You bought a company with hidden debts: claim on the seller
Last updated 2026-09-01 · Reviewed by Jaime Piñeira Pardo, registered with the ICAM bar, no. 138826
The short answer
You claim against the seller for breach of the representations and warranties in the contract, with a five-year prescription period, or you seek annulment for fraud, which lapses four years after the contract was consummated. Both routes run before the Commercial Section of the Tribunal de Instancia (the first-instance court), and the choice depends on what the seller concealed and how.
You bought one hundred per cent of a Spanish limited company for 850,000 euros. The contract included two pages of seller representations stating that there were no tax contingencies and that the returns filed were correct. Eight months after signing, a tax audit arrives covering the three previous years, with a proposed assessment of 190,000 euros in tax, interest and a penalty. Reviewing the accounts, invoices appear that the seller knew about and that were never in the archive you were shown.
The case, in five lines
- What is brought
- A claim for compensation for breach of the representations and warranties, based on article 1101 of the Civil Code, or an action to annul the contract for fraud under articles 1269 and 1270 of the Civil Code.
- Before which court
- The Commercial Section of the Tribunal de Instancia (the first-instance court), with a later appeal before the Audiencia Provincial (the provincial appeal court), unless the contract contains a valid arbitration clause, which is common in this kind of deal.
- Deadline
- The action to annul for fraud lapses four years after the contract was consummated, under article 1301 of the Civil Code. The claim for breach, being a personal action with no special period, prescribes five years after performance may be demanded, under article 1964.2.
- Who can bring it
- The buyer who signed the contract and, where relevant, the group company that took over that position. Where there are several sellers, it must be checked whether they answered jointly and severally or only in proportion to their stake.
- Financial risk
- If the claim is dismissed you may be ordered to pay the other side's costs, having paid for the accounting and tax expert reports. Besides, the debt with the tax authority runs its own course regardless of the civil case, so it must be defended in parallel or paid and then recovered.
The seller's representations are obligations, not decoration
The two pages of representations and warranties that almost nobody reads at signing are the heart of the claim. The seller stated that no tax contingencies existed and that the returns were correct, and that statement forms part of what he undertook to perform. Article 1101 of the Civil Code subjects to compensation for loss anyone who in any way contravenes the terms of their obligations.
Article 1124 of the Civil Code adds the other piece: the power to terminate is implicit in reciprocal obligations where one party fails to perform what falls to it, and the injured party may choose between demanding performance or termination, with compensation and interest in either case. The same article states that the court shall order the termination sought unless there are justified reasons for allowing a period to perform.
In practice one hardly ever asks to unwind the purchase of a company that is already being run, with its staff and its clients. What is claimed is money: that the seller bear the assessment, the interest and the penalty arising from facts predating the signing which he stated in writing did not exist. And for that, the contract negotiated at the time is the main evidence.
Claiming for breach and annulling for fraud are different
Article 1269 of the Civil Code defines fraud: it exists where, through insidious words or contrivances by one of the contracting parties, the other is induced to enter into a contract that, without them, it would not have made. It is not enough that the seller kept quiet about something: the contrivance must be proved, and that without it you would not have bought, or not on those terms.
Article 1270 sets the threshold. For fraud to render the contract void it must be serious and not have been employed by both contracting parties. And it adds a distinction that decides many cases: incidental fraud, which did not determine that the contract was made but only its terms, obliges the party who employed it to compensate for loss and nothing more.
Hence the usual strategy. Removing the real accounting records from the archive before showing it points to a contrivance and supports the fraud route; an inaccurate representation and nothing more supports the breach route. Both can be pleaded as a principal and an alternative claim in the same action, and getting the order wrong means losing the best argument at the worst moment.
Four years to annul, five to claim the money back
Article 1301 of the Civil Code provides that the action for annulment lapses after four years and that, in cases of mistake, fraud or falsity of cause, time starts running from consummation of the contract. In a share purchase with deferred payments or outstanding conditions, consummation does not always coincide with the date of the deed, and that nuance can give you months of extra room.
