Event of Default vs Fraud
Adzaniar Dwi Fortuna, S.H.
• General Corporate • 13 Jan 2022

In business world, there is an agreement which in principle contains the rights and obligations of the parties or parties involved in the object of the agreement to facilitate a business transaction. In practice, it is not uncommon that the agreement may end because one of the parties is in breach of contract. So, what if one of the parties committed fraud? Could the agreement be criminalized? Kindly find the explanation below.

 

Please note that event of default and fraud are preceded by a contractual legal connection/the existence of an agreement. It is challenging to distinguish between event of default and fraud. Event of default is regulated in Article 1243 of the Indonesian Civil Code, which stated that reimbursement of costs, losses, and interest due to non-fulfillment of an engagement becomes mandatory if the debtor, even though it has been declared negligent, still fails to fulfill the engagement or if something that must be given or done can only be given or done in exceeding allotted time. From the Article, it can be seen that event of default may occur if one of the parties in the agreement does not fulfill the achievements agreed in the agreement. Furthermore, according to Prof. Subekti, event of default consists of 4 types : not doing what he/she can do, carrying out what he/she promised but not as promised, doing what was promised but late, doing something that, according to the agreement, he/she is not allowed to do. Accordingly, the event of default is caused by an error, negligence, and intentionality.


Furthermore, fraud is regulated in Article 378 of the Indonesian Criminal Code, which state
d that anyone with the intent to unlawfully benefit himself or another person, by using a false name or false dignity, by deceit, or a series of lies, move another person to hand over something to him, or to give a debt or write off debt is threatened with fraud with a maximum imprisonment of four years. The Article shows that in fraud, there is an element of inner attitude, which is marked by a plan to commit deception or a series of lies to achieve the desired goal, namely benefiting oneself and/or others.


Based on the two definitions of event of default and fraud above, 
then it is known that event of default and fraud are based on the inner conscience or intention of the legal subject of an agreement. Inner conscience  is something subjective that exists in a person. It can be said that inner conscience is the personal aspect of human actions, while behavior is the objective aspect. Therefore, behavior is a manifestation of a mental attitude. Technically, juridical law system often distinguishes different qualifications for the same action due to differences in inner conscience. In this case, it is related to an agreement qualified as an event of default or fraud.



An agreement can be said to be fraudulent if it fulfills the following elements:

1.       The act is against the law;

2.       Using a false name or false dignity;

3.       There is a deceit or a series of lies;

4.       Have the intention to benefit their own selves.



Accordingly, an agreement can be convicted of fraud because in agreeing and/or along with the agreement's passage, there are ways and goals based on an inner conscience to neglect the agreement. Then, as the agreement progresses, other factors support the failure of an agreement based on benefiting oneself and/or others.


Accordingly, the dividing line between event of default and fraud lies in the inner attitude of making an agreement and/or as an agreement runs. Thus, an agreement can become a criminal case if the agreement fulfills the element of fraud as referred to in Article 378 of the Indonesian Criminal Code.

 




This Article is generally made for the purpose of ANR Law Firm publication only and should not be treated as legal advice for your legal problem. Shall you have any further questions regarding this topic, you may contact the Advocate who authored this Article at anrlawfirm@anr-lawfirm.com.