FAILURE TO DELIVER ON PROMISES: BREACH OF CONTRACT OR FRAUD?
A classic problem in the world of investment is the inability to provide profits and/or return capital to investors or fund owners. So, can the recipient of investment funds be categorized as having committed criminal fraud or breach of contract (breaking a promise)?
What is Breach of Contract?
Breach of contract is a legal act in the realm of civil law. Breach of contract can be defined as the failure or negligence of one party to fulfill their obligations as agreed upon.
Breach of contract can take the form of four (4) things, namely:
- Failing to fulfill obligations (performance) as agreed upon;
- Fulfilling obligations, but not as required or incorrectly;
- Fulfilling obligations, but late; and
- Doing something that is prohibited from the agreed terms.
Article 1238 of the Civil Code explains that breach of contract is a condition in which the debtor is declared in default by a court order, or by a similar deed, or based on the force of the contract itself, namely if this contract results in the debtor being considered in default upon the expiration of the specified time.
What is Fraud?
Fraud is a criminal offense as defined in Article 378 of the Criminal Code, which states:
“Anyone who, with the intent to unlawfully benefit themselves or others, uses a false name or false status, deception, or a series of lies to induce another person to hand over property to them, or to grant a loan or waive a debt, shall be punished for fraud with imprisonment for a maximum of 4 years.”
What is the Difference Between Fraud and Breach of Contract?
Essentially, fraud and breach of contract both involve failing to fulfill obligations as previously promised. Both fraud and breach of contract involve an element of “deception” because they both fail to keep promises. The difference between the two lies in the “condition of deception.”
In breach of contract, the “false condition” occurs after the agreement or during the execution of the agreement. This means that the failure to fulfill the obligation is caused by factors that arise after the agreement is executed, such as business losses, uncontrolled inflation, and so on.
Unlike breach of contract, the “falsehood” in fraud already exists before the agreement is made. For example, someone collects funds for investment, even though the party collecting the funds does not have the intended investment.
Legal Steps for Victims of Breach of Contract and Fraud
For parties harmed by breach of contract, the harmed party may send a letter stating that a breach of contract has occurred and ordering the other party to fulfill their obligations as agreed. This is in accordance with Article 1238 of the Civil Code, which states that a debtor is deemed in default if they have been given notice through a written order, a similar document, or a provision in the agreement stating that default occurs after a certain period of time. If the warning is ignored, the party whose obligations have not been fulfilled may file a lawsuit in court to demand fulfillment of the obligations, with or without compensation (see Article 1243 of the Civil Code).
In cases of fraud, the victim reports the incident and files a police report under Article 378 of the Criminal Code. During the police process, it is still possible to seek restitution through restorative justice mechanisms. If the process proceeds to court, the victim may file a lawsuit for unlawful acts with a claim for compensation to the District Court after the criminal judgment has become final and binding (inkracht van gewijsde).
Conclusion
Fraud and breach of contract are both forms of failure to fulfill obligations or promises, and both involve an element of “deception.” However, the difference lies in the timing of the “deception.” In breach of contract, the deception occurs after the agreement is made, typically due to certain conditions such as business losses or inflation. In fraud, the deception already exists before the agreement is made, with the intent to deceive the other party from the outset.
Legal Basis:
Criminal Code
Civil Code
Author :
Renaldi Avri Angga, S.H.
Yuliana Munthe
Editor :
Muhammad Arief Ramadhan, S.H.