Supreme Court: "Fraud Crime Determination Should Be Based on the Time of Borrowing Money"

Supreme Court En Banc. / Photo by Supreme Court

[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] The Supreme Court has ruled that whether fraud charges apply when a borrower fails to repay by the promised due date should be judged based on the circumstances at the time the money was borrowed.

Even if the borrower's financial situation worsened after borrowing and they failed to repay on time, fraud charges do not apply if it cannot be seen that the borrower had no intention to repay from the outset based on the situation at the time of borrowing.

The Supreme Court's 2nd Division (Presiding Justice Cheon Dae-yeop) announced on the 21st that it overturned the lower court's ruling which sentenced Mr. A to a fine of 5 million won on fraud charges and remanded the case to the Uijeongbu District Court.

The court explained, "Whether fraud is established must be judged based on the time of the act. In a consumer loan transaction, if the borrower had the intention and ability to repay at the time of borrowing, even if they later fail to repay, this constitutes only a civil breach of contract and does not establish criminal fraud."

Mr. A, who worked as a manager at a broadcasting station, borrowed 20 million won on February 1, 2015, from Mr. B, who had previously worked at the same workplace, saying, "I have no place to raise funds, but if you lend me 20 million won, I will repay it by the end of February, one month later."

However, Mr. A did not repay the money by the promised date, and Mr. B did not particularly urge repayment.

Later, Mr. A lost his job in December 2016, causing his financial situation to deteriorate rapidly. When Mr. B demanded repayment in April 2017 and Mr. A failed to pay, Mr. B filed a civil lawsuit and simultaneously accused Mr. A of fraud.

The first and second trials found Mr. A guilty of fraud, concluding that he deceived Mr. B from the beginning without the intention or ability to repay, and sentenced him to a fine of 5 million won.

Considering that Mr. A had a fixed monthly income of about 2 million won and was already in debt of approximately 270 million won when borrowing from Mr. B, and that he used the 20 million won borrowed from Mr. B to repay other debts and immediately took out an additional loan of 58 million won from multiple loan companies, the courts judged that Mr. A had no intention to repay and misappropriated the money from Mr. B to repay other debts.

However, the Supreme Court's judgment differed.

First, the court considered that although Mr. A borrowed money saying he would repay by the end of February, Mr. B only urged repayment nearly two years after the promised due date, making it difficult to view the end of February as the agreed repayment date between the two.

Since Mr. B did not urge repayment nor did Mr. A request an extension around the originally promised end of February 2015, the court held that the end of February was merely a prompt repayment commitment or an abstract possibility of repayment, and the debt between the two should be regarded as a 'debt without a fixed repayment date.' The repayment date should be considered as April 27, 2017, when Mr. B urged repayment.

Also, although Mr. A's financial situation worsened rapidly after losing his job following the loan from Mr. B, the court ruled that the mere fact that Mr. A had existing debts at the time of borrowing or took additional loans after borrowing from Mr. B does not conclusively prove that Mr. A lacked the ability to repay at the time of borrowing.

The Supreme Court also differed from the lower courts regarding the concept of dolus eventualis (conditional intent) in fraud.

The first and second trials had concluded that Mr. A had at least conditional intent to defraud based on various circumstances.

However, the Supreme Court stated, "Even if the defendant recognized and accepted the risk of insolvency, since the defendant had already informed the victim of his credit shortage by stating 'I have no place to raise funds,' it is difficult to consider that the victim was deceived regarding the risk of insolvency."