Fraud Defense Defeats Enforcement of Promissory Note on Sale of Business

Fraud claims permeate transactions for the sale of assets, stock, and other business interests. More often than not, litigation involves the purchaser in these transactions seeking to challenge or undo the deal by alleging that the seller misrepresented or concealed material facts that directly impacted the buyer’s decision to purchase the subject of the transaction. Much of the litigation that these transactions spawn, however, could be avoided or mitigated through careful legal counselling before and during the negotiations between the parties and drafting of the ultimate transactional documents.

A recent decision of the New York Appellate Division, Third Department, is an illustrative case in point: Panessa v Lederfeind, 2024 NY Slip Op 05252 (3^rd Dep’t Decided Oct. 24, 2024). In Panessa, the seller (“Seller”) of a business involved in the sale of protein powder and other nutritional supplements and its inventory was stymied in its attempt to collect on a promissory note given by the buyer (“Buyer”) because the Buyer alleged the Seller misrepresented the nature of the protein levels in the inventory. The litigation may have been avoided if the Seller was adequately counselled about making representations that could later come back to haunt it, and/or if the Seller had required the Buyer to disclaim reliance on any extra-contractual, claimed representations.

Read the full blog post here.