## Facts

- Gannett Co. sold ownership interests in *The Hartford Times* and a related company (Community Offset) to Register Publishing Co. under a September 30, 1973 stock-purchase agreement for $7 million, subject to working-capital adjustments.
- After closing, Register claimed Gannett’s pre-sale financial and circulation representations were materially false, including allegedly inflated circulation and overvalued assets.
- Register began an audit in October 1973 and, by late November 1973, believed it had confirmed substantial misrepresentations.
- Despite that belief, Register did not promptly notify Gannett of an intent to rescind; instead it withheld an installment payment and engaged in negotiations about adjustments or settlement.
- Register continued operating the newspaper and treated the assets as its own, making major operational changes and expenditures, consolidating personnel with other operations, and changing the newspaper’s price.
- Register later shut down *The Hartford Times*.
- In separate trust-related litigation, communications by trustees associated with Register indicated that Register would not seek rescission of the transaction.
- Gannett sued on April 15, 1974 to recover unpaid amounts under the agreement; Register counterclaimed on June 12, 1974, seeking damages and rescission based on alleged breach and fraud.

## Issues

1. Whether Register could obtain rescission after learning of alleged misrepresentations but delaying an unequivocal election to rescind.
2. Whether Register’s continued operation, alteration, and ultimate closure of the business constituted affirmance of the contract and waiver of rescission.
3. Whether rescission was unavailable because Register could not substantially restore Gannett to the pre-transaction status quo.

## Decision

- The court denied Register’s counterclaim to the extent it sought rescission of the stock-purchase agreement.
- The court concluded Register’s delay and post-discovery conduct were inconsistent with the prompt, unequivocal election required for rescission.
- The court held Register’s substantial alterations to the business and shutdown of the newspaper defeated the equitable requirement that the parties be returned substantially to the status quo.
- The ruling foreclosed rescission as a remedy but did not, by itself, eliminate potential claims for damages based on breach or misrepresentation.

## Legal Principles

- Rescission is an equitable remedy requiring prompt notice and a clear, consistent election to disaffirm once grounds for rescission are known.
- A party with knowledge of alleged fraud who continues to exercise ownership, makes substantial changes, or otherwise affirms the transaction may waive rescission.
- Rescission generally requires the rescinding party to be able to restore the other party substantially to the status quo; material alteration or destruction of the subject business commonly bars rescission.
- Unavailability of rescission does not necessarily preclude monetary relief for proven fraud or breach of contract.

## Conclusion

The court held that Register’s delay, acts treating the acquired newspaper as its own, and inability to return the business substantially as received barred rescission, leaving the parties to litigate remaining contract and damages issues without the equitable remedy of undoing the transaction.


Gannett Co. v. Register Publ’g Co., 428 F. Supp. 818 (D. Conn. 1977)