Prevention of Criminal Prosecution Resulted from Breach of

Contract

Cindy Indudewi Hutomo Njoo, Dian Dharmayanti and Selvi Wibriana Sari

Faculty of Law, Airlangga University, Surabaya, Indonesia

Keywords: Prevention, Breach of Contract, Prosecution, Criminality.

Abstract: The business world is closely associated with agreements. In fact, there is no business without agreement.

Under the Indonesian Civil Code, agreements are classified into special names which are arranged in

chapter five to chapter eighteen Burgerlijk Wetboek (abbreviated BW) and those which is not known under

a special name, still subject to the general provisions which are stipulated in BW. The agreement is like a

vessel that provides the parties justice and certainty in carrying out their obligations to obtain their

respective rights. However, in its development it is not uncommon for an agreement that started from a civil

deed later then transform to become a criminal act. From time to time, creditors, who are entitled to rights of

debtors’ accountability, may take shortcuts in an effort to suppress debtors to immediately pay off their

obligations in ways that are not necessarily "as is" to create a criminal condition from an agreement that was

originally regulated under the private law. This paper reviews (1) what legal elements create a breach of

contract; (2) which legal element of breach of contract that risk in creating conditions that could arise to

criminal prosecution; and (3) how to prevent it.

1 INTRODUCTION

Business activities are always related to legal

aspects, namely agreements or contractual

relationships. The essence of an agreement is the

binding of obligations, which is a commitment that

held accountable for one party that becomes the

right of the other party. When one party does not

carry out his or her obligation, which becomes a

liability so as to cause harm or loss to another party,

the aggrieved party can hold accountable the party

who breaks the promise through the law

enforcement system. It then becomes the concern of

how parties claim responsibility for the loss, whether

parties at a loss are pursuing justice through the civil

or criminal system of law.

Despite the obvious differences of the civil and

the criminal law system, it is still difficult or at least

blurry to distinguish between issues that purely is a

breach of contract or that is categorized as a crime of

fraud. Therefore, disputes that arise from a breach of

contract, which then later evolves to become a crime

of fraud, until now remains as an ambiguous law

enforcement problem that is not easy to resolve. The

problem of ambiguity is highlighted with the

difference of consequences resulted from civil or

criminal law enforcement system used in the pursuit

of justice. Hence, the topic of legal issues related to

contracts, breach of contract, and fraud has always

been a relevant field of research because the issue

always exists and seems incessantly present.

One of the aggravations is the liquidity and the

width of the variants that can be examined in many

court decisions that are never standard. When it

comes to judges’ consideration of verdicts in

determining whether an injury of promise is a matter

of breach of contract or whether it contains

deception thus is a crime of fraud, has never been

standard. According to the basic norms of law, the

law must provide justice, certainty and utility in the

form of merit. If an implementation of the law (das

sein) does not work according to the law as it should

be (das sollen), by all means study has to be done in

obtaining future improvements that will reflect

proportionate legal implementations at work.

Therefore, legal issues arise from default obligations

in the fulfilment of agreements, still is a relevant

subject to conduct research, so as to yield ideas to

problem solving specifically on how business people

can prevent or at least minimize risks to avoid

criminal prosecution from the aggrieved party. For

this reason, a more accurate understanding of what

276

Njoo, C., Dharmayanti, D. and Sari, S.

Prevention of Criminal Prosecution Resulted from Breach of Contract.

DOI: 10.5220/0008430302760286

In Proceedings of the 2nd International Conference on Inclusive Business in the Changing World (ICIB 2019), pages 276-286

ISBN: 978-989-758-408-4

elements composes a breach of contract? How a

breach of contract is regulated under the Indonesian

Civil Code? That is, when a right of a person that is

protected by law is injured, such loss, which is

suffered from a breach of contract, must be

distinguished from a loss that is resulted from

unlawful action under the regulation of the

Indonesian Civil Code.

Fraud is an unlawful action under the Indonesian

Civil Code, but is also a crime under the Indonesian

Penal Code. Hence, in regard to the allegation of

fraud over a default of the contract, it cannot be

taken lightly. This is because as stipulated in article

378 Indonesian Penal Code, punishment for the

criminal act of fraud has a sentence maximum of

four years imprisonment. Hence, it becomes this

paper’s goal to educate and make aware business

people on how they can take preventive measures in

minimizing risks of criminal prosecution should

conflict arises between parties when carrying out the

agreed obligations.

2 METHOD AND MATERIALS

This research is normative juridical research, namely

research based on legislation or binding legal norms

that have relevance to the formulation of the

problem. According to Peter Marzuki, legal research

is a scientific process to find solutions to legal issues

with the aim of giving prescriptions about what

should be the legal issues that could have arisen

(Marzuki, 2011).

