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You can hear many stories where the debtor “got away with the money”, the construction contractor “disappeared”, or the assets of the debtor company were hidden. Essentially, failure to pay is a breach of contract, which is subject to civil action, for example. dispute. However, if a transaction is suspected of being a scam, criminal proceedings can be brought against the defaulting debtor, for example for fraud, which we examine in this article.
Difference Between Civil Action and Criminal Liability
In the public mind, civil law and criminal law are often confused and creditors want to see their debtors in jail. In principle, non-performance of a loan or commercial contract is essentially a matter of civil law and the plaintiff can seek performance or compensation through civil action (such as litigation).
However, intentional damage to the property of others or grossly negligent attitudes are socially undesirable behaviors that are also subject to criminal law. The Criminal Code
1punishes a number of misconducts where damage is done to other property in a civil law relationship (eg a contract). When it comes to scams, most of the time, fraud can be established.
When is non-payment considered fraud?
According to the Criminal Code, a fraud is when a person
uses deceit, deception or trickery for illegal financial gain and thereby causes damage.
Fraud is not the embezzlement of another person’s property: the culprit, because of the error, transfers the property or provides the service himself. However, compensation will not be provided, resulting in damage to the injured party. (e.g. leaving a taxi without paying for the trip).
In practice, it is common to threaten the debtor with criminal prosecution for fraud, on the grounds that he knew in advance that he would not be able to pay, so he deceived the creditor in the process. Such accusations are wrong in many cases, because other elements are necessary to establish fraud.
Illegal intent and purpose
It is important that the fraud can only be committed intentionally with the aim of obtaining illicit profit. The intention and purpose must exist at the time of the deception or trickery, i.e. the debtor must be aware at the time of the conclusion of the contract that he will not pay or that he will not there is no realistic chance of performing the contract.
As a result, the court found the transaction fraudulent, when an insolvent company, despite its poor financial situation, entered into a contract of great value as the main contractor, then used the proceeds to settle its debts and completely failed to pay the subcontractors. In this case, from the beginning, there was no reality
2chance to accomplish
The situation is more complex when, due to an event occurring during the contractual relationship, the debtor who originally intended to perform ultimately fails. It is necessary to examine what it constitutes if the debtor conceals his change in monetary situation.
It is important to note that insolvency (unable to pay) is not equivalent to unwillingness to pay (unwilling to pay). The crime can only be established in the latter case, if there is an intention to derive illicit profit from it.3
It is not realistic for a company to inform its partners or terminate its contracts if there are liquidity problems which may affect subsequent performance. After all, if the debtor intends to pay, the outcome of the case may be either late payment, or a payment agreement, or even bankruptcy proceedings.
Thus, fraud cannot be established on the sole ground that the debtor could have recognized the uncertainty of the performance of the contract before the performance deadline.
The situation is different if the debtor, concealing the change in circumstances, prolongs the service (eg a real estate lease) without any real possibility of execution, or requests a postponement of payment only to delay the execution of the claim against him. In the above cases, the debtor deceives the creditor by making a false promise, so the fraud can be established if the act was intentional and for illicit purposes.
It is important that in the absence of deception or misrepresentation, we cannot speak of fraud. For example, if someone voluntarily engages in an unprofitable or risky activity or deviates from the market price without the other party disclosing misleading information or concealing material facts.4
Another condition is that there must be a causal link between the deception and the damage, so that the damage must occur due to the deceptive behavior and nothing else.
In this article, we explained that in addition to civil lawsuits, it can also have criminal consequences if the debtor does not pay according to the contract. In order to establish fraud, intentional fault and illicit purpose must be proven, failure to pay due to insolvency does not in itself constitute a criminal offence.
For this reason, we recommend that you always assess the financial situation of the other party before entering into legal transactions, for which you can find data in the public business register, among other sources.
Additionally, if you want to minimize risk, you can require your partner to provide a bond or bank guarantee to secure performance. A legal expert can help you reduce the risks of your legal transactions.
1. 2012. évi C. törvény
2. BH 2011.3.58
3. BH 2011.6.160
4. BH 1983.392
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.