Performance Security Checklist: Deposit, Escrow, Guarantee

Checklist for Contract Performance Security: Deposit, Escrow and Guarantee

Deposits, escrow arrangements and guarantees are the three security measures most commonly used in commercial transactions in Vietnam. This checklist helps businesses and individuals review each clause before signing, avoiding costly disputes that often trace back to a few carelessly worded lines in the contract. The entire checklist is built on the contract performance security framework of the Civil Code 2015 and on practical experience handling real disputes.

1. Who should use this checklist and how
2. Detailed checklist
3. Common mistakes when doing this yourself
4. After completing the checklist
5. Frequently asked questions

1. Who should use this checklist and how

This checklist is for anyone preparing to sign or negotiate a contract containing security clauses: goods sales, factory leases, construction contracts, distribution and services agreements. Use it during drafting and negotiation, before you put pen to paper.

How to mark: ☐ not yet checked · ☑ satisfactory · ⚠ consult a lawyer. Any item marked ⚠ should be clarified in writing before signing, because once the contract takes effect, interpreting security clauses almost always works against the party seeking to change them.

2. Detailed checklist

Item 1: Identify the true nature of the transaction before choosing a security measure ☐

What to do: Answer the question: is this payment meant to secure the formation of the contract, the performance of the contract, or is it simply an advance payment of part of the price?
Why: The law attaches different sanctions to each. A deposit under Article 328 of the Civil Code 2015 carries forfeiture or double-return sanctions; an advance payment does not. If the contract merely says "Party A pays VND 200 million in advance" without calling it a deposit, Party A will struggle to claim a double penalty when the deal collapses.
How: Use the correct legal terms in the contract — "deposit", "escrow", "guarantee" — together with the stated purpose (securing formation or securing performance).
Caution: The phrase "advance deposit", common in online contract templates, is ambiguous — part deposit, part advance payment. In disputes, courts must reconstruct the parties' intent, wasting time and creating risk.

Item 2: Put the deposit agreement in writing with complete content ☐

What to do: Draft a deposit instrument (standalone or as a clause in the main contract) stating: the amount or asset deposited, the deposit period, its purpose, the conditions for forfeiture or double return, and how the deposit is handled if the contract is formed and performed.
Why: A deposit is one of the nine security measures listed in Article 292 of the Civil Code 2015. Without a clear written record, the depositee may deny the deposit character when seeking to avoid the penalty.
How: The signatory of the deposit document must have authority to represent (check the license, appointment decision, power of attorney). If the deposit is a non-cash asset (gold, gems), describe its identifying features and prepare a handover record signed by both parties.
Caution: Oral or message-based deposits may still be recognized, but proving them is very difficult. For high-value transactions, written form is a must for risk management.

Item 3: State clearly how the deposit is handled when the contract is performed ☐

What to do: Specify: when the contract is formed and performed, is the deposited asset returned to the depositor or set off against the payment obligation?
Why: Article 328(2) of the Civil Code 2015 allows both options (return or set-off against the payment obligation). If the contract is silent, the parties will argue at the final payment: one wants the deposit deducted, the other wants full payment before the deposit is returned.
How: Write one decisive sentence, e.g.: "The deposit shall be deducted from the final payment under this contract."
Caution: For contracts performed in stages, specify which instalment the deposit is deducted from, so the depositee cannot hold the deposit to the end like a nameless "retention".

Item 4: Set a reasonable deposit level, balancing deterrence and risk ☐

What to do: Agree a deposit level proportionate to the contract value and each party's risk exposure.
Why: Current law sets no maximum rate for deposits. Market practice commonly ranges from 10 to 30% of contract value depending on the transaction type. A deposit that is too high exposes the depositor to significant forfeiture risk; one that is too low has no deterrent effect.
How: Benchmark against industry practice (real estate, construction and goods trading have different norms) and the depositor's financial capacity.
Caution: The law leaves this open — there is no absolutely safe figure. If one party pushes for an unusual deposit level, it is a signal to renegotiate the whole payment structure, not just the deposit clause.

