Common Law Escrow Duties and Liabilities (part 2)

Duty to comply with the escrow instructions
An escrow agent must comply strictly with the escrow instructions. Styrk v. Cornerstone Inv., Inc., 61 Wn. App. 463, 472, 810 P.2d 1366 (1991); National Bank v. Equity Investors, 81 Wn.2d 886, 910, 506 P.2d 20 (1973). The escrow instructions are a contract between the principals to the escrow and the escrow agent, and the escrow instructions/contract can be written or oral. An oral contract arises if the terms of the escrow are not based upon a written instrument. Cf. Sanwick v. Puget Sound Title Ins. Co., 70 Wn.2d 438, 442 n.1, 442-43, 423 P.2d 624 (1967) (citing RCW 4.16.080(3)) (defendant alleged that the “3-year statute must apply” because the action for damages was not based on written instructions).
If the instructions are reduced to writing, the principals and the escrow agent enter a valid written contract even though the escrow instructions are signed by the principals and not by the escrow agent. See Sanwick, 70 Wn.2d at 443. When a dispute arises over the terms of that contract, the escrow instructions can be proved by parol evidence. See Lechner v. Halling, 35 Wn.2d 903, 913, 216 P.2d 179 (1950) (when there is conflict in the testimony about the parties’ understanding concerning the conditions of the escrow, oral testimony may be considered in attempting to resolve the conflict.).

Caveat: Escrow agents expose themselves to the risk of conflict when they accept funds deposited into escrow with no instructions or upon oral instructions alone. For example, both parties to a real estate transaction may claim entitlement to the funds in escrow if the transaction fails to close. Absent consistent instructions from both parties, the funds may not safely be disbursed, and obtaining consistent instructions may be difficult, if not impossible, after a dispute has arisen.

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