Escrow Holder Liability Theories
An escrow holder is typically able to be held liable on theories of: breach of contract, general negligence, and breach of fiduciary duty, among others which will not be discussed herein. Talkov Law, however, does have a stable of attorneys ready to assist with any other potential theories of liability which may apply to your specific situation.
Escrow Holder Liability – Breach of Contract
An escrow holder is under an obligation to comply with the instructions of the parties privy to the escrow agreement. An escrow holder’s failure to comply with the escrow agreement is liable to the parties for breach of contract.
Upon the escrow holder’s breach of an instruction that it has contracted to perform or of an implied promise arising out of the agreement with the buyer or seller, the injured party acquires a cause of action for breach of contract.
Damages recoverable from the breach of contract are typically limited to the harm proximately caused by the breach. See Cal. Civ. Code §3300; Alereza v. Chicago Title Co. (2016) 6 Cal.App.5th 551, 559.
Escrow Holder Liability – Negligence
In the context of an escrow agreement, an escrow holder is obligated to use the ordinary standard of skill, care, and/or diligence in carrying out its duties. Even further, an escrow holder is impliedly obligated to undertake all obligations normally undertaken by an escrow holder unless expressly excluded under the escrow agreement; and the escrow holder must use ordinary skill and diligence in carrying out these tasks. See Bruckman v. Parliament Escrow Corp. (1987) 190 Cal.App.3d 1051, 1057-58.
If the escrow holder negligently breaches its duty of care in handling to escrow agreement, the holder is liable for any foreseeable loss arising from its negligence. See Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 711; Virtanen v. O’Connell (2006) 140 Cal.App.4th 688, 703; Zang v. Northwestern Title Co. (1982) 190 Cal.App.3d 159, 165-66; and Spaziani v. Millar (1963) 215 Cal.App.2d 667, 682-83.
For example, if an escrow holder negligently fails to comply with written instructions or delivers documents without strict compliance wiht the terms of the escrow agreement, the escrow holder may be liable to the injured party to all damages proximately caused by the negligence. See Cal. Civ. Code § 3333; Prentice v. N. Am. Title Guaranty Corp., Alameda Div. (1963) 59 Cal.2d 618, 621; and Diaz v. United Cal. Bank (1977) 71 Cal.App.3d 161, 166-67.
Further, even if the escrow holder’s liability is not the sole cause of the damages suffered, it may still be held liable for negligence if the holder’s breach was a substantial factor in the harm experienced. See Bruckman, supra, (1987) 190 Cal.App.3d at 1057-58.
Escrow Holder Liability – Breach of Fiduciary Duty
An escrow holder’s fiduciary duties are typically limited to ensuring that it is in strict compliance with the terms of the escrow agreement and the instruction contained therein. See Tribeca Companies, LLC v. First Am. Title Ins. Co. (2015) 239 Cal.App.4th 1088, 1114. Thus, the damages which arise from a breach of the escrow holder’s fiduciary duty are the same for the damages arising from the escrow holder’s breach of contract. See Summit Financial Holdings, Ltd., supra, (2002) 27 Cal.4th at 711.
Escrow Holder Liability – Damages Available
As discussed in each of the three instances of escrow holder liability immediately above, an escrow holder’s liability is limited to the actual damages proximately caused by its conduct. The injured party bears the burden of showing it suffered an injury proximately caused by the escrow holder conduct. See Garton v. Title Ins. & Trust Co. (1980) 106 Cal.App.3d 365, 381-82. Thus, even if the escrow holder negligently breached instructions in an escrow agreement, it is not liable to the party suing if the party suing did not suffer damages arising from the escrow holder’s conduct. See Campbell v. Scripps Bank (2000) 78 Cal.App.4th 1328.
Given the foregoing, I will now move to explain the types of remedies recoverable in certain actions when it is shown that damage has been suffered by the party bringing suit as a result of the escrow holder’s conduct.