Item 5: Define clearly the events triggering forfeiture and double-return sanctions ☐

What to do: List precisely which acts by which party trigger forfeiture (depositor's breach) or double return (depositee's breach).
Why: Article 328(2) of the Civil Code 2015 provides: if the depositor refuses to form or perform the contract, the deposit is forfeited; if the depositee refuses, the depositee must return the deposit plus an equal amount, unless otherwise agreed. Disputes usually erupt over the word "refuses": does a delay count as refusal? What about partial breach?
How: Define "refusal" in the contract: e.g., failure to perform within a stated number of days counts as refusal; which obligations trigger the sanction.
Caution: The parties may agree a sanction other than the statutory double return (higher or lower). If you want a different level, write it down; otherwise the default applies.

Item 6: Check the legal status of the asset before depositing in real estate deals ☐

What to do: Before paying a deposit for a purchase or long-term lease of real estate: check the land-use right / house-ownership certificate, mortgage status, disputes and planning.
Why: A deposit only secures obligations between the two deposit parties. If the asset is under distraint, mortgaged to a bank or affected by planning, the depositor risks losing both the deposit and any recovery — because even winning in court is pointless if the depositee has no assets left to enforce against.
How: Ask the depositee for copies of the certificate and a statement of the asset's legal status; check planning information with the competent authority; for large transactions, have a lawyer conduct a legal check before signing the deposit.
Caution: Never pay a deposit to someone who cannot prove the right to dispose of the asset (e.g. "diplomatic quotas", "certificate pending"). This is the most common deposit-related fraud scenario.

Item 7: Escrow must go through a credit institution with a blocked account ☐

What to do: If escrow is chosen, open a blocked account at a bank or credit institution and sign a three-party escrow agreement (escrow party, credit institution, beneficiary).
Why: Article 330 of the Civil Code 2015 defines escrow as the obligor's depositing money, precious metals, gems or valuable papers into a blocked account at a credit institution to secure performance. Handing cash "as escrow" or making an ordinary bank transfer to the counterparty is not escrow in the legal sense, and in disputes will be treated as an ordinary payment or a nameless deposit.
How: Work with the bank on its escrow agreement template, blocked-account management fees, and the blocking/release procedures.
Caution: Escrow suits large, long-duration obligations (investment projects, auctions, construction). For small transactions, the cost and procedure of escrow may not be worthwhile.

Item 8: Regulate the release conditions for the escrow account strictly ☐

What to do: In the escrow agreement, state clearly: who may request release, in which circumstances, what documents are required, and the bank's processing deadline.
Why: A blocked account only works when the release mechanism is clear. Many escrow agreements say vaguely "release upon completion of obligations" without defining which documents evidence "completion", leading to deadlock: the beneficiary refuses to sign confirmation, and the money sits stuck in the bank.
How: List the specific release documents: acceptance records signed by both parties, confirmation of completed performance, or an arbitral/court decision. Provide a fallback for a party that deliberately refuses to sign (e.g., after 15 days without written objection, deemed consent).
Caution: Ask the bank about its internal procedures in advance, as each credit institution has different forms and processing times.

Item 9: Agree on costs and interest arising from the escrow account ☐

What to do: State clearly who bears the blocked-account management fees and who is entitled to any interest accruing during the blocking period.
Why: This is money "lying idle" potentially for months. If the contract is silent, the parties will argue at settlement: the escrow party claims the interest is theirs because it is their money; the beneficiary claims to bear the risk and should benefit.
How: One line in the escrow agreement: "All costs relating to the blocked account shall be borne by the escrow party; any interest accruing (if any) belongs to the escrow party."
Caution: For escrow in valuable papers (bonds, deposit certificates), also allocate the risk of value fluctuation during the blocking period.

Item 10: Assess the guarantor's financial capacity before accepting ☐

What to do: Collect and assess the guarantor's financial information: financial statements, security assets, credit history, existing guarantee obligations.
Why: Under Article 335 of the Civil Code 2015, a guarantee is a third party's commitment to perform an obligation in place of the guaranteed party. This commitment only has real value if the guarantor can actually pay when the guarantee is triggered. A guarantee from a thinly capitalized, loss-making company is effectively just paper.
How: Request the guarantor's latest financial statements; check other guarantees they currently carry; for high-value guarantees, require the guarantor to secure the guarantee obligation itself with assets (Article 336(3) allows parties to agree asset security for the guarantee obligation).
Caution: Guarantees by a parent company for its subsidiary, or cross-guarantees between companies in the same group, need independent assessment because financial risks are usually correlated.

