An escrow occurs when property is held by a third party until the occurrence of a predetermined event, at which time the third party delivers the property as instructed by the parties to the transaction. Thus, an escrow agent is the intermediary third-party depositary assisting the parties to the transaction. Escrows are used to ensure that the parties to the underlying transaction act as agreed upon. Because of the great trust that is afforded to escrow agents, they are held to a higher standard than the layperson. Escrow agents have fiduciary duties with which they must comply, namely, a duty of care, a duty of impartiality, a duty of loyalty, and a duty of full disclosure. The duty of care requires that the escrow agent act as a reasonable person would in those circumstances and that the escrow agent protect the property that is entrusted to them as if the property were their own. The duty of impartiality requires that the escrow agent act fairly and neutrally as between the principals. The duty of loyalty requires that the escrow agent act in the principals’ best interests. Finally, the duty of full disclosure requires that the escrow agent disclose all information that is material to the transaction to the principals in a timely manner.
It is not uncommon for an attorney to serve as escrow agent. However, that does not mean that an attorney who accepts property pursuant to a transaction between two or more other parties is necessarily acting as an escrow agent with regard to that transaction. While proving liability may be easier when there is an escrow in place, this option may not be available in the absence of a valid and binding escrow agreement. In fact, the parties to the transaction may be operating under the assumption that the attorney to whom they entrusted property is an escrow agent with regard to that transaction when that is not actually the case. Thus, it is important to know what constitutes a valid escrow before entrusting your property to another.
Under Florida law, the requirements for creating a valid escrow are very specific. First, an escrow agreement must be in writing. Shultz v. Sun Bank/Naples, N.A., 553 So. 2d 202 (Fla. 2d DCA 1989). The contents of the writing are equally specific. In this regard, to constitute a binding escrow, there must be an instrument embodying conditions mutually beneficial to both parties, agreed to by both parties, and it must be communicated to and deposited with a third party, which must not itself be involved in the transaction. Smith v. Macbeth, 119 Fla 796 (1935). Furthermore, the funds must be delivered to a third party, and the grantor and grantee must not have control over the funds in question at such time. Under an escrow, the property is to be kept by the depositary until the performance of a condition or the happening of a certain event, and then to be delivered over to the grantee, promisee, or obligee. That is, to constitute an instrument an escrow, it is necessary that some condition must have been stipulated to be performed by the grantees.
Furthermore, where there is an attorney-client relationship present, policy is to protect that relationship rather than find a fiduciary duty to a third party that conflicts with the attorney-client relationship. Thus, while an attorney can act as attorney and escrow agent in the same transaction, there must be an express and clear intention to create an escrow agreement present to find that an escrow was in fact created.