A written instrument temporarily deposited with a neutral third party by the agreement of two parties to a valid contract is an escrow. The third party with whom the document is deposited is known as an escrow agent or depositary. The escrow agent will deliver the document to the benefited party when the conditions of the contract have been met. An essential element in an escrow arrangement is the deposit of escrowed property with a depositor. A depositor is not a party to an escrow. S/he is a stranger to the instrument.
Where one delivers property to another to be delivered to a third person upon the performance or act by such third person, there is no escrow. In such a case, the intermediary is an agent whose power can be revoked or changed at the will of the person appointing him/her[i]. A depositary is free from any personal or legal identity with the parties to the instrument. A depositary is to discharge his/her duties without a breach of duty to both parties to the contract.
A depositary is appointed as an escrow agent by mutual agreement between the grantor and the grantee. A depositary is an agent of both the parties. S/he cannot act as an agent solely to one party. In every case of an escrow there is a contract and privity between the grantor and grantee. The person to whom the deed is delivered is constituted as the agent of both parties by a mutual agreement[ii]. However, the deposit of instruments cannot be made with a person, who is an agent of either of the parties to the instrument. When a depositary is an agent of a grantor, the instrument will be retained with the grantor. And when the depositary is an agent of grantee, there is a delivery of the instrument. A depositary is considered a trustee of an express trust. The delivering of escrow property to an agent of either party to the agreement will defeat the very purpose of escrow. However, an attorney of a grantor can act as the depositary of the escrow provided[iii]:
- there is no violation of his/ her duty; and
- the person acts not as an agent, but as an independent individual.
[i] King v. First Nat’l Bank, 647 P.2d 596 (Alaska 1982).
[ii] Fickling & Walker Co. v. Giddens Constr. Co., 258 Ga. 891, 896 (Ga. 1989).
[iii] Gronewold v. Gronewold, 304 Ill. 11 (Ill. 1922).