What is the basket and cap concept related to a contract of sale?
New Jersey business transactions attorney, Harold I. Steinbach, discusses the minimums and maximums of representations.
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Basket and cap is a concept that came over from England literally about 25 years ago and it’s really maybe the better way to phrase it is deductible and maximum. So a seller might say after all those reps, on top of everything, the basket is don’t come to me, you can’t make a claim unless all your claims total $50,000.00 that would be the basket. And the cap might be even though the purchase price was $15 million, no matter what, leaving aside fraud; you can’t collect more than $10 million from me that would be the cap. And even with respect to the basket like with insurance, we have the same issue. So if you go over the basket, over the $50,000.00 my example do you collect from dollar one or just over $50,000.00. And this is layered on top of all the other materiality issues we had in the representations themselves.