Can a company be sued for fraud if it is owed money for goods and checks bounce? A lawyer teaches you how to distinguish between civil debt and criminal fraud.

If you can't receive payment, the first question isn't whether you can sue for fraud, but whether your evidence is sufficient.

The worst thing for a business is not a customer being a few days late in paying, but rather the other party receiving the goods, signing the contract, writing the check, and then disappearing without a trace. Many business owners' first question is, "Can I sue for fraud?" The answer isn't simply yes or no, but rather it depends on whether the other party only had financial problems later in the transaction, or whether they never intended to pay or fulfill the contract in the first place.

according toArticle 339 of the Criminal LawThe core of fraud is the use of deception to mislead someone into handing over money or obtaining financial benefits. In other words, being owed money by a company is not necessarily fraud. The real key lies in whether the other party used false information, concealed important facts, or created a false appearance of a transaction to mislead you into believing the transaction was secure and thus delivering goods, making advance payments, or providing services.

The Supreme Court's Criminal Judgment No. 5289 of 2020 distinguished between pre-contractual fraud and performance fraud in contractual fraud. Simply put, if the other party uses a false identity, a false company size, a false order, a false ability to pay, or a non-existent transaction need to get you to deliver goods when signing the contract, it may be close to pre-contractual fraud; if after signing the contract, they use methods such as switching goods, false payments, fake remittance screenshots, or fake settlements to delay or obtain more goods, it may be close to performance fraud.

Unpaid goods are usually initially considered civil debts, but these situations can cause a case to veer towards fraud.

In a buying and selling transaction, the buyer has an inherent obligation to pay the price. According to...Article 367 of the Civil CodeThe buyer has an obligation to the seller to pay the agreed price and take delivery of the subject matter. If the buyer later experiences cash flow problems, a deteriorating economic climate, or downstream customers defaulting on payments, legally it will usually be assessed as a breach of civil debt.

However, if the other party has already defaulted on numerous payments, ceased business operations, disappeared from public view, continued to place large orders despite knowing they lack the ability to pay, or even used different company names to purchase goods in rotation, then it's not just a simple matter of "owing money and not paying." The court will judge based on the overall behavior before and after the transaction, such as whether the other party deliberately concealed a financial crisis, used false documents to gain trust, resold goods for cash immediately after receiving them, never proposed a reasonable payment plan, and used the same methods on multiple suppliers.

In practice, the most common mistake business owners make is compiling all the information as "how much money he owes me," but failing to compile it as "how he misled me into believing I would pay." The former is more like a civil claim, while the latter is the core issue that criminal fraud authorities focus on.

A bounced check is not necessarily fraud, but the actions taken before and after the bounce are important.

Bounced checks often infuriate creditors, especially when the other party repeatedly emphasizes during the transaction that "the check will definitely be cashed," only to bounce it at the end. However, a simple bounced check does not automatically constitute fraud. This is because a negotiable instrument is a payment tool; a bounce could be due to insufficient funds or malicious manipulation, and the legal consequences of these two are different.

The key points of judgment usually lie in whether the other party knew the account had no funds when delivering the check, whether they used an account that had been refused service or was considered abnormal, whether they exchanged the check for more goods, whether they requested an extension of the payment period knowing the company was about to go bankrupt, and whether they immediately transferred assets or shut down communication channels after the check bounced. If these facts can be linked together with LINE conversations, emails, order forms, delivery slips, reasons for canceled checks, accounting records, and other information about other affected companies, the persuasiveness of the criminal complaint will be significantly improved.

At the same time, attention should be paid to the period of rights associated with the negotiable instrument. According to...Article 22 of the Negotiable Instruments LawThe rights on a negotiable instrument may be subject to statute of limitations depending on the type of instrument and the party making the claim; if the instrument is a promissory note and meets the formal requirements, it may also be subject to statute of limitations.Article 123 of the Negotiable Instruments LawApply for a ruling on the promissory note, and then proceed with enforcement. In negotiable instrument cases, don't just rush to criticize the other party; prioritize upholding the statute of limitations and the pace of enforcement.

When businesses seek to recover outstanding payments, criminal prosecution cannot replace civil preservation measures.

Many companies mistakenly believe that simply filing a fraud lawsuit will allow prosecutors to recover their money. This is a common misconception. The focus of criminal proceedings is to pursue criminal liability, not to collect accounts receivable for the company. Even if a criminal case is established, without simultaneously planning civil claims, injunctive relief, or enforcement proceedings, it is still possible for the other party to be convicted, but the company to remain unpaid.

If the claim is clear, such as with contracts, quotations, purchase orders, shipping documents, receipts, invoices, statements of account, and collection records, a payment order can be requested.Article 508 of the Civil Procedure LawA creditor may petition the court for a payment order for a certain amount of money or other substitutes. If the other party does not object according to law, there is an opportunity to obtain a basis for enforcement; if the other party objects, the case will proceed to litigation.

If it has been observed that the other party has divested its assets, closed its company, transferred equipment, sold vehicles, moved goods, or transferred accounts receivable, a provisional attachment should be assessed. According to...Article 522 of the Civil Procedure LawArticle 523 allows creditors to apply for provisional attachment to preserve monetary claims when future enforcement may be difficult. Speed and the density of evidence are crucial in such procedures; delaying processing until asset transfer is complete often results in only a favorable judgment.

