Philip Amoa and Matt Rifino discuss in the Delaware Business Court Insider how the Delaware Court of Chancery’s decision in Braga Investment & Advisory v. Musa Yenni illustrates the importance of following contracting fundamentals. In Braga, an investor sought to rescind an agreement and recoup its investment by arguing fraudulent inducement after the investor’s relationship with the deal sponsor turned sour. The court refused to undo the transaction, and the investor was left with several expensive lessons in what not to do in contract negotiations.
As members of McCarter’s Delaware Corporate, LLC & Partnership Law team, a few of the contracting fundamentals the authors highlight include following the concept of “read before signing,” conducting due diligence, including material facts in an agreement as an express representation or warranty, and exercising caution related to legal authority and a power of attorney. The Braga decision reinforces that when these fundamental steps are not carefully considered and followed, things don’t work out for the best. The case shows that signing an agreement before reading it carefully does not nullify it if something is unfavorable down the line. Not doing proper due diligence can in fact make a good deal a bad one. The authors stress that dealmakers should not rush to the closing table without conducting due diligence and exercising due care.