In a share or asset purchase agreement (SPA), the seller typically gives representations and warranties about the target company legal status, finances and assets. When a warranty turns out to be untrue — inflated revenue, undisclosed contingent liabilities, licenses not as warranted — what legal tools does the buyer have to claim compensation, and what are the limits of each? This article analyzes the issue under the Civil Code, the Commercial Law and the Law on Enterprises currently in force.
1. Legal nature: a false warranty is a breach of contractual obligation
A false warranty is first and foremost a breach of contractual obligation — the seller failed to perform what it promised. The buyer may therefore claim compensation for all losses under Articles 13 and 360 of the Civil Code 91/2015/QH13 (unless otherwise agreed or otherwise provided by law), or under Articles 302–307 of the Commercial Law 36/2005/QH11 where the SPA qualifies as a commercial contract (SPAs between enterprises are usually treated as commercial contracts, so both regimes should be cited).
Under Article 419 of the Civil Code, compensable loss includes: actual material loss; benefits that would have been enjoyed from the contract; non-duplicative expenses incurred; and mental suffering (as decided by the court).
2. The biggest trap: penalties plus damages — civil differs from commercial
This is the easiest point to get wrong:
- Civil contracts (Article 418.3 of the Civil Code): if the parties only agreed on a penalty for breach without agreeing on damages, the breaching party bears only the penalty, not damages;
- Commercial contracts (Article 307.2 of the Commercial Law): where a penalty is agreed, the aggrieved party may apply both the penalty and damages.
So one must not write that “a penalty automatically entitles the buyer to additional damages” without distinguishing — that statement is only true for commercial contracts.
3. The buyer toolkit: from penalties to invalidation
Buyers may consider the following tools, from mildest to strongest:
- (a) Penalty for breach — only if the SPA contains a penalty clause (penalties require agreement, Articles 300–301 of the Commercial Law); in commercial contracts, the penalty must not exceed 8% of the value of the breached obligation;
- (b) Damages — all actual losses plus benefits that would have been enjoyed (Article 419 Civil Code; Articles 302–307 Commercial Law);
- (c) Price adjustment / set-off against deferred consideration — entirely as agreed in the SPA;
- (d) Cancellation / unilateral termination — only for serious breach (Articles 423, 428 Civil Code);
- (e) Declaring the contract void for fraud — only where the seller intentionally misrepresented (Article 127 Civil Code: fraud is an intentional act causing the other party to misunderstand); the consequence is mutual restitution (Article 131). This is the “nuclear option”, not to be used lightly.
Important: equating a “false warranty” with “fraud” is wrong — an unintentional or negligent misstatement is only a breach of contractual obligation; intent must not be presumed.
4. Contractual limits on liability: caps, baskets, survival periods
The law allows the parties to agree limits on liability (Articles 13 and 360 Civil Code: “unless otherwise agreed”) — in practice SPAs almost always include compensation caps, baskets/deductibles and survival periods for warranties. Buyers must read these limits carefully before claiming, because they directly determine the recoverable amount.
5. The hardest part: proving loss and the duty to mitigate
These disputes are usually won or lost on proof:
- Quantifying loss: the difference between the company value as warranted and its actual value — usually requiring independent expert valuation;
- Causation between the false warranty and the loss;
- The claimant must prove the loss, its extent, and the direct benefits lost (Article 304 Commercial Law);
- The buyer must also have performed its duty to mitigate loss (Article 305 Commercial Law) — otherwise compensation may be reduced.
6. Limitation periods and contractual tools
The limitation period for contract claims is 3 years from the date the buyer knew or should have known its rights were infringed (Article 429 Civil Code) — in M&A this is usually when the misstatement is discovered, not the SPA signing date. For arbitration, the period is 2 years (Article 33 of the Law on Commercial Arbitration).
Tools such as escrow, holdback, earn-out and indemnity are not statutory institutions under Vietnamese law — their effect rests entirely on contractual agreement (Articles 117, 119 Civil Code). They must not be presented as if the law already regulates them.
Frequently asked questions
Does a penalty clause automatically entitle the buyer to additional damages?
Not automatically. Civil contracts: penalty agreed without damages agreed means penalty only (Article 418.3 Civil Code). Commercial contracts: a penalty allows both penalty and damages (Article 307.2 Commercial Law).
Is a false warranty the same as fraud for invalidating the contract?
No. Fraud requires the seller to have intentionally misrepresented (Article 127 Civil Code); an unintentional or negligent misstatement is only a breach of contractual obligation.
When does the limitation period start to run?
3 years from when the buyer knew or should have known its rights were infringed — usually when the misstatement is discovered, not the SPA signing date (Article 429 Civil Code).
Which rules apply if the SPA has employee-related clauses?
Decree 12/2022/ND-CP has expired; the current instrument is Decree 283/2026/ND-CP (effective 10/9/2026).
Sources
- Civil Code 91/2015/QH13: Articles 13, 360 (full compensation), Article 418 (penalties), Article 419 (compensable loss), Articles 127, 131 (voidness for fraud), Articles 423, 428 (cancellation/termination), Article 429 (3-year limitation);
- Commercial Law 36/2005/QH11: Articles 300–301 (penalties, 8% cap), Articles 302–305 (damages, duty to mitigate), Article 307.2 (penalty plus damages);
- Law on Enterprises 59/2020/QH14 (amended by Law 76/2025/QH15): Article 127 (share transfer by contract).
Conclusion
When a seller gives false warranties in M&A, the buyer is not short of tools — from penalties and damages to price adjustments, contract cancellation, or invalidation in cases of intentional fraud. But each tool has its own limits: the civil/commercial trap on penalties plus damages, the contractual caps in the SPA, and the burden of proving loss. Reading the SPA carefully and gathering independent valuation evidence as soon as the misstatement is discovered are the two steps that determine recoverability.
Has your buy-side just discovered a false warranty in an M&A deal? Contact FLAT Law Firm for advice.
For reference only; not legal advice. This content was prepared by AI and will undergo quality review by the AI Legal Council of FLAT Law Firm before any publication consideration; it is not the legal opinion of a licensed human lawyer. Laws and regulations may change; verify the current legal texts before applying them.