Miller v. Craig
558 P.2d 984, 27 Ariz. App. 789, 1976 Ariz. App. LEXIS 718 (1976)
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Rule of Law:
An escrow agent has a fiduciary duty to strictly comply with the terms of the escrow agreement, and any deviation, such as disbursing funds based on a trial court judgment without the consent of both parties, constitutes a breach of that duty.
Facts:
- In 1970, George and Johanna Miller entered into an agreement to sell their interest in a tavern to Mary E. Crouse.
- The parties retained attorney Harry E. Craig to draft the sale documents and act as their escrow agent.
- Pursuant to the sales contract, Crouse deposited $5,000 in earnest money into an escrow account held by Craig.
- The escrow agreement stipulated that the earnest money was part of the purchase price and could be retained by the Millers as liquidated damages if Crouse failed to comply with the agreement's terms.
- Before the sale closed, a dispute arose between the Millers and Crouse regarding the contract.
- After a trial court ruled in favor of Crouse, her attorney presented the judgment to Craig and demanded the return of the $5,000.
- Without notifying the Millers or inquiring about their intent to appeal, Craig disbursed the entire $5,000 from the escrow account to Crouse.
Procedural Posture:
- In a prior action, Mary Crouse sued the Millers in a state trial court to rescind the sales contract.
- The trial court entered judgment in favor of Crouse for $5,000 against the Millers.
- The Millers appealed, and the Court of Appeals reversed the trial court's decision, entering judgment for the Millers.
- Subsequently, the Millers filed the present action against their escrow agent, Harry Craig, in trial court for conversion and breach of fiduciary duty.
- Both parties filed cross-motions for summary judgment.
- The trial court granted summary judgment in favor of Craig, dismissing the Millers' case.
- The Millers (appellants) appealed the grant of summary judgment to the Court of Appeals, with Craig as the appellee.
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Issue:
Does an escrow agent breach their fiduciary duty by disbursing funds to one party based on a trial court judgment against the other party, without the latter's consent and before the time for appeal has expired?
Opinions:
Majority - Nelson, J.
Yes. An escrow agent breaches their fiduciary duty by disbursing funds contrary to the terms of the escrow agreement. The court reasoned that an escrow agent acts as a trustee for both parties and their duties are strictly defined by the escrow agreement. Any deviation from those terms without the mutual consent of the parties subjects the agent to liability. The trial court's judgment was a personal judgment for $5,000 against the Millers; it did not order Craig to disburse the specific funds held in escrow. When faced with the demand, Craig's proper course of action was to inquire about the Millers' intent to appeal and, absent their consent to release the funds, either hold the funds pending the appeal's outcome or file an interpleader action to have the court determine the proper disposition of the money. A clause absolving the agent for acts of 'reasonable prudence' does not excuse a deviation from the agreement's express terms, as such a deviation is per se unreasonable.
Analysis:
This decision solidifies the principle that an escrow agent's duties are strictly defined by the escrow agreement, not by external events like a lower court judgment. It establishes a high standard of care, holding that any deviation from the agreement's terms is a per se breach, regardless of perceived 'reasonableness'. The ruling provides a clear procedural roadmap for escrow agents caught in a dispute between parties: obtain mutual consent for any action not specified in the agreement or seek judicial intervention through interpleader. This holding protects the integrity of escrow arrangements by ensuring the agent remains a neutral stakeholder bound only by the parties' original instructions.
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