The approach to the problem used in this study is

the statue approach, which is carried out by

examining all the laws and regulations concerned

with the legal issue discussed. The second approach

used in this legal research is a systemic approach.

This approach implies that we have to be aware of

the complexity of the problems by avoiding opinions

that oversimplify the issue, which later produces

wrong opinions (Rahardjo, 2006). The third

approach used in this legal research is a conceptual

approach that investigates the development of law

from legislation and its making (i.e. legislation

academic text) to doctrines that develop in legal

science. By studying the legislation and the doctrine,

ideas would be found that give birth to legal notions,

legal concepts, and legal principles that are relevant

to the issues at hand. Thus, legal concepts become a

foundation for researchers in building a legal

argument to solve prevailing legal issues.

To answer arising legal issues, legal materials are

needed. In seeking legal material the preparation of

this study consists of primary legal material and

secondary legal material. Primary law material is

legal material that is authoritative, meaning having

authority. The primary legal material used in the

preparation of this research is legislation product

that includes: Burgerlijk Wetboek (abbreviated as

BW). Meanwhile, secondary legal material is a

source of material obtained through the library that

relates to problems to be studied, including

literature, collection of journal writings and other

scientific works.

3 RESULT AND DISCUSSIONS

The discussion in this study begins by examining the

meaning of the agreement and the elements and

principles underlying the concept of the agreement

and how the agreement binds its legality. Burgerlijk

Wetboek does not regulate the definition of

agreement, but regulates how the agreement was

born, namely; from the provision of legislations and

agreements (article 1233 BW). Meanwhile, the

understanding of the agreement in article 1313 BW

is defined as an act in which one or more people

jointly attach themselves to one or more other

people. This also reflects the principle of freedom of

contract as stipulated in article 1338 BW that all

agreements made legally apply as laws for those

who make them. Actually what is meant by the

article is that each agreement "binds" both parties

(Subekti, 2011). The principle of freedom of

contract also reflects that people can freely make

any agreements, as long as they do not violate public

order or morality (courteousness norms). This has

been regulated by article 1337 BW that states; "A

cause is forbidden, if it is forbidden by the law, or if

it is good for public morals." Based on that

understanding, it can be concluded that agreement is

a law for people or anyone who promises, because

they agree to bind themselves to other people or

other parties and are obliged to obey the things that

have been promised. This definition is simplified by

R. Subekti as followed; an agreement is an event

where two people promise each other to do

something.

3.1 The Binding Terms of an

Agreement

Legal terms of an agreement are regulated in article

1320 BW, which determines the need for four

conditions to be present, namely:

1) The consent of those who commit themselves;

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2) The capability to make an agreement;

3) A particular object;

4) A legal cause.

The first two conditions are called "subjective

conditions" because of the two conditions

concerning the subjects (parties) of the agreement. If

the subjective conditions are not fulfilled, the

agreement can be cancelled (vernietigbaar),

meaning that the agreement does not automatically

cancel, but must be submitted to the court for

cancellation. Thus, the agreement must be

considered binding until the court decision of

inkracht van gewijsde judicially cancels the

agreement. Meanwhile, the last two conditions (the

above points 3 and 4) are called the "objective

conditions". If one is not fulfilled, the agreement

becomes null and void by law (nietig).

It is important to note that “an agreement which

can be cancelled (vernietigbaar)” is distinctive from

“an agreement, which is null and void by law

(nietig)”. An agreement that is null and void by law

does not require the consent of the parties to make

its binding power ineffective. This means that when

the objective conditions are not fulfilled, the

agreement automatically becomes null and void. The

agreement is assumed to never have existed. The

agreement that is null and void does not have the

power to bind parties to commit to the agreement

(Bakarbessy, 2018).

3.1.1 Consent

The first legitimate term requires parties to consent

(toesteming). It means that the parties declare each

other's wishes and their wishes match or in other

words, there is conformity between the parties'

stated wishes (offer = acceptance). Consent

(toesteming) is the manifestation of the principle of

consensus that determines when an agreement is

born. Article 1321 BW states: "there is no valid

consent if such consent is given by mistake, or if it is

obtained by violence, extortion, or fraud". Therefore,

the 3 (three) elements that are contained in consent

that can cause an agreement to become defective are

(i) mistake (dwaling), (ii) coercion (dwang), (iii)

fraud (bedrog);

(i) Mistake (dwaling) has been stipulated in article

1322 BW that states: "the mistake does not result

the cancellation of an agreement unless that

mistake happens to the nature of the object which

forms the principle of the agreement." Paragraph

(2) article 1322 BW states that "the mistake is

not the reason for cancellation, if such mistake

only concerns the identity of the person with

whom a person intends to make an agreement,

unless if such agreement has been made

principally because of the identity of that

person." As a countermeasure against this default

of consent, the aggrieved party can file a claim

based on an error to demand cancellation along

with the loss caused by the conditions that must

be fulfilled as followed;

a. Is the decision to terminate the agreement

formed under the influence of a false description

of the nature and condition of the goods (the

nature of the goods) as the main object of the

agreement (error in substantia)?

b. Does the misrepresentation of the nature and

condition of the goods (the nature of the goods)

for the perverse party have a decisive meaning?

c. Does the opposing party know or should know

that the nature and circumstances of the goods

that cause error have a very decisive meaning for

the other party?

