Set-off of money in bank account


The facts in Standard Bank of South Africa (“Std”) v Echo Petroleum CC (“Echo”) 2012 (5) SA 283 (SCA) were:

  • Echo carried on business as a wholesale supplier of fuel, in particular of Sasol products;
  • Sasol allowed only authorised contractors to purchase fuel directly from it. Echo was not so authorised and was therefore obliged to purchase fuel from Sky Petroleum (“Sky”), an authorised contractor;
  • Echo regularly deposited money into Sky’s bank account, the ‘602 account’, which Sky held with the appellant bank. It was intended that Sky would use the money to purchase fuel from Sasol. Sky also held a second bank account, the ‘253 account’, in terms of which it had an overdraft facility. Sky ran into financial difficulties and failed to repay its overdraft on the 253 account;
  • on 1 October 2008 Echo ordered from Sky fuel to the value of R 710 000 and transferred the money into the 602 account. Shortly after the amount was deposited, Std stopped Sky’s access to the 602 account and Std transferred the amount deposited by Echo to Sky’s 253 account in order to offset the debt resulting from the unpaid overdraft;
  • Echo claimed the amount from Std, alleging the money deposited into the 602 account was never meant to become the property of Sky (or Std). Rather, the account was meant to be a conduit for Sky to pay Sasol for fuel Sky bought on behalf of Echo.

The court a quo held that Std knew or should have known that the deposits Echo had made into Sky’s 602 account were intended for Sky to purchase fuel on behalf of Echo. The money in Sky’s 602 account was thus never meant for the credit of Sky. It ordered Std to pay Echo R 710 000 plus interest.

On appeal, the SCA held that:

  • the true basis of the relationship between Echo and Sky was that of a contract of sale. Pursuant to its contractual obligation towards Sky, Echo transferred the purchase price for the fuel (R 710 000) to Sky’s 602 account;
  • as soon as the deposited amount was credited to its name, Sky became entitled to use the funds. Sky was therefore entitled to the benefit of the credit. When Sky was unable to procure delivery of the fuel, Echo obtained a claim against Sky for breach of contract. However, Echo’s claim did not include a vindicatory right to the contractual consideration that Echo had paid into Sky’s account;
  • Echo had not proved Std had knowledge of the modus operandi of Sky’s business with Echo and even if Std had been informed of the modus operandi, it [Std] was not bound to subordinate its interests to those of Sky in the absence of an agreement between them.