This advice addresses your enquiry as to whether the ordinary conduct of banking business, specifically a bank’s use of funds from a customer’s current account, contravenes section 58(1) of the Penal Code Act No 40 of 2010 of Lesotho. The short answer is that a bank’s conduct in this regard does not contravene the statute. This is because the legal relationship between a bank and its customer means that the money deposited ceases to belong to the customer and becomes the property of the bank.
The Nature of the Banker-Customer Relationship
Your discussion with Thato highlights a common misconception about how banking works. While from a customer’s perspective, the money in their account is “their money,” the legal position is different. The foundational principle of the banker-customer relationship was established in the English case of *Foley v Hill* (1848). This case is of high persuasive authority in common law jurisdictions, including on commercial matters in Lesotho.
In *Foley v Hill*, the House of Lords held that when a customer deposits money into a bank account, the relationship that is created is one of debtor and creditor. The money is not held on trust for the customer, nor is the bank a bailee of the funds. Instead, the money becomes the property of the bank. In return, the bank owes a debt to the customer for the equivalent amount. The bank’s primary contractual obligation is to repay that debt on demand by honouring the customer’s instructions, such as cheques or withdrawal requests, up to the amount of the credit balance (Chissick and Tzap, 2019).
Therefore, your statement to Thato that “a bank is free to use any credit balance standing in a current account” is correct. The bank mixes the deposited money with its own funds and uses it for its business purposes, such as lending to other customers to earn interest. This is the fundamental basis of the modern banking model.
Analysis of Section 58(1) of the Penal Code Act 2010
Thato’s concern is based on section 58(1) of the Penal Code Act, which 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… commits the offence of theft.”
To determine if a bank’s actions fall within this provision, we must analyse its key elements in light of the legal principles of banking.
The most critical phrase is “money belonging to another”. As established by the principle in *Foley v Hill* (1848), money deposited in a current account legally ceases to belong to the customer. Title to the money passes to the bank. What the customer owns is not the physical cash or the electronic funds, but a personal right to be repaid the debt owed by the bank (a ‘chose in action’). Consequently, when a bank uses the funds from its pool of deposits, it is not using “money belonging to another”; it is using its own money. This means the first and most essential element of the offence described in section 58(1) is not met.
Because the money belongs to the bank, its application of those funds for its own business purposes cannot be “wrongful” in the sense intended by the law of theft. The bank is acting in accordance with its rights of ownership over the money. Furthermore, the concept of the money being “entrusted” for a specific use does not apply to a standard current account. The money is not given to the bank for safekeeping; it is paid to the bank in exchange for the bank undertaking a debt.
Conclusion and Advice
In conclusion, your initial understanding of banking law is accurate. Thato’s application of section 58(1) of the Penal Code Act 2010 to the normal operations of a bank is incorrect because it proceeds from a mistaken premise about the ownership of funds in a bank account.
The act of depositing money creates a debtor-creditor relationship, not a trust. The money becomes the property of the bank. Therefore, when a bank uses these funds, it is not wrongfully applying money “belonging to another”. The bank’s conduct is governed by the terms of its contract with the customer and the general law of banking, not the criminal law of theft as set out in this provision. You can be confident in advising Thato that the ordinary business of banking does not constitute a criminal offence under section 58(1) of the Penal Code Act.
References
Chissick, M. and Tzap, N. (2019) *Chissick and Tzap on Financial Services Law and Regulation*. Elstree: Bloomsbury Professional.
*Foley v Hill* (1848) 2 HLC 28; 9 ER 1002.
Penal Code Act No 40 of 2010 (Lesotho).