The three conditions mentioned above are

cumulative (Bakarbessy, 2018).

A claim for cancellation of an agreement for

reasons of mistake will only succeed, if the party is

misguided if he knows that there are no traits or

conditions which he/she thinks exist or not, or at

least he/she will not close the contract with the same

conditions (i.e. there is a causal relationship between

mistake (dwaling) and the emergence of an

agreement). The mistaken perception must be related

to the traits or circumstances, which for the perverse

party have a decisive meaning (Saraghi, 1985)

(ii) Compulsion (dwang) or duress is regulated in

article 1324 BW which states that "the

compulsion has taken place if the action has

such a character that frightens a person having

a sound mind, and if the action can strike fear

to the person that he or his assets is imperilled

by an obvious and real loss". Threats in this

case must be unlawful and include 2 (two)

fundamentals, namely;

a. The threat itself is an illegal act both physically

and psychologically (i.e. murder, persecution,

false reports, disclosing secrets),

b. The threat is not an illegal act, but the threat is

intended to achieve something that cannot be the

right of the perpetrator.

(iii) Fraud (bedrogs) is stipulated in article 1328

BW and it states that "fraud is a reason to

cancel an agreement, if the deception used by a

party, is in such way that it is obvious and

definite that the other party would have not

entered into the agreement without such

deception. Fraud shall not be presumed, but

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must be proven." Fraud as an act against the

law must be proven as a real loss: that is, losses

that are no longer anticipated, but which have

already occurred and can be proven to be the

result of these illegal acts. It is important to

note that deception is different from lies. It

could be that a businessman in his series of

words when offering his goods so that they sell

well, he excels the quality of the goods which

are not necessarily true. The lie conveyed by

the seller of the item cannot be called a fraud

because a fraud is a series of deceptive acts

which requires bad intentions as the foundation

of planned actions (Bakarbessy, 2018).

It is interesting to investigate further about the legal

implication when the default of consent is under the

influence of fraud (bedrog) or that, which was

thought as fraud was actually resulted from the

mistake (dwaling). It then leads to the question: why

do the parties who want to cancel the contract that is

closed under the influence of a misguided perception

base their primary lawsuit on fraud (bedrog), and

their secondary lawsuit on the mistake (dwaling)?

The cancellation of the agreement based on fraud

will give the right to the opponent for compensation

if there are reasons for it (as stipulated in article

1453 BW). This is also in accord to the court’s

practice that the basis for payment of compensation

is when the actions of the other party violate the law

(also imposed in article 1365 BW). The advantage of

applying the primary suit based on fraud when

claiming for cancellation of an agreement is that the

claim is granted for the compensation of the loss

suffered by the aggrieved party on this basis while

ensuring the court’s verdict to affirm violation of the

opposing party’s actions (intentional misguidance).

On the contrary, the success of the lawsuit claim

based on the mistake (dwaling) does not legally

affirm that the actions of the other party are illegal.

Thus, the two kinds of consent default must be

disclosed separately. In many ways the conditions

for the success of the two claims are different, but

there are similarities between the legal concept of

mistake (dwaling) and fraud (bedrog), that is, both

lawsuit claims will only be successful if the claims

can be proven that an agreement will not be closed

otherwise with the known conditions not the same as

when there was no deception or mistake (causal

relationship between mistake and fraud) (Saraghi,

1985).

In addition to the causes of defaults of freewill

that have been stated above, the doctrine of Misbruik

van Omstandigheden or misuse of state (undue

influence) has developed. In Indonesia, doctrine or

teachings of misuse of the state (misbruik van

omstandigheden) have not been included in the

source of positive law, but have implicitly accepted

as it is conveyed in the Decision of the Supreme

Court of the Republic of Indonesia, among others,

with decision Number 3431 / K / Pdt / 1985, dated 4

March 1987. The verdict in principle states that the

statement of intention given so that it gives birth to

an agreement, if it is influenced by "misuse of the

situation" by another party is an element of consent

default, thus, it is regulated by the private law.