Item 11: Prefer bank guarantees for high-value transactions ☐

What to do: For high-value contracts, require the obligor to provide a letter of guarantee issued by a credit institution rather than a guarantee from an individual or ordinary organization.
Why: Bank guarantees are governed by Circular 61/2024/TT-NHNN (effective 01/04/2025, replacing Circular 11/2022/TT-NHNN and Circular 49/2024/TT-NHNN) with a standardized process: the bank appraises the guaranteed party before issuance, and when the guarantee event occurs, the bank must perform within 5 working days of receiving a complete and valid claim dossier (Article 22(3)). Reliability and enforceability are far higher than ordinary civil guarantees.
How: State in the main contract: the type of guarantee letter (bid bond, performance bond, advance-payment guarantee…), the issuing bank must be acceptable to the beneficiary, and the letter's validity must cover the entire performance period plus a buffer.
Caution: Guarantee fees are agreed by the parties (Article 19 of Circular 61/2024/TT-NHNN), usually calculated as a percentage of the guaranteed amount; credit institutions must publicly list their guarantee fee rates (Article 19(1)). The guaranteed party bears this fee, which must be factored into the offer price.

Item 12: State the guarantee scope clearly: partial or full, including interest and penalties? ☐

What to do: In the guarantee instrument, fix the scope: guarantee of part or all of the obligation; whether the guarantee covers interest, penalties, damages and default interest.
Why: Article 336 of the Civil Code 2015 provides that the guarantor may commit to part or all of the obligation, and by default the guarantee obligation includes interest on the principal, penalties, damages and default interest, unless otherwise agreed. If you want to limit (e.g. principal only), write it down; otherwise the guarantor automatically shoulders interest and penalties too.
How: Write the maximum guarantee amount and list exclusions (if any): "The guarantee obligation is capped at VND X, excluding breach penalties and default interest."
Caution: Avoid "guarantee of all obligations arising from the contract" because an undefined scope is hard to quantify and easily disputed.

Item 13: Define clearly the events triggering the guarantee obligation ☐

What to do: Specify which event entitles the beneficiary to demand performance: is the guaranteed party's mere breach enough, or must it be proven that the guaranteed party is unable to perform?
Why: Article 335(2) of the Civil Code 2015 allows the parties to agree that the guarantor need only perform when the guaranteed party is unable to. This is the core difference between an accessory guarantee and an independent guarantee (pay on demand). If the contract is unclear, each party will interpret it in its own favour when trouble strikes.
How: List the documents for a guarantee claim: the demand letter, evidence of breach (records, breach notices already sent), and the guarantor's payment deadline after receiving a complete file.
Caution: For bank guarantees, the trigger conditions are usually tied to presenting documents as specified in the guarantee letter. Read the letter carefully before accepting — some letters require a court judgment or arbitral award before payment.

Item 14: Regulate guarantee fees, duration and extension ☐

What to do: Agree the guarantee fee (if any), the guarantee's validity period, and the extension mechanism when the main contract is prolonged.
Why: Article 337 of the Civil Code 2015 provides that the guarantor is entitled to remuneration if agreed. On duration, many disputes arise when the main contract is extended but the guarantee letter has expired: the beneficiary believes it is still secured; the guarantor says the obligation has ended.
How: Tie the guarantee period to the main contract's schedule plus a buffer (e.g. 30 to 60 days after the expected completion). Stipulate the guaranteed party's duty to extend the letter when the main contract is extended, and the consequence of failing to extend (the beneficiary may call the guarantee immediately).
Caution: Check the guarantee letter's validity periodically throughout performance, especially for multi-year projects.

Item 15: Retrieve and terminate the guarantee when the obligation is completed ☐

What to do: When the guaranteed obligation is completed, retrieve the original guarantee letter/commitment and prepare a written confirmation of termination.
Why: Article 343 of the Civil Code 2015 provides that a guarantee terminates when the guaranteed obligation terminates, when the guarantor has performed, when it is cancelled or replaced, or as agreed. In practice, however, if the original letter remains in the beneficiary's hands, the risk of a wrongful demand persists, and the guarantor struggles to prove termination.
How: Immediately after the final acceptance/settlement record, send a written request for the beneficiary to return the original letter and sign a termination confirmation. Keep complete files proving the main obligation has been completed.
Caution: A guarantor who has performed in place of the guaranteed party may demand reimbursement from the guaranteed party within the scope performed (Article 340). If you are such a guarantor, exercise this right promptly to avoid limitation issues.