The claim for damages for breach follows another clock. Being a personal action with no special period, article 1964.2 subjects it to five years from when performance of the obligation may be demanded, and specifies that in continuing obligations to do or not to do, time starts each time they are breached. In an agreed indemnity obligation, that moment is usually the authority's claim.
Alongside those statutory periods runs another that is usually far shorter: the one the contract itself sets for notifying a contingency to the seller, often thirty or sixty days from becoming aware of it, and in a specific form of communication. Missing it is the quickest way to lose a case that was, in substance, already won.
No limitation clause covers the seller's fraud
Almost all of these contracts carry limits: a cap on liability as a share of the price, a minimum per claim, and a survival period for the warranties of twelve or twenty-four months. They are valid and must be reckoned with, but they have a boundary the seller tends to forget when he replies that his liability has already expired.
Article 1102 of the Civil Code is categorical: liability arising from fraud is enforceable in all obligations, and any waiver of the action to enforce it is void. A clause seeking to shield the seller from what he knowingly concealed does not achieve that effect, however well drafted and however many advisers were present at signing.
That is why characterising the conduct is not rhetorical decoration. Proving that the seller knew of the invoices and removed them from the archive before the review not only opens the article 1269 route, it also disarms the liability cap and the survival period he relies on. That evidence is sought from day one, not once the trial date has been set.
The tax debt can follow the business you bought
It is important to distinguish what was bought. If you acquired shares, the company remains the debtor before the tax authority and you take the hit as its owner, which is exactly what is passed back to the seller through the contract. If what you acquired was the business or the activity, article 42.1.c) of the General Tax Act comes into play.
That article makes jointly and severally liable for the tax debt anyone who succeeds, on any basis, to the ownership or exercise of a business or economic activity, for the obligations incurred by the previous holder and arising from that activity, including withholdings and payments on account. It excludes buyers of isolated assets, unless those acquisitions allow the business or activity to continue.
Article 175.2 of the same Act offers the antidote almost nobody uses. Anyone intending to acquire ownership of a business or activity is entitled, with the current holder's consent, to request a detailed certificate of debts, penalties and liabilities. If it is issued without mentioning any, or is not provided within three months, the applicant is released from that liability. Where it was not requested, liability extends to penalties as well.
How we run the case, step by step
- 1
We read the contract before the tax assessment
We analyse the tax representations, the indemnity clause, the liability cap, the minimum per claim, the survival period, the form and deadline for notifying contingencies, and whether there is an escrow, a bank guarantee or a price holdback.
- 2
We notify the contingency to the seller in time and form
We notify the tax authority's action exactly as the contract requires, expressly reserving all claims. This is the step that saves most cases and the one most often taken late, or through a channel the contract does not accept.
- 3
We reconstruct what was asked and what was concealed
We recover the pre-closing review report, the questions sent to the seller and his answers, and compare the archive that was shown with the real accounting records. That is where the difference emerges between an inaccurate representation and fraud under article 1269 of the Civil Code.
- 4
We defend the audit and claim against the seller
We contest the proposed assessment and the penalty before the authority and, where appropriate, before the TEAR (the regional tax tribunal), while claiming the corresponding amount from the seller in writing under the agreed indemnity clause.
- 5
We enforce the security given over the price
If there is a price holdback, an escrow account or a bank guarantee, we trigger it as agreed before it expires, because a lapsed security turns a solid claim into litigation against a seller with no traceable assets.
- 6
We sue before the Commercial Section
If no agreement is reached, we bring the claim with the accounting and tax expert reports, pleading breach and, where the evidence supports it, annulment for fraud, keeping an eye on the periods in articles 1301 and 1964 of the Civil Code.
The evidence that decides the case
- The signed purchase agreement, with the tax representations, the indemnity clause and the limits on liability.
- The pre-closing review report and the list of questions sent to the seller with his written answers.
- The index of the document archive made available, with the upload date of each document.
- The tax authority's records and proposed assessment, identifying the years and the facts predating the signing.
- The invoices and accounting entries the seller knew of and that were not in the documentation handed over.
