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making the conditional deliveries in connection therewith. The lender(s) are included in this category, since
they execute and provide to the escrow holder their written instructions together with instruments of
encumbrance and related loan documents that are conditionally delivered in anticipation of the issuance of title
insurance coverage. These instructions, instruments, funds, and loan documents are essential to the real estate
sale escrow when financing by a lender(s) is required.
As discussed above, the escrow holder is (within the course and scope of the escrow instructions) the agent and
fiduciary of the principals of the escrow. As a result, the escrow holder is a dual agent, i.e., agent and fiduciary
of the buyer and seller and of the lender(s), if applicable. Upon the completion and close of the sale escrow, the
escrow holder is the agent for each of the principals to deliver the statements, instruments, funds, documents,
and title insurance coverage to which each are entitled in accordance with the escrow instructions.
Escrows include parties who are not principals to the escrow and, therefore, to whom fiduciary duties are not
owed by the escrow holder. These parties may include, among others, claimants within the chain of title,
persons placing demands for payment into the escrow, persons submitting reports/inspections to be delivered
through the escrow. To these parties the escrow holder functions as a custodian with the duty to act in good
faith and consistent with the standard of care applicable to escrow holders/agents. See Summit Financial
Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal. 4
th
705, 711.
Escrow Instructions
The conditional delivery of an instrument of conveyance or encumbrance, money/funds, or other things of
value is accompanied by instructions to the escrow holder authorizing the delivery of the instruments, funds,
and related documents upon the happening of specified events or the performance of stipulated conditions. In
California, there are two forms of escrow instructions generally employed: bilateral (i.e., executed by and
binding on both buyer and seller) and unilateral (i.e., separate instructions executed by the buyer and seller,
binding on each). Since the escrow instructions implement and may supplement the original
contract/agreement (e.g., residential purchase agreement or agreement of sale), each are interpreted together.
However if the escrow instructions contain terms in conflict with the original contract/agreement, the
instructions constituting the later contract/agreement will usually control, subject to separate consideration
regarding the escrow instructions (as may be required). When joint/bilateral instructions have been signed by
the principals to the escrow, neither principal may unilaterally change the escrow instructions. The principals
may change, by mutual agreement, the instructions at any time and one principal may waive the performance
of certain conditions, provided the waiver is not detrimental to the other principal to the transaction.
While an independent/neutral escrow holder can be held liable for violating written instructions (including
breaches of fiduciary duty within the course and scope of the escrow instructions), the escrow holder is only a
neutral stakeholder who is not to be concerned with controversies among the principals. As such, an escrow
holder is entitled to file an action of interpleader and for declaratory relief to ask a court of competent
jurisdiction to resolve the controversies and to direct the escrow holder on how to proceed.
Completed Escrow
Properly drawn and executed escrow instructions become an enforceable contract/agreement. An escrow is
termed “completed” or “perfected” when each of the terms of the instructions have been met or performed
(satisfied or waived).
Escrow Principles
The following are major escrow principles:
1. Escrow instructions must contain mutuality, including the understandings and the intentions of the
principals to the escrow. Properly drawn instructions should be clear and certain as to the understandings
and the intentions of the principals, the duties of the escrow holder, and the fact that it is the principals
themselves who must perform the escrow contract/agreement. The escrow holder does not have, and must
not exercise, discretionary authority. The escrow holder/agent acts in behalf of and not in the place and
stead of principals.
2. The escrow holder does not act as a mediator. However, the escrow holder/agent may offer advice to the
principals as an agent and fiduciary within the course and scope of the escrow instructions. As previously
discussed, the escrow holder/agent does not participate in controversies among the principals or among the
parties to the escrow, or arbitrate disputes. Instructions are drawn so that the principals to the escrow make