In March 2021, the Supreme Court of Appeal (SCA) handed down judgment with two important findings regarding a bank’s obligations to a third party, namely:

  1. a bank is not entitled to set-off the customer’s debts to the bank against amounts reflecting to the credit of a customer, if the bank knows that a third party has a claim to these funds;
  2. a bank owes a duty to pay such a third party if the bank, in full knowledge that the customer has no valid claim to the funds, allows the customer to dispose of the money.


The Claimant was a franchisor of a supermarket chain which fell into a dispute with one of its franchisees, Umtshingo Trading 30 (Pty) Ltd (Umtshingo).  Mr Paolo, the controlling mind behind Umtshingo, operated three franchise outlets and maintained bank accounts at the Bank for each of the three outlets.

Umtshingo defaulted on its obligations to the Franchisor. The Franchisor held a notarial bond over the assets of Umtshingo and obtained a provisional order to perfect its security. This allowed the Franchisor to take over the businesses and run them for its own benefit – which it then did. Paolo, however, refused to deregister the speedpoint credit card devices at the stores from the Umtshingo bank accounts.

The Franchisor effectively took over the outlets regardless.  The Bank refused to change the account linked to the speedpoint devices without the consent of Paolo or a final court order.  This meant the Franchisor was at risk of its revenue being diverted by Paolo or Umtshingo.  The Franchisor reluctantly allowed the revenue earned from its trading to be deposited in the Umtshingo accounts, and tried to get Paolo to change the speedpoint linkages or to get the Bank to redirect the revenue to another account. They were unsuccessful.

The Franchisor was unaware that there were three bank accounts, as neither Paolo nor the Bank had told them this.  The Franchisor was under the impression that all revenue was being channelled into one account.  The Franchisor had asked the Bank to confirm that Paolo did not have access to the money that was being deposited on their behalf. The Bank had provided confirmation via email that “the account was frozen”.

Paolo retained control of the accounts and withdrew money from the two of the accounts. The Bank also set-off Umtshingo’s debts against the revenue generated by the Franchisor paid into the accounts.


When a customer deposits money into their bank account, the money becomes the property of the bank and the customer has a personal right to payment of the credit balance. The personal obligation on the bank to pay the balance standing to credit of the customer is discharged by payment to the customer, payment to a person designated by the customer, or set-off when the bank sets off amounts owed to it by the customer.  The set-off requirement of reciprocal indebtedness is thus met between the bank and its customer but not against a third party entitled to the money.

The Bank was not entitled to set off Umtshingo’s debts to the Bank against the credit balance in the accounts which were created by the deposits made by the Franchisor where the Bank knew of the Franchisor’s claim to the money.

The Bank is the owner of the money in an account but the personal right to the credit balance will rest with the third party who made the deposit of its money. The Banks’ ownership is not be without obligations to such a third party as this would amount to unjust enrichment. This unjust state of affairs means the third party has a remedy in the form of an enrichment claim against the bank to pay to it the amount standing to the credit in the account.

As Umtshingo had no right to the money, the Bank could not claim set-off as there was no mutual indebtedness.

The Bank’s obligations regarding the withdrawals by Paolo

Paolo knew that business was being conducted for the benefit of the Franchisor and the funds did not belong to Umtshingo. The Bank also knew this. The payments made to Mr Paolo were theft as he had appropriated the funds in full knowledge that the money did not belong to him or Umtshingo.

The Bank had enabled Paulo’s conduct by allowing him to operate the bank accounts despite knowledge that Umtshingo had no claim to the credits balances. The court held that the Bank owed a duty of care to the Franchisor and the Franchisor could claim its money from the Bank in terms of delict.


The Bank argued that part of the Franchisor’s claim had prescribed.  The court held that as the Franchisor was unaware of the other accounts, the Franchisor was only able to identify the Bank as a debtor when it found out about these accounts.  As such, the claim had not prescribed.  According to section 12(2) of the Prescription Act, 1969 a debt does not prescribe when the creditor wilfully prevents the debtor from coming to know of the existence of the debt.

Contributory negligence

The court highlighted that the Franchisor, from the start, wanted the bank accounts to be changed. This however was blocked by the Bank and Paolo. When the Franchisor did become aware of the missing money, it acted immediately with an urgent application to freeze the funds.

The court concluded that the Franchisor was not negligent nor a contributory to its loss.  Fault cannot be founded on the basis that a person could have avoided a loss by their own actions if, at the relevant time, it is not irresponsible for the person not to take steps because of the other party’s conduct.

The case is FirstRand Bank Limited v The Spar Group Limited 

Co-author: Alaika Alli, Candidate Attorney