Meaning
Core promises in a sale agreement that concern the legal existence, authority, and ownership of the selling entity form the foundation of a transaction. Within the hierarchy of contractual assurances, fundamental warranties provide the highest level of protection to the buyer. Founders usually provide these guarantees personally to ensure the validity of the equity transfer.
Survival Duration
Periods of liability for these specific claims typically extend beyond the limits set for general business representations. While standard warranties might expire after eighteen months, fundamental warranties often persist until the expiration of the relevant statute of limitations. This extended window protects the buyer against foundational defects in the transaction.
Recovery Cap
Indemnification limits for these core promises usually reach the full purchase price of the transaction. This distinguishes them from operational warranties, which are often capped at a smaller fraction of the deal value. A breach of a core promise allows the buyer to seek substantial damages to restore the value of the acquisition.
Ownership Proof
Verification of the seller’s title to the shares being sold supports this category of claim. The seller must demonstrate that no liens exist on the equity. Any undisclosed claim on the stock constitutes a direct breach of the agreement.
