[Expert Contribution] Is it fraud or simple default? The criterion for judgment is ‘first’

In practice, we often hear stories like, “I lent you money, but it was a scam.” However, not all loans are returned as fraud.

For a crime of fraud to be established, there must be a deceptive act by the other party, a mistake by the victim resulting from this, and the granting of money due to the mistake. In other words, fraud is committed only if you borrow money by lying even though you did not have the intention or ability to repay it from the time you borrowed the money. On the other hand, if there was a willingness or ability to repay, but the person was unable to repay due to worsening economic conditions, this is nothing more than a simple civil default.

The problem is that in reality, the boundary is very vague. For example, when borrowing money, you say, “I will repay you when I get my salary next month,” but in reality, if you do not have a job or income, the court may view this as an act of deception. On the other hand, if you are unable to repay due to a change in economic circumstances or the occurrence of an unexpected situation after borrowing, such as if you borrowed money to expand your business but are unable to repay the money due to an unexpected transaction interruption or failure to collect receivables, it is only a civil default.

If the borrower was already in an over-indebted state at the time of borrowing, or borrowed money by hiding it even though he or she had no intention or ability to repay, or if the other party would not have lent the money had he or she been informed of the purpose of the borrowed money or the method of raising funds, a fraud is committed.

Ultimately, the key to judgment is the intention and situation at the time of borrowing money. It is necessary for a person lending money to understand the other party's property status, income, and existing debts at the time of lending money, and to record the circumstances, purpose, and conditions of the borrowing. In addition, the person who borrows money also needs to secure data to prove that he or she had the intention and ability to repay at the time of borrowing, and if he or she later repaid part of the interest or principal, this becomes important evidence that there was no intention to deceive from the beginning.

Fraud and default have different starting points than outcomes. In other words, what is more important than the result of ‘failure to repay’ is ‘what intentions and circumstances existed at the time of borrowing’. Therefore, when making financial transactions, it is necessary to clearly record the circumstances, purpose, and conditions of the borrowing and to understand the other party's economic situation to prevent disputes and provide post-facto verification.

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[Expert Contribution] Is it fraud or simple default? The criterion for judgment lies in the ‘beginning’ (Shortcut)