Opinion ID: 1404309
Heading Depth: 3
Heading Rank: 2

Heading: Contractual Duty of an Escrow Agent

Text: Ticor argues, however, that it is not required by law to take into consideration the meaning of the agreement between the parties but only to do that which it is instructed to do under the escrow agreement. This contention is refuted by the facts of the present case. The purchase contract and the escrow instructions were not intended to be discrete entities. Ticor itself drafted the escrow instructions on the basis of the purchase contract. The escrow instructions do not direct Ticor to record the Tower lien prior to the Burkons lien. Nor do the instructions require Ticor to record the subordination agreement. They do tell Ticor, instead, that Burkons is to have a first lien. It is only by reading all of the documents in escrow that Ticor could determine that the subordination agreement and the letter of intent it incorporated were to be recorded, and it was only by interpreting those documents that Ticor put the purchase money lien in second position to the Tower loan. Contrary to Ticor's fears, we do not impose on the escrow agent a new duty to review all documents deposited in escrow to determine that those documents are legally correct and effectuate the parties' subjective intentions. We rely instead on the old principle that an escrow agent which fails to follow the escrow instructions breaches its contract, and the parties to the escrow may recover all damages resulting from any deviation from the escrow instructions. Tucson Title Ins. Co. v. D'Ascoli, 94 Ariz. 230, 234, 383 P.2d 119, 121 (1963). Nor do we believe Arizona law recognizes Ticor's argument that the escrow agent can remain ignorant of the agreements between the parties and need only read the terms of the escrow instructions. The very case cited by Ticor stands for the opposite conclusion. In Shaheen v. American Title Insurance Co., the court held that the documents received in escrow  including the agreements between the parties  give the escrow agent implied authority and thus an instruction to act in a certain manner. 120 Ariz. 505, 507, 586 P.2d 1317, 1319 (Ct.App. 1978). We believe the true principle is that the escrow agent must be cognizant not only of the escrow instructions but of the provisions contained in the documents that are deposited in escrow. If there is a significant variance between the two, the escrow agent has a remedy. When the terms of the instruments, or any other fact known to the escrow agent, including the documents deposited in escrow, present an ambiguity of interpretation as to the intention of the parties, the agent has a duty to call its principal[s] for clarification. Gardenhire v. Phoenix Title & Trust Co., 11 Ariz. App. 557, 559, 466 P.2d 776, 778 (1970); Shaheen, 120 Ariz. at 509, 586 P.2d at 1321 (Eubank, J., dissenting). When the agent should realize the possibility of conflicting interpretations, ordinarily [it] is not authorized to act, since it would be [its] duty to communicate with the principal[s] and obtain more definite instructions. Gardenhire, 11 Ariz. App. at 559, 466 P.2d at 778 (quoting Restatement (Second) of Agency § 44 comment c); see also Cruikshank v. Horn, 386 N.W.2d 134, 137-38 (Iowa App. 1986). We conclude therefore, with the court of appeals, that the trial court erred in granting summary judgment on the counts alleging that Ticor breached its contractual obligations by recording the documents in such a manner as to put the Burkons purchase money lien in a subordinate position to the Tower loan. It is at least a question of fact as to whether the parties manifested an intention that the subordination agreement be conditional upon the use of the Tower loan proceeds for development of the property. If so, then the escrow agent was required to carry out that intent. If the facts known to the escrow agent showed the manifested intent was uncertain or ambiguous, the agent was obligated to require clarification before proceeding. Thus, unless it should be determined from the evidence that the parties intended to give the Tower lien unconditional priority, Ticor breached its contractual obligations by giving Tower priority without obtaining clarification before proceeding. In such an event, Ticor would be liable to Burkons for damages for breach of its contractual obligations as an escrow agent. [6]