Rescission calls for the cancellation of the bargain and the return of the parties to the status quo and hence where this is impossible because of the disposal or retirement of the stock involved, the proper measure of damages should be the equivalent value of the stock at the time of resale or at the time of judgment.
Lynch sold her shares of stock to the directors and Vickers Energy Corp. pursuant to a tender offer. Lynch then filed a lawsuit against the directors for breach of their fiduciary duty. In a prior appeal, the court held that the directors failed to disclose critical facts to the stockholder. Upon remand, the trial court held that Lynch was not damaged by the failure to disclose the information.
Did the trial court err in holding that Lynch was not damaged by the failure to disclose the information and therefore, not entitled to relief?
The court held that Lynch was entitled to relief because the trial court applied an inappropriate rule of law on damages. Rescission of the sale was impossible because the corporation had been merged into a parent company and other corporate changes had occurred. Instead, the proper measure of damages was the equivalent value of the stock at the time of the judgment. The judgment against the corporation did not provide a basis for holding the directors liable to the stockholder.