According to Z. Asikin Kusumah Atmadja,

misuse of the state is a factor that limits or interferes

with the free will of the agreement. This is because

of the imbalance and incompatibility of bargaining

powers belongs to the parties. According to R.

Cheeseman, in the common law system there are 3

(three) benchmarks for classifying the occurrence of

misuse of state, namely;

a. Contracting parties are in a very unbalanced

position in an effort to negotiate offers and

receipts.

b. The stronger party irrationally uses its very

dominating position of power to create a contract

based on the pressure and imbalance of rights

and obligations.

c. The party whose position is weaker has no

choice but to approve the contract (Bakarbessy,

2018).

3.1.2 Capability to Make Agreement

The ability to make an agreement is measured by the

standards of adulthood or quite common

(bekwaamheid - meerderjarig), while proficiency in

legal entities (rechtpersoon) is measured from the

aspect of authority (bevoegheid). Based on article

1330 BW, the provision regulates those who are

incompetent to make an agreement, namely children

who are minors, people who are placed under

custody, and everyone to whom the law has

prohibited making certain agreements. Jurisdictional

maturity contains the notion of the authority of a

person to carry out legal acts are those who have

been married under conditions stated by law, and in

general all people who are not prohibited by law

from making certain agreements. Elements of ability

to make agreements include:

a. The main indicator for determining legal

maturity is the authority of someone to do their

own legal actions, without the help of parents or

guardians,

b. A person who has grown up can be burdened

with responsibility for all legal actions he or she

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has committed,

c. The age limit must be a prerequisite for legal

actions in general, not for certain or particular

legal actions.

In the case that the legal subject is a legal entity, the

standard of competence to carry out legal actions is

sufficiently seen in its authority (bevoegheid) based

on the inherent authority of the party representing it

(the aspect of authority or bekwaamheid-

bevoegheid).

3.1.3 Certain Matter or Object of

Agreement

An agreement must have an object in the form of an

item that can be determined by its type

(Badrulzaman, 2015). Certain matter as the third

condition of the validity of an agreement is regulated

in articles 1332, 1333, and 1334 BW; Article 1332

BW states that "only the trading property can be the

object of an agreement." Article 1333 BW states that

"an agreement has to have an object that at least its

type can be determined; "The quantity can be fixed

or calculated later on." Article 1334 BW states, that

"the future property can be the object of an

agreement; but it is not allowed to release an

unopened legacy, or with the consent of the person

who must pass the legacy that becomes the object of

the agreement; without prejudice to the provisions of

articles 169, 176 and 178."

3.1.4 Legal Cause

The legal cause is the purpose, content, and intention

desired by parties to enter into an agreement that

gives birth to legal relations (Hofman, 1971). The

cause is one of the underlying requirements for an

agreement to have its binding power in effect. A

cause that is legal is the fourth legal term that gives

an agreement its binding power. This is associated

with article 1335 BW, which reads as follows; "An

agreement without any reason, or that has been made

on a false or forbidden reason, shall have no effect."

Likewise the case that is allowed is also regulated in

article 1337 BW that "a cause is forbidden, if it is

forbidden by the law, or if in contrary to good

morals or public order."

The intention of the agreement (causa) is formed

by what the parties want to achieve at the time of

closing an agreement. From this point of view there

is certainly no agreement without causa. According

to jurisprudence an agreement is without causa if

what the parties want to achieve since the closing of

the agreement is not possible to realize. Thus the

function of the understanding of causa is to protect

the parties from the heresy of promises that are

certainly not possible to fulfil. Next, the function of

the understanding of causa in relation to the terms

and conditions of causa must be in line with the

desire to stem the freedom of contract within limits

of appropriateness and propriety. If what is desired

by the parties (causa) is not lawful, that is, contrary

to the law and the norm of appropriateness (also

known as openbare order) (stipulated in article 1337

BW) that were assessed according to the conditions

at the time of the agreement closed, then the

agreement that aims to achieve these results is null

and void (Saraghi, 1985).

3.2 Underlying Principles of

Agreement

It is necessary to note that each agreement that was

made legally and that fulfilled the legal requirements

of the agreement as stipulated in article 1320 BW

contains basic values as follows:

1) Principle of Freedom of Contract

2) Principle of Consensus

3) Principle of Legal Certainty

4) Principle of Personality (Personality)

5) Principle of Compliance

6) Moral Principles

7) Principle of Legal Equality and Balance

The whole principles mentioned above are contained

in article 1338 BW. This means that the agreement

must be held in compliance with the requirements of

article 1320 BW. The agreement binds as a law for

the parties who make it (pacta sunt servanda),

therefore the agreement must be obeyed without the

right to change it unilaterally. The agreement is

carried out in good faith and must be carried out

rationally and properly (rational en billjk) that lives

in the community. This figure is called the

objectieve goede trouw, which is interpreted as good

faith and in a subjective manner is known as honesty

(subjectieve goede trouw). This mental attitude is

contained in man and is applied in the law of

objects, provision regulated in Book II BW. In its

development, civil law experts agree that good faith

in the implementation of contracts has three

functions. They are:

a. Good faith to function as complementation /

additional (aanvullende werking van de goede

trouw) to the contents of an agreement.

