Can I withhold vendor take-back payments instead of suing the seller over a bad representation?

Not automatically, unless the purchase agreement and the vendor take-back note specifically give the buyer that right. A promissory note is often intended to be an unconditional, independent obligation to pay according to its own terms, precisely so it functions cleanly as a financing instrument, which means a buyer who simply stops paying because of an unrelated indemnity dispute risks being sued on the note itself, even while a legitimate representation claim is still being worked out separately.

Some purchase agreements address this directly by giving the buyer an express right of set-off, allowing amounts owed under a valid indemnity claim to be deducted from what is still owing on the vendor take-back note, subject to defined procedures such as notice or a minimum claim amount. Where no such right exists in the documents, a buyer with a genuine grievance is generally better off pursuing the indemnity claim through the agreement's own process while continuing to meet the note's payment terms, rather than withholding payment unilaterally and creating a second dispute over the note itself.