3. Common mistakes when doing this yourself

Mistake 1: Calling an advance payment a "deposit". Consequence: when the counterparty breaches, you claim double penalty but the court finds it was merely an advance payment and only orders a refund. Fix: review the whole contract — wherever it says "deposit", attach a forfeiture/double-return mechanism; if no sanction was intended, rename it "advance payment".

Mistake 2: Doing escrow by transferring money straight to the counterparty. Consequence: you lose the independent blocking mechanism of the credit institution; the money is treated as an ordinary payment and may be used by the counterparty in advance. Fix: open a blocked account at a bank and sign a proper Article 330 escrow arrangement.

Mistake 3: Accepting a guarantee letter that expires midway. Consequence: the project is extended by 6 months but the letter only covered the initial 12 months; when the contractor abandons the site, the investor discovers the guarantee has lapsed. Fix: build guarantee review into contract management, check validity periodically and attach extension duties with specific sanctions.

Mistake 4: Not limiting the guarantee scope. Consequence: an individual guarantor signs "guarantee of all obligations" without knowing the default also covers interest, penalties and damages under Article 336(2). Fix: always state the maximum guarantee amount and list exclusions.

Mistake 5: Forgetting to retrieve the guarantee letter after completion. Consequence: years later the former beneficiary can still cause trouble, or the bank keeps charging maintenance fees. Fix: make retrieving guarantee letters part of the contract settlement checklist.

4. After completing the checklist

When all 15 items are marked ☑, your contract has basic security in place. Next step: store all original deposit instruments, escrow agreements and guarantee letters in one safe place, and assign someone to monitor validity periodically. If you have not reviewed the contract as a whole, cross-check the pre-signing contract review checklist so no security clause is missed.

You DEFINITELY need a lawyer alongside when: the secured value is large relative to your business size; the counterparty is a foreign organization with a cross-border guarantee structure; a breach has already occurred and sanctions need triggering; or any checklist item is marked ⚠.

For advice on drafting and reviewing deposit, escrow and guarantee clauses, see FLAT Law Firm's commercial contract advisory services or contact hotline 0988424851.

5. Frequently asked questions

What is the maximum deposit as a percentage of the contract value? The Civil Code 2015 does not set a maximum deposit rate; the amount is freely agreed by the parties. Market practice typically ranges from 10 to 30% depending on the transaction, but an excessively high deposit relative to the contract value may be re-examined if a dispute arises. Balance deterrence against the risk of losing the deposit.

What is the difference between a deposit and an advance payment? A deposit is a security measure under Article 328 of the Civil Code 2015: the breaching party forfeits the deposit or pays double it back. An advance payment is merely partial performance of the payment obligation — if the contract collapses, it is simply refunded without any penalty. The contract must state clearly whether the payment is a deposit or an advance.

Must escrow be done through a bank? Yes. Under Article 330 of the Civil Code 2015, escrow means the obligor deposits money, precious metals, gems or valuable papers into a blocked account at a credit institution. Holding cash "in escrow" outside a bank does not satisfy the statutory escrow model.

What is the difference between a bank guarantee and an individual guarantee? Bank guarantees are issued by credit institutions under Circular 61/2024/TT-NHNN (effective 01/04/2025, replacing Circular 11/2022/TT-NHNN and Circular 49/2024/TT-NHNN), usually as independent guarantees where the beneficiary is paid upon presenting compliant documents. Guarantees by individuals or ordinary organizations are governed by the general rules in Articles 335 to 343 of the Civil Code 2015, and their real effectiveness depends heavily on the guarantor's financial capacity.

Can a deposit and a guarantee be used together in one contract? Yes, the law does not prohibit combining several security measures in the same contract. However, the contract should clearly allocate which measure secures which obligation, to avoid overlapping sanctions that could make the total penalties unreasonable and hard to enforce.

Language versions

References

Civil Code 2015 (No. 91/2015/QH13), effective 01/01/2017 — Articles 292, 328, 330, 335, 336, 337, 340, 342, 343.
Circular 61/2024/TT-NHNN dated 31/12/2024 on bank guarantees, effective 01/04/2025 (replacing Circular 11/2022/TT-NHNN and Circular 49/2024/TT-NHNN per Article 35) — Article 16 (contents of the guarantee commitment), Article 19 (guarantee fees; paragraph 1: public listing of fee rates), Article 22 (time limit for performing the guarantee obligation: 5 working days), Article 34 (transitional provisions: commitments signed before 01/04/2025 continue under the signed agreement).

—