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280

b. Good faith to serve that is to limit the

implementation of an agreement (derogerende

werking van de geode trouw).

c. Good faith to serve as an eliminator of the

implementation of an agreement.

(Badrulzaman, 2015)

In the opinion of Mariam Darus Badrulzaman, it is

appropriate that the principle of good faith is used as

a reference in implementing the agreement. That is,

the agreement in its implementation must be tested

in good faith. This is based on changes in the

conditions that occur in people's lives, which are

generally recognized as related to clausula rebus sic

stantibus. That everything in this life changes (the

principle of rebus sics stantibus). If change is not

taken into account in the implementation of an

agreement, the principle of proportionality, which is

one of the principles in the provision of the

agreement, will be disrupted and this does not

provide justice for the parties. The disruption is

likely to happen in long-term agreements. Until now

the Supreme Court in Indonesia has not consistently

implemented the principle of good faith in its

decision to implement the agreement (Badrulzaman,

2015).

Principles are values of justice, certainty and

benefit, which are the foundation of the parties to be

committed. Meanwhile, the structure of an

agreement usually consists of the following sections;

1) Essentialia section, which is the core part of an

agreement, namely are: the parties, the

agreement, the specified object / object, and the

cause. As an illustration, in the sale and purchase

agreement, the sale and purchase price and the

goods are the core of the agreement, which is

called the essentialia part.

2) Naturalia section, is a non-core part which is the

nature of the agreement so that it is secretly

attached to the agreement. That is, even though

the provision is not stated in the agreement, the

law has already regulated it. But surely it would

be better to reaffirm the provision again in the

agreement clause.

3) Accidentalia section, is an integral element in an

agreement, in the form of regulated provisions

that deviate from the provisions in BW or

specifically agreed by the parties which are not

an achievement that must be carried out or

fulfilled by the parties.

3.3 Breach of Contract

After the agreement was born and binding to all

parties, a commitment called obligation was born.

The obligations carried out by the parties are the

rights of the other parties bound by the agreement. If

there are parties who cannot carry out or fulfil their

achievements, there will be a default. The term

breach of contract is derived from the Dutch term

‘wanprestatie’, which means bad performance, can

also mean injured or broken promises. Basically

breach of contract is in the civil or private law

system corridor because the default was born out of

an agreement. Whereas duty to compensate was

born from the provision that gives rise to an

obligation not as a result of an agreement, but

because of the losses suffered as a result of an action

that is prohibited by law. Article 1234 BW states

that the forms of obligations are to give something,

do something or not to do something. So, breach of

contract can be interpreted as an act of not giving

something, not doing something or doing something

that is prohibited in an agreement.

Forms of breach of contract are:

1) Not fulfilling the obligations at all;

2) Late in fulfilling the obligations;

3) Fulfilling the obligations but not as promised;

and

4) Do something that according to the agreement

should not be done (added by Subekti).

In the event that a default has occurred, the legal

remedies that can be taken are (i) demanding

fulfilment of the agreement, (ii) fulfilment of the

agreement along with compensation, (iii)

compensation, (iv) cancellation of an agreement, (v)

cancellation of the agreement along with

compensation.

3.4 Fraud

Fraud according to dogmatic law is regulated under

two different law systems; the first is under the

domain of civil law system as referred to in article

1328 BW while second is under the domain of

criminal law as referred to in article 378 of the

Indonesian Criminal Code. Due to this overlapping

provision that regulates fraud, the victim can pursue

justice in anyone of this legal system.

Fraud as a crime or violation of penal law is

regulated under article 378 of the Indonesian

Criminal Code, which states that anyone with the

intent to benefit themselves or others is unlawful,

either by assuming false names or false capacity,

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281

dignity, with trickery, or by crafty artifices, or by a

web of fictions, induces someone to deliver any

property or to negotiate a loan or to annul a debt,

shall be guilty of fraud and will be punished by a

maximum imprisonment of four years.

Meanwhile, fraud as an unlawful act is not

defined in Indonesian Civil Code as that in

Indonesian Penal Law, but fraud still can be

interpreted to have the same elements as that

referred in article 378 of the Criminal Code.

Elements of the offense shall include:

1) Intention;

2) To benefit themselves or others against the law;

3) Usage of a false name or false state, reason or

deception, a series of false words; and

4) Persuade people to give something, even to make

debt or write off accounts.