Must the company's head use their personal assets to cover their losses?

If the counterparty is a limited liability company or a joint-stock company, the company is generally responsible for its debts. Creditors cannot demand that the person in charge personally use their property or savings to repay debts simply because the company owes money. This is a real obstacle many creditors encounter when trying to collect debts.

However, those in charge are not always without risk. If the person in charge personally signs guarantees, issues or endorses promissory notes, promises payment in their own name, or personally uses fraudulent methods in transactions, liability may extend from the company to the individual. If the person in charge knowingly demands delivery from manufacturers with false claims despite the company's inability to fulfill its obligations, and then quickly resells the goods, conceals payments, or empties the company premises after receiving them, they may face not only civil liability but also the risk of criminal fraud.

Therefore, when handling a case, creditors should not only look at the company name, but also at the actual order placer, negotiator, recipient, payment guarantor, and the flow of funds. What someone said and did at key moments will directly affect whether the responsible person can be held accountable.

What should we do immediately to avoid turning a good case into a bad one?

When you discover that your company is owed money, the first step is not to immediately send emotional messages or publicly accuse the other party of fraud on social media. These actions may distract from the case or even lead to defamation disputes. The correct approach is to first preserve evidence by organizing contracts, quotations, orders, shipping documents, receipts, invoices, statements, payment commitments, copies of checks, bounced check reasons, payment reminders, call log summaries, and the other party's company registration information in chronological order.

The second step is to differentiate the objectives. If the objective is to recover the money quickly, priority should usually be given to evaluating payment orders, lawsuits, preliminary attachments, bill proceedings, or settlement guarantees. If the objective is to address a malicious transaction pattern, then the criminal complaint should be evaluated for evidence of fraud, error, disposition of property, and unlawful intent. Both can be pursued concurrently, but the presentation of evidence will differ.

The third step is to avoid signing unfavorable settlements. Many debtors will propose installment payments, but if the settlement agreement does not clearly specify the due date, whether a missed payment is considered full payment, the guarantor, the bills, penalties, the court of jurisdiction, and enforcement arrangements, it may ultimately just be a legal delaying tactic for the other party. Corporate debt collection is not just about getting an apology or promise; it's about turning those promises into enforceable legal documents.

The lawyer advises: Make the case "enforceable" rather than just "angry."

In disputes over payment for goods, the most important factor is not the intensity of emotions, but the legal approach. If the evidence only shows that the other party owes money, civil proceedings should be used to quickly obtain a judgment for enforcement. If the evidence shows that the other party set up a trap from the beginning of the transaction, the facts of fraud should be presented in a way that the prosecutor can understand. If the other party is currently in a state of financial distress, a false seizure is often more crucial than writing several demand letters.

For businesses, recovering payments afterward is merely a remedy; the more important aspect is establishing pre-transaction risk control. High-risk clients should have their company registration verified, their responsible personnel's background confirmed, payment records verified, their creditworthiness assessed, and their past litigation and transaction amounts confirmed. Large transactions should require deposits, installment deliveries, personal guarantees, promissory notes, collateral, or retention of title clauses. Truly effective business legal services go beyond simply litigating; they help companies avoid pitfalls before even signing contracts.

FAQ

If a company owes money for goods and refuses to pay, can it always be sued for fraud?

Not necessarily. Company debts are usually considered civil defaults. For criminal charges of fraud, there needs to be evidence that the other party used deception during the transaction to mislead you into believing they would pay and thus deliver the goods. If it's simply due to subsequent cash flow problems, delayed payments, or a simple breach of contract, recovery usually requires civil litigation, payment orders, or negotiable instrument procedures.

Can a bounced check be enforced directly through a petition for enforcement?

A bounced check is generally not directly enforceable; enforcement requires a bill of exchange request, payment order, litigation, or other procedures. If a promissory note is available and meets all formal requirements, an assessment can be made to apply for a promissory note ruling, followed by further enforcement. Whether it's a check or a promissory note, special attention should be paid to the statute of limitations and the debtor's financial situation.

If the other party says the company has gone bankrupt and has no money, is the person in charge personally responsible?

In principle, company debts are the responsibility of the company, and the person in charge cannot be required to repay them personally simply because the company has gone bankrupt. However, if the person in charge provides personal guarantees, issues promissory notes, endorses documents, promises payment in their own name, or personally induces you to sell goods with false information, they may incur personal civil liability or criminal fraud liability.

If a fraud lawsuit has already been filed, is it necessary to file a separate civil lawsuit?

Civil proceedings usually still need to be assessed. The purpose of a criminal prosecution is to prosecute the crime, and it may not immediately help you recover the payment. If you want to preserve the other party's assets, obtain an enforcement warrant, or recover the funds, you should simultaneously assess preliminary attachment, payment orders, civil litigation, negotiable instrument proceedings, or civil suits attached to criminal proceedings.

If you discover that the other party may be taking a leave of absence from their job, what should you do first?

You should immediately preserve transaction documents, payment commitments, refund documents, and evidence of the other party moving or transferring assets, and have a lawyer assess the feasibility of a preliminary seizure as soon as possible. If you wait until the other party's assets are transferred, even if you win the case later, you may face the problem of having no assets to enforce against.

Fuda Law Firm

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