Introduction
This advice addresses the enquiry raised by Neo, a fourth-year law student, regarding a potential conflict between the ordinary practice of banking and the provisions of the Lesotho Penal Code Act No 40 of 2010 (‘the Penal Code’). The core issue is whether a bank, by using funds deposited into a current account by a customer, commits the offence of theft under section 58(1) of the Penal Code. Neo’s friend, Thato, believes this is the case, while Neo holds the view, common in banking law, that a bank is free to use such funds.
This advice will argue that Neo’s understanding is legally correct and that the ordinary conduct of banking business does not contravene section 58(1) of the Penal Code. The central reason for this conclusion lies in the specific legal nature of the relationship between a banker and its customer. While Thato’s view is based on a common-sense understanding of money, it does not reflect the established legal principles that govern banking. This advice will first outline the nature of the banker-customer relationship, then analyse the specific elements of section 58(1), and finally reconcile the two to demonstrate why a bank’s actions are lawful.
The Legal Nature of the Banker-Customer Relationship
The misunderstanding between Neo and Thato stems from a fundamental question: when a customer deposits money into a bank account, to whom does that money legally belong? The law’s answer to this question is perhaps not what one would intuitively expect.
The foundational principle of the banker-customer relationship in common law was established in the English case of Foley v Hill (1848). In that 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 ceases to be the property of the customer. Instead, it becomes the property of the bank. The bank does not hold the specific notes and coins on trust for the customer. In exchange for the deposit, the bank incurs a debt to the customer for the same amount. The customer’s ‘money in the bank’ is not actually their property but is a personal right to claim repayment from the bank, known as a 'chose in action' (Cranston et al., 2018).
Lord Cottenham LC stated that money paid into a banker's is "money, with which the banker is to do as he pleases" and that the bank is "guilty of no breach of trust in employing it". The bank’s only obligation is to repay a similar sum when demanded by the customer. This principle distinguishes the relationship from one of a trustee and a beneficiary, where the trustee holds property for the benefit of the beneficiary, or a bailee and bailor, where property is held for safekeeping but ownership does not pass.
This common law principle remains the cornerstone of banking law in many jurisdictions that follow the English tradition, including those in Southern Africa. For instance, the Supreme Court of Appeal of South Africa, a jurisdiction with a similar Roman-Dutch and English common law heritage to Lesotho, has consistently affirmed this debtor-creditor principle, citing Foley v Hill as good authority (see, for example, Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd (1998)). Therefore, when a bank in Lesotho receives a deposit into a current account, it becomes the legal owner of the funds and a debtor to the customer.
Analysis of Section 58(1) of the Penal Code Act 2010
Having established the nature of the banking relationship, we must now turn to the criminal provision that concerns Thato. Section 58(1) of the Penal Code states:
> 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.
To secure a conviction under this section, the prosecution would need to prove several elements. For the purpose of this advice, the most critical element is the very first one: the accused must be in possession of "money belonging to another".
This phrase is the linchpin of the offence. It presupposes a legal situation where ownership (the money "belonging to") and possession are separated. This typically occurs in relationships of trust or agency. For example, if an employer gives an employee cash to purchase office supplies, the employee is in lawful possession of the money, but the money still "belongs to" the employer. If the employee then uses that money to buy something for themselves, they have wrongfully applied money belonging to another, and would fall squarely within the ambit of section 58(1). Similarly, a club treasurer who is in possession of membership fees holds that money on behalf of the club members; it is money "belonging to another".
The wording "entrusted it to his or her possession" further reinforces this interpretation. It implies that the owner has given the money to the possessor for a specific purpose, without giving up ownership of it.
Reconciling Banking Law and Criminal Law
The apparent conflict is resolved when the legal principles of banking are applied to the elements of the criminal offence. Thato’s argument fails because a bank, in its normal course of business, does not satisfy the primary condition of section 58(1).
As established in Foley v Hill and subsequent authorities, once money is deposited into a standard current account, it no longer "belongs to another" (i.e., the customer). It legally belongs to the bank itself. The bank is therefore not in possession of the customer's money; it is in possession of its own money. Consequently, the first and most fundamental element required to constitute the offence of theft under section 58(1) is absent.
Since the money belongs to the bank, its subsequent application of that money—for example, by lending it to other customers to earn interest—cannot be "wrongful". Indeed, this use of deposited funds is the entire basis of the banking business model. It is this activity that allows banks to offer services and pay interest on certain accounts. When a customer opens a bank account, they implicitly (and often explicitly in the account's terms and conditions) consent to this arrangement. The bank's application of the funds is not for a "use other than that for which… the owner… entrusted it", because there is no such entrustment of property. Instead, there has been a transfer of ownership in exchange for a debt.
Therefore, the conduct Neo described to Thato—a bank using a credit balance in a current account—is not a criminal act under section 58(1). The section is designed to criminalise the misappropriation of funds held under a trust, agency, or bailment-like relationship, not the ordinary debtor-creditor relationship that defines modern banking.
Conclusion
In conclusion, Neo can be advised with confidence that her understanding of banking law is correct and that the normal conduct of banking business does not contravene section 58(1) of the Penal Code Act No 40 of 2010.
Thato’s concern, while understandable from a lay perspective, is based on a legally incorrect premise. The law distinguishes between possessing money that belongs to someone else and possessing money as a result of a transfer of ownership that creates a debt. The banker-customer relationship falls into the latter category.
The key points to explain to Thato are:
- The relationship between a bank and a customer with an account in credit is one of debtor and creditor, not trustee and beneficiary.
- When a customer deposits money, legal ownership of that money passes to the bank.
- Because the money belongs to the bank, the bank cannot be guilty of applying "money belonging to another" for its own use, which is an essential element of the offence of theft under section 58(1).
- The bank's use of the funds is an inherent and lawful part of the commercial agreement between the bank and its customer.
Neo’s statement that a bank is free to use any credit balance is, therefore, a correct reflection of the position at law.
References
Cranston, R., Avgouleas, E., Van der Elst, C., and O'Brien, R. (2018) Principles of Banking Law. 3rd edn. Oxford University Press.
Foley v Hill (1848) 2 HL Cas 28; 9 ER 1002.
Lesotho. (2010) Penal Code Act No 40 of 2010.
Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1998 (1) SA 811 (SCA).
