Duhaime's Law Dictionary


Escrow Definition:

When the performance of something is outstanding and a third party holds onto money or a written document (such as shares or a deed) until a certain condition is met between the two contracting parties.

Related Terms: Double Escrow

When the performance of something is outstanding and a third party holds onto money or a written document (such as shares or a deed) until a certain condition is met between the two contracting parties.

In Kelly v Steinberg, Justice Vallee of the California Court of Appeals wrote:

"Escrow means any transaction wherein one person, for the purpose of effecting the sale of real or personal property to another person, delivers any written instrument, money, evidence of title to real or personal property, or other thing of value to a third person to be held by such third person until the happening of a specified event or the performance of a prescribed condition, when it is then to be delivered by such third person to a grantor. There is no requirement that an escrow agreement, as such, be in writing.

"Where a party's money is deposited in escrow and is disposed of without compliance with the escrow instructions, he is entitled to recover from the escrow holder such damages as he may have suffered.

"Defendant's duty to plaintiffs is to be determined by the application of ordinary principles of agency..... It is the duty of an agent to obey the instructions of his principal and exercise in his employment reasonable skill and ordinary diligence, and, if defendant violated instructions or acted negligently in retaining the check in its files, it would ordinarily be liable for any loss occasioned by its breach of duty.

"Where a buyer deposits money in escrow to be paid to the seller on close of the escrow, the escrow holder is the buyer's agent as to such money pending close of the escrow; and the buyer retains title to the money until the condition has been performed.

"Where money is deposited with an escrow holder by a buyer, to be delivered to a seller when the seller has performed specified conditions, it is returnable to the buyer if the seller does not comply with the conditions.

"It is the duty of an escrow holder to protect the buyer by withholding from the seller until consummation of the determining event money placed in the escrow by the buyer and by returning it to him on failure of the prescribed event. He must keep the buyer's money in his possession until there is either a consummation or a failure of the prescribed event. "

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