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King v. First National Bank of Fairbanks

Alaska Supreme Court
647 P.2d 596, 1982 Alas. LEXIS 327 (1982)
ELI5:

Sections

Rule of Law:

An agent may be liable to a third party for breach of contract if the agreement between the agent and principal was intended to benefit that third party, and statutes of limitation are tolled during a plaintiff's military service under the Soldiers' and Sailors' Civil Relief Act.


Facts:

  • The Kings (buyers) agreed to purchase land from the Olsons (sellers), who still owed payments to the State of Alaska for the property.
  • The Olsons signed 'Collection Instructions' directing First National Bank to collect payments from the Kings, remit a portion to the State to satisfy the Olsons' debt, and deposit the remainder in the Olsons' account.
  • Without notifying the Kings, Elmer Olson later instructed the Bank to stop paying the State and deposit the entire payment amount directly into the Olsons' savings account.
  • The Bank followed the modified instructions, depositing all funds to the Olsons while neglecting the payments to the State.
  • The Kings paid their promissory note in full to the Bank, unaware that the State was not being paid.
  • Because the Olsons failed to pay the State, the State terminated the land contract.
  • The Kings lost the property due to the default on the State contract.

Procedural Posture:

  • Kings filed a complaint against the Olsons, the State, the Bank, and their attorney in the Superior Court.
  • The Bank moved for summary judgment on theories of no contract and expiration of the statute of limitations.
  • The Superior Court granted summary judgment in favor of the Bank.

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Issue:

Is a bank liable to property buyers for following a seller's modified instructions that harmed the buyers, and is the buyers' contract claim barred by the statute of limitations despite one buyer's military service?


Opinions:

Majority - Justice Connor

Yes, the Bank may be liable as the Kings were third-party beneficiaries of the contract, and the contract claim is not time-barred. The Court first determined that no 'escrow' existed because there was no direct contract between the Kings and the Bank. However, relying on the Restatement (Second) of Agency § 342, the Court reasoned that the Kings were intended third-party beneficiaries of the agreement between the Olsons and the Bank. The specific instruction to pay the State was designed to protect the Kings' title, and the Bank could not alter this for the Olsons' benefit without the Kings' consent. Regarding the statute of limitations, the Court affirmed that the tort (negligence) claim was barred by the two-year statute. However, the contract claim (six-year statute) was valid because the filing period was tolled during Thomas King's 3.5 years of military service under the Soldiers' and Sailors' Civil Relief Act, extending the deadline beyond the 1978 filing date.



Analysis:

This case is significant because it extends professional liability beyond strict privity of contract. It establishes that banks and collection agents can be held liable to third parties even without a formal escrow agreement if the instructions were clearly intended to benefit that third party. It prevents agents from aiding a principal in defrauding a third party by altering instructions that the third party relied upon. Additionally, the case reinforces the supremacy of federal military relief acts over state statutes of limitation, ensuring service members are not penalized legally for their time in service.

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