- An accounting and tax expert report quantifying the loss and attributing it to facts predating the transfer.
What closes the door
- Notifying the contingency outside the deadline or the channel the contract imposes. It is the commonest reason claims that were sound on the merits are dismissed.
- Paying the assessment and the penalty without telling the seller or expressly reserving your claims, and then arguing over whether you voluntarily took on someone else's debt.
- Accepting the liability cap and the survival period without argument. Article 1102 of the Civil Code declares void any waiver of the action to enforce liability arising from fraud.
- Counting the four years in article 1301 of the Civil Code from the signing when consummation came later, and discarding the fraud route in the belief that it has already lapsed.
- Acquiring a business without requesting the certificate under article 175.2 of the General Tax Act. Without it, the liability in article 42.1.c) extends to penalties as well.
The law that applies
- Art. 1101 Código Civil. Subjects to compensation for loss anyone who, in performing their obligations, acts with intent, negligence or delay, and anyone who in any way contravenes their terms, which is what happens when a contractual representation turns out to be false. BOE-A-1889-4763
- Art. 1102 Código Civil. States that liability arising from fraud is enforceable in all obligations and that any waiver of the action to enforce it is void, which stops a limitation clause from protecting the seller for what he knowingly concealed. BOE-A-1889-4763
- Art. 1269 Código Civil. Defines fraud as the insidious words or contrivances of one contracting party that induce the other to enter into a contract it would not otherwise have made. BOE-A-1889-4763
- Art. 1301 Código Civil. Sets the action for annulment to lapse after four years and provides that, in cases of mistake, fraud or falsity of cause, that period starts running from consummation of the contract. BOE-A-1889-4763
- Art. 1964 Código Civil. Subjects personal actions with no special period to a five-year prescription from when performance of the obligation may be demanded, and specifies that in continuing obligations to do or not to do, time starts each time they are breached. BOE-A-1889-4763
- Art. 42 Ley General Tributaria. Declares jointly and severally liable for the tax debt, among others, anyone succeeding on any basis to the ownership or exercise of a business or economic activity for the previous holder's obligations arising from it, excluding buyers of isolated assets unless they allow the activity to continue. BOE-A-2003-23186
Each article checked against the consolidated text published in the BOE (the Spanish official gazette).
Frequently asked questions
Can I unwind the purchase and recover the price?
It is possible, but demanding. Article 1270 of the Civil Code requires the fraud to be serious and not employed by both parties for the contract to be void; incidental fraud, which only influenced the terms, obliges the party only to compensate. Article 1124 also allows a choice between demanding performance and termination. With a business already integrated, claiming the money is almost always preferable.
The contract limits liability to twelve months. Is that valid?
As a rule, agreed limits bind, but they do not cover fraud. Article 1102 of the Civil Code provides that liability arising from fraud is enforceable in all obligations and that any waiver of the action to enforce it is void. If it is shown the seller knew of the contingency and concealed it, the cap and the survival period stop being the end of the argument.
How long do I have to bring a claim?
It depends on the route. The action to annul for fraud lapses four years after consummation of the contract, under article 1301 of the Civil Code. The claim for damages for breach prescribes five years after performance may be demanded, under article 1964.2. And above both there is usually a much shorter contractual notification deadline that must be respected.
Do I have to pay that tax debt to the authority myself?
If you bought shares, the debtor is the company, which is now yours, and the amount is passed back to the seller through the contract. If what you acquired was the business or the activity, article 42.1.c) of the General Tax Act makes you jointly and severally liable for the previous holder's obligations arising from it, unless you obtained the limiting certificate under article 175.2.
The seller says everything was in the data archive. What now?
It is checked document by document. If the information really was available to you, the insidious contrivance required by article 1269 of the Civil Code falls away, although the claim for inaccurate representations may survive depending on what the disclosure clause says. That is why we ask for the archive index with upload dates and compare it against the questions and answers exchanged during the review.
This guide explains how the action works in general. It does not replace the study of your own case: deadlines depend on when things happened and on what you have done since.