Contract fraud or Crime of contract fraud?

In a loan contract, if the borrower stats his real estate and a car to prove that he has solvency, but in fact he has neither. The lender could not recover the debt by civil litigation. Can the lender claim for the criminal liability for the crime of contract fraud?

The answer to this question is the difference between contract fraud and the crime of contract fraud.

The mainstream view holds that whether the party has the purpose of illegal possession is the key to distinguishing between contract fraud and the crime of contract fraud. In practice, to determine this subjective element, it is necessary to comprehensively consider the objective circumstances of each case, such as the authenticity of the party’s project, performance capacity, performance conduct, disposal methods of obtained property, reasons for non-performance of the contract, and post-incident attitude (see the 2025 archived case (2023) Qing Xing Zhong No. 45 and the 2023 “Opinions of the Supreme People’s Procuratorate on Comprehensively Performing Procuratorial Functions to Promote the Development and Growth of the Private Economy”).

Regarding performance capacity, if the party fundamentally lacks performance capacity when signing the contract, it can generally be presumed the purpose of illegal possession. However, “if the party has partial performance capacity when signing the contract, and it improves it performance capacity during the implementation of the contract, and actively performs the contract, it shall not be deemed as committing the crime of contract fraud.” (see Guiding Case No. 91 of the Supreme People’s Procuratorate).

Regarding performance conduct, the key is whether the party has the good faith to perform the contract and how the party perform the contract. (see the 2023 archived case (2017) Hu 01 Xing Zhong No. 1350). In the crime of contract fraud, the party often fails to perform, while in contract fraud cases, the party actively performs the contract.

Regarding the disposal methods of obtained property, in the crime of contract fraud, the party often squanders the property, uses the property for other usages instead of performing the contract, absconds with the property, or uses the property in illegal criminal activities; in the contract fraud, the party often uses the property for legitimate purposes.

Additionally, in practice, the criminal-civil intersection is also an important issue,

Based on the analysis of the above 3 elements, if the behavior shall be determined as a contract fraud, the party could bring a civil litigation against the counterparty. According to Articles 148 and 157 of the “Civil Code”, the defrauded party has the right to rescind the contract and may demand the return of property and compensation for losses. It should be noted that the right of rescission is subject to a prescriptive period: in accordance with Article 541 of the “Civil Code”, it shall be exercised within 1 year from the date when the creditor knows or should know the cause for rescission; if the right of rescission is not exercised within 5 years from the date of the debtor’s act, it shall be extinguished. Furthermore, the contract fraud often involves breach of contract, so the non-breaching party could also claim damages for breach.

Based on the analysis of the above 3 elements, if the behavior might be determined as a crime of contract fraud, the issue becomes complex due to the criminal-civil intersection.

Scenario 1: If the behavior meets criminal filing standards, the party could directly initiate a criminal charge to seek public law relief. The party could recover loss by the recovery or refund in accordance with Article 176 of the “Judicial Interpretation of the Criminal Procedure Law”. Whether a separate lawsuit can be filed for unrecovered portions shall be discussed case-by-case. Moreover, following the principle of “criminal proceedings first, civil proceedings later” commonly observed in judicial practice, if a criminal case has been accepted, civil proceedings will not be entertained.

Scenario 2: If the party files a lawsuit against the counterparty, during the trial, if the court discovers suspected criminal conduct, it will transfer all or part of the case to the public security organ or procuratorate. In cases of partial transfer, civil proceedings are generally suspended until the criminal judgment is rendered. In very few cases, the court allows “civil proceedings first, criminal proceedings later” or “parallel criminal-civil proceedings”.

Scenario 3: If the party files a lawsuit against the counterparty, and after a civil judgment is rendered, the conduct is found as a suspected criminal conduct. There are disputes regarding the civil judgment’s effect to the criminal charges. Public security organs often refuse to file cases on the grounds that the conduct has been resolved through civil litigation. In the 2025 Supreme People’s Court archived case (2023) Qing Xing Zhong No. 45, the court cited “the effective judgment has confirmed the legal relationship between the parties as a contract dispute” as one of the reasons for not constituting contract fraud. However, some views hold that criminal trials should not be bound by prior civil judgments. For example, in case (2018) Wan 13 Xing Zhong No. 587, the court explicitly stated: “Regarding the defender’s argument that multiple cases in this matter have been arbitrated or subject to civil judgment, and should not be handled as criminal cases. Upon investigation, the defendant Yang fraudulently obtained others’ funds multiple times with the purpose of illegal possession. Victims had demanded for several times, Yang still refused to repay and evaded the victims. Before the case was filed, some victims filed civil lawsuits to protect their rights, which does not affect the determination that Yang constitutes the crime of contract fraud. Yang should still bear criminal liability for contract fraud.”