Series 79 practice questionmediumRepresentations and Warranties
An acquisition agreement contains a $3 million indemnity basket and a $15 million indemnity cap. After closing, the buyer discovers breaches causing $18 million in damages. How much can the buyer recover from the seller?
- A$0, because the damages do not exceed the basket
- B$15 million, the amount of the cap✓ Correct answer
- C$18 million, the full amount of losses
- D$3 million, the amount of the basket
Explanation
Why B — $15 million, the amount of the cap
The indemnity cap limits the maximum recovery to $15 million, even if losses exceed that amount. The trap is thinking the buyer could recover the entire $18 million, ignoring the cap's legal effect.
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