To: Neo From: A Legal Academic Assistant Date: 20 October 2023 Re: Your enquiry regarding the potential conflict between standard banking practice and section 58(1) of the Penal Code Act 2010 of Lesotho.
1. Introduction
This memorandum responds to your enquiry concerning whether the conduct of a bank in using a customer's credit balance contravenes section 58(1) of the Penal Code Act No 40 of 2010 ('the Penal Code'). Your question arises from a discussion with your friend, Thato, who suggested that such an act constitutes theft under the said provision.
This advice will demonstrate that your initial understanding of banking law is correct. The ordinary business of banking, which involves a bank using money deposited by its customers, does not constitute theft under section 58(1) of the Penal Code. The central reason for this lies in the specific legal nature of the relationship between a bank and its customer, a relationship which means that money deposited in a bank account does not 'belong to another' for the purposes of the criminal law.
This advice will proceed by first establishing the nature of the banker-customer relationship under the laws applicable in Lesotho. It will then analyse the specific wording of section 58(1) of the Penal Code. Finally, it will apply the legal principles of the banker-customer relationship to the criminal provision to conclude that a bank's actions in this context are not unlawful.
2. The Nature of the Banker-Customer Relationship
The key to resolving your enquiry lies in understanding the legal relationship created when a customer deposits money into a bank account. Contrary to a common layperson's perception, the bank does not hold the customer's specific money in a box for safekeeping. Instead, a distinct legal relationship is formed.
The foundational common law principle was established in the English case of Foley v Hill (1848). In this case, the House of Lords held that the relationship between a banker and a customer is that of a debtor and a creditor. When a customer pays money into their account, that money becomes the property of the bank. The bank is then indebted to the customer for the amount deposited. The bank does not hold the money as a bailee or a trustee; it becomes the legal owner of the funds. The customer, in turn, gains a right to demand repayment of the debt, known as a chose in action. The bank's obligation is to honour the customer's demands for repayment (for example, by honouring a cheque or permitting a withdrawal), up to the amount of the credit balance.
While Foley v Hill is an old English case, this principle forms the bedrock of banking law in common law jurisdictions, and its principles have been accepted and applied in Lesotho. The Court of Appeal of Lesotho has affirmed this position. In Nedbank (Lesotho) Ltd v Mohaleroe (2007), the court explicitly discussed the nature of the relationship, confirming it as being contractual and, crucially, that of a debtor and creditor. The court acknowledged the principles from Foley v Hill as being applicable, thus cementing this doctrine into the law of Lesotho.
Therefore, when you deposit M1,000 into your bank account, you are effectively lending M1,000 to the bank. The physical notes and coins cease to be your property. Your asset is no longer the cash itself but a legal right to claim M1,000 from the bank. The bank, as the new owner of the money, is free to use it for its own business purposes, such as lending it to other customers to earn interest. This is the fundamental basis of the business of banking.
3. Analysis of Section 58(1) of the Penal Code Act 2010
Your friend Thato referred to section 58(1) of the Penal Code. It is important to examine the precise wording of this statute. It reads:
> 58. (1) A person who is lawfully in possession of money belonging to another and who wrongfully applies that money to his or her own use, or wrongfully applies it to a use other than that for which he or she understood the owner to have entrusted it to his or her possession, commits the offence of theft.
For an act to constitute theft under this section, several elements must be satisfied. The most crucial element for your enquiry is that the money in question must be "money belonging to another". If the money does not belong to another person at the moment of its application, the offence cannot be committed, regardless of what is done with it. The other elements, such as being 'lawfully in possession' and 'wrongfully applying', only become relevant if this primary condition is met.
4. Reconciling Banking Practice with the Penal Code
We can now resolve the apparent conflict between banking practice and the Penal Code. As established above, once money is deposited into a standard bank account, it legally becomes the property of the bank itself. The money no longer 'belongs to' the customer. The customer has a right to be repaid, but they do not have ownership of the funds held by the bank.
Therefore, when a bank uses the funds it holds to make loans or investments, it is not using "money belonging to another". It is using money that belongs to itself. Because this essential element of the offence under section 58(1) is not met, the bank's conduct cannot be classified as theft under that provision. The application of the funds is not 'wrongful' in the criminal sense because the bank is simply using its own assets as part of its normal business operations, which the customer implicitly agrees to when opening the account.
Thato's concern is based on a misunderstanding of the legal concept of ownership in this context. While in a practical sense, one might talk about "my money in the bank", the legal reality is different. The bank owes you money; it does not hold your money.
5. An Important Qualification: The Bank as Trustee
It is worth noting that the debtor-creditor relationship is not the only capacity in which a bank can hold a customer's funds. In certain specific circumstances, a bank can be a trustee. This typically occurs when money is paid to the bank for a very specific purpose, with the intention that it should be kept separate from the bank's own funds and not used in the ordinary course of business.
For example, if a customer deposits money with a bank with the express instruction that it is to be used only to pay a specific debt to a third party, and the bank accepts it on those terms, a trust may be created (see, for example, the principles in the English case of Barclays Bank Ltd v Quistclose Investments Ltd [1970]). In such a scenario, the money would continue to 'belong to another' (the beneficiary of the trust), and if the bank were to then misapply those funds for its own general purposes, it could indeed be liable for breach of trust and potentially for an offence such as that described in section 58(1).
However, this is an exceptional situation. For a standard current account with a credit balance, the default legal position is firmly that of debtor and creditor.
6. Conclusion and Advice
In conclusion, your original statement to Thato that "a bank is free to use any credit balance standing in a current account" is, as a general principle of banking law, correct. The ordinary practice of banking does not contravene section 58(1) of the Penal Code Act 2010.
The key points are:
- The relationship between a bank and a customer is that of a debtor and creditor, a principle established in common law and affirmed in Lesotho.
- Money deposited into a bank account becomes the property of the bank.
- The offence of theft under section 58(1) requires the wrongful application of money "belonging to another".
- Since the money in a customer's account legally belongs to the bank, the bank's use of it does not satisfy this element of the offence.
You can therefore be confident in advising Thato that her interpretation, while well-intentioned, does not align with the established legal principles governing the banker-customer relationship. The structure of the banking industry relies entirely on the legal distinction between owing money and holding money for another.
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References
Cases
- Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 (HL)
- Foley v Hill (1848) 2 H.L. Cas. 28; 9 E.R. 1002
- Nedbank (Lesotho) Ltd v Mohaleroe (C of A (CIV) 29/2007) [2008] LSCA 7 (11 April 2008)
Legislation
- Penal Code Act No 40 of 2010 (Lesotho)
