Deposits appear in most real estate, capital transfer and leasing transactions in Vietnam, yet many disputes start because the parties label a sum of money a deposit when its legal nature is in fact an advance payment. The two concepts lead to entirely different consequences when one side changes its mind. This article explains the general framework for deposits under Article 328 of the Civil Code 23/2015/QH13, the forfeiture penalty, and the boundary with advance payments and escrows.
The legal nature of a deposit under Article 328
Under clause 1 of Article 328 of the Civil Code 23/2015/QH13, a deposit is the delivery by one party to the other of a sum of money, precious metal, precious stones or other valuables for a period of time as security for the conclusion or performance of a contract. The defining feature is the security function: the deposit exists because a main contract is about to be concluded or performed, and it carries its own sanction when a party refuses to proceed.
Analytically, the deposit agreement stands apart from the main contract: where the parties agree nothing else, the statutory default sanction applies. Decree 21/2021/ND-CP on security for performance of obligations is the guiding instrument to consult when structuring a deposit in a high-value transaction.
Forfeiture when a party refuses to conclude or perform
Clause 2 of Article 328 of the Civil Code 23/2015/QH13 provides that if the depositor refuses to conclude or perform the contract, the deposit belongs to the deposit recipient; if the recipient refuses, it must return the deposit and pay the depositor an amount equal to the value of the deposit. Both branches end with a carve-out for contrary agreement, so the parties may set a higher or lower penalty or a different settlement mechanism, and that agreement prevails.
In advisory practice, the overlooked question is which party actually refused. A recipient who delays handover, delivers an asset that does not match the commitment, or unilaterally changes an essential term may be treated as refusing to perform even without an express termination notice. Conversely, a depositor who stays silent past the agreed signing deadline may equally forfeit the deposit. The deposit document should therefore fix deadlines, trigger events and notice mechanics.
Deposits, advance payments and escrows compared
An advance payment is part of the payment obligation under the main contract itself: the buyer pays part of the price early so the seller can prepare performance. It carries no forfeiture penalty; if the contract is not concluded or is cancelled, the advance is dealt with under the parties agreement or, absent agreement, under the restitution principles of the corresponding obligation relationship.
An escrow, under Article 330 of the Civil Code 23/2015/QH13, is the depositing by the obligated party of money or valuables into a blocked account at a credit institution to secure performance of an obligation. Unlike a deposit handed directly to the counterparty, escrowed assets sit with a neutral third party and are only released when a predefined breach event occurs.
Three practical tests separate the concepts: who receives the money (the counterparty or a blocked account at a credit institution), whether it secures the conclusion of a contract or forms part of the contract price, and whether the document records a forfeiture or double-payment sanction. The label the parties choose does not decide the nature; courts and arbitral tribunals look at the substance of the agreement.
Sector rules and limitation period
In transactions over off-plan real estate and housing, deposits are additionally governed by the sector rules of the Law on Real Estate Business 29/2023/QH15 and the Housing Law 27/2023/QH15 on the conditions and limits for collecting money before the asset qualifies for trading. Those are sector-specific rules for real estate and do not displace the general rule in Article 328 of the Civil Code.
Disputes over deposits attached to a contract fall under the three-year limitation period for contract claims in Article 429 of the Civil Code 23/2015/QH13. The party holding the transfer records, the deposit document and the correspondence between the parties is in a far stronger evidentiary position in court.
Frequently Asked Questions
How does a deposit differ from an advance payment and an escrow?
A deposit under Article 328 of the Civil Code 23/2015/QH13 is money or valuables one party hands to the other to secure the conclusion or performance of a contract, and it carries a forfeiture sanction. An advance payment is simply part of the price of the main contract paid early, with no forfeiture sanction; if the contract fails, it is settled by agreement or restitution principles. An escrow under Article 330 is money or valuables placed into a blocked account at a credit institution to secure performance, so the assets sit with a third party rather than being handed to the counterparty as with a deposit.
What forfeiture penalty applies if the deposit recipient fails to honour the commitment?
Under clause 2 of Article 328 of the Civil Code 23/2015/QH13, a deposit recipient who refuses to conclude or perform the contract must return the deposit and pay the depositor an additional amount equal to the value of the deposit, unless the parties agreed otherwise. In other words, the default sanction on the recipient is twice the deposit value, and the parties may set a different level in the deposit document.
Can the depositor reclaim the deposit after changing their mind about the purchase?
Under clause 2 of Article 328 of the Civil Code 23/2015/QH13, a depositor who refuses to conclude or perform the contract loses the deposit to the recipient, unless the parties agreed otherwise. A depositor who simply changes their mind therefore forfeits the deposit under the default rule. Recovery is only possible where the deposit document contains a refund clause for the specific situation, where the failure to conclude stems from the recipients fault, or where both parties agree to terminate and re-settle the deposit.
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This legal analysis has been verified against current Vietnamese regulations and cross-border FDI transaction practices by the attorneys at FLAT LAW FIRM.