Fraud as a criminal act must contain elements of

actions that are prohibited by law, so that those who

cause the incident can be subject to penal law

(punishment). Elements of criminal events can be

viewed from the following two aspects. They are

subjective and objective elements;

- Subjective elements are elements that are inherent

in a person who is involved or related to the person’s

actions and it includes everything contained in his

mind. The elements, which are subjective elements

of criminal acts are (i) intention or unintention, (ii)

presence of cause and purpose to conduct an

attempted act that has been planned, (iii) the

psychological condition of the offender who is

responsible for circumstances. Subjective elements

are also acts carried out with an element of guilt

(men's rea) in which the elements of the offender's

guilt have resulted in the occurrence of the criminal

event itself.

- Objective element is an element of a criminal act

that is defined by criminal law which is a condition

born from the act. According to Lamintang, what is

meant by objective elements are elements, which are

related to circumstances, that is, in circumstances

where the actions of the perpetrator must be carried

out. The elements, which are objective elements of a

criminal act are the nature of the act that is against

the law and that violates the law, as a result of the

act being prohibited and threatened with

punishment.

An event that can be said as a criminal event

must fulfil the following conditions:

1) There must be an act, namely an activity carried

out by a person or group of people. Actions must

be in accordance with what was formulated in

the law. The culprit must have made a mistake

and must be accountable for his actions.

2) There must be guilt that can be accounted for.

So, the act can indeed be proven as an act that

violates the provisions of the law: there must be

a penalty. In other words, the violated legal

provisions include sanctions.

The fraudulent crime includes the materieel delict,

which means that its completion must cause a

consequence. The fundament of fraud is actions

taken to get goods or money belonging to someone

else and profit in an unlawful way such as using fake

identities, like fake names and fake positions, with a

series of lies and tricks. In fraud, causality must be

proven between deception and the giving of certain

items; that is, if there is no such trick, there will be

no giving away of the item.

One of the similarities between fraud and breach

of contract is that both issues started from a legal

accord that usually is contractual, but then later

branches out to become a crime of fraud that is

regulated under a penal law or it remains as a breach

of contract issue that is regulated under the civil law.

Although the issue may be overlapping and to many

common people who have undergone a painful

process in claiming their right of the agreement,

which had been violated by the other parties, would

develop a notion at least thinking that they have

been misled with fraud. Hence, it becomes an urgent

discussion in this paper to understand the underlying

differences between the breach of contract and

fraud.

Fraud in civil law occurs because one party does

not carry out the obligations agreed upon in bad

faith. Fraud that begins with the contractual

relationship is a concept of fraud in private law or in

other words is a 'characteristic' of fraud in civil law.

Fraud in criminal law as stipulated in article 378 of

Indonesian Penal Code and fraud in civil law

stipulated in article 1328 BW constitute 2 (two)

legal corridors. Both of these legal corridors can be

used by someone who had suffered a loss due to the

emergence of a contractual relationship, which is

known when in closing the previous contract carried

out by deception and a series of false words and

false conditions. In such circumstances a person can

prosecute criminally by reporting to police (POLRI)

related to deterrent effects rather than criminal

sanctions, and can also file a civil suit related to

compensation caused by one of the parties who

violated the contract.

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3.4.1 Materieel Delict

General provisions in the Indonesian Penal Code

still adhere to the general principles, that every

person who commits a crime will receive criminal

sanctions through the criminal justice process. In the

practice of solving fraud cases, discretion can be

used by the authority to problem solve in ways that

may give restorative justice to the parties in conflict.

In the practice of the judiciary there was the

Supreme Court's Jurisprudence Number: 1600 K /

Pid / 2009 dated November 24, 2009 in the case of a

contractual relationship between an electronic

business / trade business partnership between

Ismayawati and Ny. Emiwati, which causes

detriment to Mrs. Emiwati with a value amounting

Rp. 3,910,000,000 (three billion nine hundred and

one million rupiah). The defendant Ismayawati was

charged with a fraudulent act pursuant to article 378

of the Indonesian Penal Code. In this case, the

detrimental loss experienced by Mrs. Emiwati was a

loss that could be proven real and that which has

occured.