Wrongful Delivery Remedy
An escrow holder who wrongfully delivers property previously in trust with the escrow holder, title to the property does not pass to the recipient, and the party entitled to receipt of the property may bring an action for recovery of property against the receiver. See Fesithamel v. Campbell (1921) 55 Cal.App. 774, 782. In bringing this action, the party harmed by the wrongful delivery may join the escrow holder as a co-defendant. See Law v. Title Guarantee & Trust Co. (1928) 91 Cal.App. 621, 628-30.
Typically, the injured party may pursue remedies against the escrow holder without first exhausting the remedies available to it as against the recipient. See Howe v. City Title Ins. Co (1967) 255 Cal.App.2d 85-86.
When a party to an escrow agreement loses property or an interest therin due to the escrow holder’s negligence or non-compliance with the terms/instructions in an escrow agreement, the damages available to the injured party are typically measured by the value of the wrongfully delivered property. See Lee v. Escrow Consultants, Inc. (1989) 210 Cal.App.3d 915, 921.
Availability of Attorney’s Fees – Tort of Another Doctrine Applicability in Escrow
Naturally, if a lawsuit does not arise from the escrow holder’s negligence, the escrow will not be liable for the attorney’s fees undertaken by the prosecuting party. See Flyer’s Body Shop Profit Sharing Plan v. Ticor Title Ins. Co. (1986) 185 Cal.App.3d 1149, 1155-57.
However, if a party to an escrow agreement is forced to file suit against a third party to protect its rights being injured by the conduct of an escrow holder, the escrow holder may be held liable for the attorney’s fees undertaken to enforce its rights injured as a proximate result of the escrow holder’s conduct. Id.
For example, if the party to the escrow agreement is forced to pursue a recovery remedy from the recipient of a piece of property wrongfully delivered by the escrow holder, the escrow holder’s conduct is a proximate cause of the need for the recovery action. As such, the escrow holder may be held liable for the attorney’s fees of the party to the escrow agreement undertaken to enforce its rights harmed as a proximate result of the escrow holder’s conduct. See Montgomery v. Bank of Am. Nat. Trust & Savings Ass’n (1948) 85 Cal.App.2d 559, 564.
Availability of Attorney’s Fees – Contractual Provisions in Escrow Agreements
If a contract calls for recovery of attorney’s fees, the right to recover attorney’s fees is reciprocal such that: “if a contract gives on party the right to recover attorney fees in an action arising out of the contract, the other party is also entitled to [attorney] fees [if it prevails.]” Int’l Billing Services, Inc. v. Emigh (2000) 84 Cal.App.4th 1175, 1182. This is known as the mutuality requirement of attorney fees provisions.
Further, in order to ensure full mutuality of attorney fees provisions in contracts, the scope of the attorney fees provision will cover ALL disputes arising out of the contract, even if the contract purports to limit the availability of fees to one type of action. Cal. Civ. Code § 1717.
Availability of Attorney’s Fees – Breach of Fiduciary Duty
As discussed above, in the context of an breach of fiduciary duty by an escrow holder, the fiduciary breach is made pursuant to the breach of the contractual terms giving rise to the fiduciary duties held by the escrow holder toward the party to the escrow. Thus, claims for breach of fiduciary duties may still fall within the attorneys’ fees clause in a escrow agreement if the damages arise from the obligations owed by the escrow holder under the contract giving rise to its fiduciary duties. See Kangarlou v. Progressive Title Co., Inc. (2005) 128 Cal.App.4th 1174, 1178-79.
Escrow Holder Liability for Punitive Damages
Typically, negligence (even gross negligence) is not sufficient to justify the award of punitive damages against an escrow holder. An escrow holder may be liable for punitive damages if its conduct provides clear and convincing evidence of fraud, malice, or oppression pursuant to California Civil Code § 3294.
Statute of Limitations to Bring an Action Against an Escrow Holder
When a claim is brought pursuant to a written agreement, the statute of limitations against the escrow holder is four years from the date of the breach. Cal. Code Civ. Proc. § 337. If the claim is brought pursuant to an oral agreement, the statute of limitations is two years from the date of the breach. See Roberts v. Carter & Potruch (1956) 140 Cal.App. 2d 370, 373.
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