the proceeds. Plaintiff was entitled to the fair value of his interest as of the time of the unlawful merger. Young v. Taylor, 466 F.2d 1329, 1336 (10th Cir. 1972). In a rescission action the proper measure is the amount lost rather than value of the bargain. Estate Counseling Service, Inc. v. Merrill Lynch, Pierce, Fenner and Smith, Inc., 303 F.2d 527 (10th Cir. 1962); Esplin v. Hirschi, 402 F.2d 94 (10th Cir. 1968), cert. denied, 394 U.S. 928, 89 S.Ct. 1194, 22 L.Ed.2d 459. Thus, we cannot accept defendants' argument that the actual award is to be measured by the benefit of the bargain. As we have indicated, the rescission takes effect on the illegal merger and not on the original purchase. 57 The tiral court utilized the figure $1,049,990.49 as a starting basis for the award. This represented the contract price of the Cherry Creek real property. At the time of closing the value was increased somewhat but this was due to the purchaser moving the closing date forward one month. The trial court also subtracted the two encumbrances in arriving at the net figure. 58 We are unable to understand why the second mortgage loan was subtracted by the court in computing plaintiff's damages. We noted above that this $90,000 loan was obtained by the Blues and its proceeds were used by them. In the light of this we are unable to agree that the plaintiff's net share should be affected by this loan. Accordingly, the trial court's determination of the net value by subtracting the $90,000 second loan is clearly erroneous and the judgment must be modified in respect to this by adding 20 percent of $90,000 to it. Similarly, plaintiff has pointed out in his brief that the trial court neglected to deduct a five percent sales commission fee ($52,499) from the total equity of the property prior to computing plaintiff's 20 percent interest. We agree with plaintiff that there is no reason to exonerate him from bearing his fair share of the expenses of sale. Plaintiff's recovery should thus be reduced by an amount equal to 20 percent of $52,499. In all other respects the court correctly determined the matter and correctly computed it as well. 59