In the development of the case, both victim and

the complainant wanted the case to be resolved in a

familiar manner, given that the loss suffered by the

victim has been compensated. In the decision of the

Yogyakarta District Court Case Number:

317/Pid.B/2008/PN.YK dated December 3, 2008,

the verdict granted the request for revocation of the

complaint filed by the victim witness Ny. Emiwati;

stated that the Prosecution of Case Number: 317 /

Pid.B / 2008 in the name of defendant Ismayawati

was not acceptable. Regarding this verdict, the

Public Prosecutor made an appeal to the Yogyakarta

High Court. In the decision of the Yogyakarta High

Court Case Number: 01/Pid/PLW/2009 PT. Y stated

that the judges’ rule at the trial of the Yogyakarta

District Court was null and void; hence, ordered the

Yogyakarta District Court to re-examine the case of

accused Ismayawati. The defendant did not receive

the High Court Judge’s verdict, then later through

her legal counsel an appeal was made to the

Indonesian Supreme Court. A verdict of the

Supreme Court of the Republic of Indonesia Case

Number 1600 K / Pid / 2009 dated November 24,

2009 was:

- To cancel the decision of the Yogyakarta High

Court Case No. 01 / Pid / PLW / 2009 / PTY dated

02 March 2008 which overturned the decision of

the Yogyakarta District Court Number: 317 / Pid.B

/ 2008 / PN YK on 02 December 2008;

- To grant the request for revocation of the

complaint submitted by Emiwati;

- To state that the Prosecution Case Number: 317 /

Pid.B / 2008 on behalf of the accused Imayawati is

not acceptable.

3.4.2 Restorative Justice Solution

In practice, it is still often found, in cases relating to

criminal acts of fraud, that along with the law

enforcing process, both parties (complainant and

defendant) do not want the case to continue. They

want the settlement to be done in a usual manner and

they do this by revoking the case report in the police

so that the process does not continue. Normatively,

fraud is an ordinary offense. Therefore, the victim's

report cannot be revoked by the complainant and the

termination of the case hearing is the authority of the

police and the prosecutor's office. However, when

compensation has been paid and both parties have

achieved justice, it is fitting that the case is not

followed up in court (Yaman, 2016).

This agreed consensus resolution model is not

known in the Indonesian Criminal Code, but this

settlement model is a shift in the concept of dispute

resolution to realize a restorative justice law. Barda

Nawawi Arief stated that the crime prevention

efforts could be broadly grouped into two, namely

through the reasoning line (criminal law) which

focuses on repressive actions, or through non-

reasoning lines (outside criminal law) which focus

more on preventive nature.

In dealing with these two phenomena, the

criminal law system in Indonesia does not recognize

criminal remedies with non-criminal lines. So in

practice, the settlement carried out without going

through the reasoning line is a discretionary action

whose authority is owned by the police through

article 16 of Act Number 2 of 2002 concerning the

National Police of the Republic of Indonesia which

states;

"Paragraph (1) letter I, namely: an authority granted

in carrying out other actions that are responsible."

"Paragraph (2), namely:

a. Does not conflict with the rule of law;

b. In line with legal obligations that require these

actions to be carried out;

c. Must be appropriate, reasonable, and included in

the office environment;

d. Worthy consideration based on compelling

conditions; and

e. Respect for human rights."

So that in the context of the investigation for the

authority to act in its own judgment (discretion) in

accordance with Article 18 paragraph (1) and

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paragraph (2) the Police Law can be carried out

under the following conditions:

1) A vital and urgent situation;

2) Not against the law;

3) Does not conflict with the police professional

code of ethics.

The discretion can undoubtedly be carried out by the

authoritative police with consideration of the

benefits and risks of his or her actions and truly is in

the public interest.

3.5 Uncertainty in Court Verdicts

Breach of contract in the agreement can only be

settled through a civil court, but in reality there are

law enforcers in the regions who resolve cases of

default through criminal justice, such as legal

conflict that occur in Malang, East Java. The act is

an agreement that starts from one of the parties an

entrepreneur borrows money from another party,

which was amounted Rp. 105,250,000 (one hundred

and five million two hundred fifty thousand

rupiahs).

In the loan agreement, the party owes 10 Bilyet

Giro guarantees. The Bilyet Giro which successfully

disbursed by the parties owing is only 4 pieces with

a total value of Rp 48,500,000 (forty eight million

five hundred thousand rupiahs). The other 6 Bilyet

Giro was not able to be disbursed at the maturity

date or at the agreed time limit, the reason being that

the debtor does not have funds. The debtor asks to

postpone the due date by 1 month, postponing of the

disbursement was settled in an amendment of the

loan agreement, handwritten in 1 (one) sheet of

paper. However, after 1 month of the agreed

postponed due date, payment of debts still was not

realized and there was no real solution until the

debtors reported it to the Malang regional police on

charges of fraud. The report was processed and tried

by a Judge in the Kepanjen District Court with a

prison sentence of 1 year 6 months against the party

owed because he was guilty of committing a

fraudulent crime pursuant to Article 378 of the

Criminal Code.

The appeal of the attorney of the defendant and

the public prosecutor at the Surabaya High Court

stated in the verdict that was to strengthen the

decision handed down by the Kepanjen District

Court. The decision of the District and High Court

was different from the Decision of the Supreme

Court No.1294 K / Pid / 2007. The Supreme Court

Judge granted the appellant's petition, the party who

owed and cancelled the decision of the Surabaya

High Court, which upheld the decision of the

Kepanjen District Court. The judge's consideration

in the Supreme Court’s verdict states that legal

actions that occur between the defendant and the

reporter originate from a loan agreement. Of the 10

pieces of Bilyet Giro given, only 4 Giro can be

disbursed, the total of which has not fulfilled the

amount of the defendant's debt. This means that the

defendant has not repaid the remaining debts, thus

he has broken his promise / has not carried out his

obligations (Wanprestatie).

Based on this case approach, conflicts, which

includes civil affairs must be resolved through civil

court not criminal justice. The problem arises when

law enforcers impose criminal sanctions of fraud on

civil actions carried out by dealing parties. Due to

differences in considerations between the first and

second level courts with the Supreme Court on the

settlement of this case, it shows the existence of

social symptoms of mishandling by justice

enforcement officials in the law enforcement.

Law Enforcement has a very important position

in implementation of the provision, because only

through law enforcement that the law can be

enforced, hence, there would be consistency and

assurance when there are no deviations in

implementation of the law in resolving cases and

thus, would not injure the spirit of justice.

4 CONCLUSIONS

The effectiveness of an agreement not only relies on

the binding legality of the agreement itself, but also

the principles underlying the establishment of the

terms of the agreement. If the principles reflected in

article 1338 BW are properly placed, an effective

and efficient agreement will result, which means

binding the parties productively. In its journey, if the

agreement cannot operate productively, then the

agreement that is born of civil action should be

settled also by the civil law system. For this reason,

prevention is needed so that an agreement that is

born from a civil act remains in the civil corridor.

The prevention methods are:

1. Establish an authentic agreement, such as a

notarial agreement, which is made in front of a

Notary Public. The reasons are:

- Notaries as public officials guarantee the

accuracy of the date and place where an agreement

is held.

- The Notary Public first verifies the identity of the

parties to know whom they are as a person, while

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ensuring the fulfilment of the capability term

required according to article 1320 BW.

- The Notary Public, according to the provision,

shall also perform legal counselling prior to the

agreement made. Thus, the notary shall confirm the

legality of the object of the agreement, together with

the intent and purpose of the parties upon entering

into the agreement, and that is, the cause of the

agreement does not violate the law. In this case, the

Notary Public has the role of guarding so that each

part, namely essentialia, naturalia and accidentalia

section of the agreement is legal and binding.

- The Notary Public must read the agreement before

the parties sign the agreement. This is to ensure

that both parties who are making the agreement

understand and aware of the contents of the

agreement they are signing. Such procedure

prevents the odds of having a clause or article

smuggling in the agreement. This action also can

be interpreted as an implementation of the

principle of transparency, which is at the same

time can be interpreted as performing good faith.

Note that proof of good faith fends off allegations

of fraud.

- The notarial agreement is made not only before the

Notary, but also in the presence of at least 2 (two)

witnesses. The Notarial agreement is an authentic

deed. That is, the deed, which has the power of

perfect judicial testament does not require other

evidence to prove that indeed a social activity had

occurred.

- While agreement that is made in the form of

notarial deed helps to fend off accusations of bad

faith and fraud, it is still at risk in protecting

parties from false information in authentic deeds,

as is the offense of the crime of article 266 of the

Criminal Code.

2. Contract design that covers the principles of

predict, provides, and protects, can be a legal

vessel that reaches and protects the interests of

the parties.

- Predict as a principle means calculating the

possibilities and pouring them into the articles and

clauses, which anticipate possible losses or

detrimental risk that could occur. Regarding the

anticipated losses, the parties' agreement can provide

certainty so as to reduce the risk of future disputes.

- Provide as a principle means providing a

countermeasure plan for possible losses, so that

losses can be minimized, by anticipating how

compensation can be made and the nominal to be

compensated. Thus, parties in conflict can be

resolved efficiently to obey the agreement at the

time of default.

- Protect as a principle means protecting the

achievement of the aims and objectives and interests

of the parties.

- When the agreement reflects proportionality

between rights and obligations, the agreement will

be a fair ground for productive cooperation to

flourish.

The implication for further investigation will be

juridical empiric research that can measure the

effectiveness of the prevention methods suggested.

ACKNOWLEDGEMENTS

We thank our colleagues and lecturers from

Airlangga Univeristy who provided insight and

expertise that greatly assisted this research, although

they may not agree with all of the interpretations /

conclusions of this paper.

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