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Escrow Holder Liability Theories An escrow holder is typically able to be held liable on theories of: breach of contract, general negligence, and breach of fiduciary duty, among others which will not be discussed herein. Talkov Law, however, does have a stable of attorneys ready to assist with any other potential theories of liability which ... Read...

Escrow Holder Liability Theories

An escrow holder is typically able to be held liable on theories of: breach of contract, general negligence, and breach of fiduciary duty, among others which will not be discussed herein. Talkov Law, however, does have a stable of attorneys ready to assist with any other potential theories of liability which may apply to your specific situation.

Escrow Holder Liability – Breach of Contract

An escrow holder is under an obligation to comply with the instructions of the parties privy to the escrow agreement. An escrow holder’s failure to comply with the escrow agreement is liable to the parties for breach of contract.

Upon the escrow holder’s breach of an instruction that it has contracted to perform or of an implied promise arising out of the agreement with the buyer or seller, the injured party acquires a cause of action for breach of contract.

Amen v. Merced County Title Co. (1962) 58 Cal.2d 528, 532.

Damages recoverable from the breach of contract are typically limited to the harm proximately caused by the breach. See Cal. Civ. Code §3300; Alereza v. Chicago Title Co. (2016) 6 Cal.App.5th 551, 559.

Escrow Holder Liability – Negligence

In the context of an escrow agreement, an escrow holder is obligated to use the ordinary standard of skill, care, and/or diligence in carrying out its duties. Even further, an escrow holder is impliedly obligated to undertake all obligations normally undertaken by an escrow holder unless expressly excluded under the escrow agreement; and the escrow holder must use ordinary skill and diligence in carrying out these tasks. See Bruckman v. Parliament Escrow Corp. (1987) 190 Cal.App.3d 1051, 1057-58.

If the escrow holder negligently breaches its duty of care in handling to escrow agreement, the holder is liable for any foreseeable loss arising from its negligence. See Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 711; Virtanen v. O’Connell (2006) 140 Cal.App.4th 688, 703; Zang v. Northwestern Title Co. (1982) 190 Cal.App.3d 159, 165-66; and Spaziani v. Millar (1963) 215 Cal.App.2d 667, 682-83.

For example, if an escrow holder negligently fails to comply with written instructions or delivers documents without strict compliance wiht the terms of the escrow agreement, the escrow holder may be liable to the injured party to all damages proximately caused by the negligence. See Cal. Civ. Code § 3333; Prentice v. N. Am. Title Guaranty Corp., Alameda Div. (1963) 59 Cal.2d 618, 621; and Diaz v. United Cal. Bank (1977) 71 Cal.App.3d 161, 166-67.

Further, even if the escrow holder’s liability is not the sole cause of the damages suffered, it may still be held liable for negligence if the holder’s breach was a substantial factor in the harm experienced. See Bruckman, supra, (1987) 190 Cal.App.3d at 1057-58.

Escrow Holder Liability – Breach of Fiduciary Duty

An escrow holder’s fiduciary duties are typically limited to ensuring that it is in strict compliance with the terms of the escrow agreement and the instruction contained therein. See Tribeca Companies, LLC v. First Am. Title Ins. Co. (2015) 239 Cal.App.4th 1088, 1114. Thus, the damages which arise from a breach  of the escrow holder’s fiduciary duty are the same for the damages arising from the escrow holder’s breach of contract. See Summit Financial Holdings, Ltd., supra, (2002) 27 Cal.4th at 711.

Escrow Holder Liability – Damages Available

As discussed in each of the three instances of escrow holder liability immediately above, an escrow holder’s liability is limited to the actual damages proximately caused by its conduct. The injured party bears the burden of showing it suffered an injury proximately caused by the escrow holder conduct. See Garton v. Title Ins. & Trust Co. (1980) 106 Cal.App.3d 365, 381-82. Thus, even if the escrow holder negligently breached instructions in an escrow agreement, it is not liable to the party suing if the party suing did not suffer damages arising from the escrow holder’s conduct. See Campbell v. Scripps Bank (2000) 78 Cal.App.4th 1328.

Given the foregoing, I will now move to explain the types of remedies recoverable in certain actions when it is shown that damage has been suffered by the party bringing suit as a result of the escrow holder’s conduct.

Wrongful Delivery Remedy

An escrow holder who wrongfully delivers property previously in trust with the escrow holder, title to the property does not pass to the recipient, and the party entitled to receipt of the property may bring an action for recovery of property against the receiver. See Fesithamel v. Campbell (1921) 55 Cal.App. 774, 782. In bringing this action, the party harmed by the wrongful delivery may join the escrow holder as a co-defendant. See Law v. Title Guarantee & Trust Co. (1928) 91 Cal.App. 621, 628-30.

Typically, the injured party may pursue remedies against the escrow holder without first exhausting the remedies available to it as against the recipient. See Howe v. City Title Ins. Co (1967) 255 Cal.App.2d 85-86.

When a party to an escrow agreement loses property or an interest therin due to the escrow holder’s negligence or non-compliance with the terms/instructions in an escrow agreement, the damages available to the injured party are typically measured by the value of the wrongfully delivered property. See Lee v. Escrow Consultants, Inc. (1989) 210 Cal.App.3d 915, 921.

Availability of Attorney’s Fees – Tort of Another Doctrine Applicability in Escrow

Naturally, if a lawsuit does not arise from the escrow holder’s negligence, the escrow will not be liable for the attorney’s fees undertaken by the prosecuting party. See Flyer’s Body Shop Profit Sharing Plan v. Ticor Title Ins. Co. (1986) 185 Cal.App.3d 1149, 1155-57.

However, if a party to an escrow agreement is forced to file suit against a third party to protect its rights being injured by the conduct of an escrow holder, the escrow holder may be held liable for the attorney’s fees undertaken to enforce its rights injured as a proximate result of the escrow holder’s conduct. Id.

For example, if the party to the escrow agreement is forced to pursue a recovery remedy from the recipient of a piece of property wrongfully delivered by the escrow holder, the escrow holder’s conduct is a proximate cause of the need for the recovery action. As such, the escrow holder may be held liable for the attorney’s fees of the party to the escrow agreement undertaken to enforce its rights harmed as a proximate result of the escrow holder’s conduct. See Montgomery v. Bank of Am. Nat. Trust & Savings Ass’n (1948) 85 Cal.App.2d 559, 564.

Availability of Attorney’s Fees – Contractual Provisions in Escrow Agreements

If a contract calls for recovery of attorney’s fees, the right to recover attorney’s fees is reciprocal such that: “if a contract gives on party the right to recover attorney fees in an action arising out of the contract, the other party is also entitled to [attorney] fees [if it prevails.]” Int’l Billing Services, Inc. v. Emigh (2000) 84 Cal.App.4th 1175, 1182. This is known as the mutuality requirement of attorney fees provisions.

Further, in order to ensure full mutuality of attorney fees provisions in contracts, the scope of the attorney fees provision will cover ALL disputes arising out of the contract, even if the contract purports to limit the availability of fees to one type of action. Cal. Civ. Code § 1717.

Availability of Attorney’s Fees – Breach of Fiduciary Duty

As discussed above, in the context of an breach of fiduciary duty by an escrow holder, the fiduciary breach is made pursuant to the breach of the contractual terms giving rise to the fiduciary duties held by the escrow holder toward the party to the escrow. Thus, claims for breach of fiduciary duties may still fall within the attorneys’ fees clause in a escrow agreement if the damages arise from the obligations owed by the escrow holder under the contract giving rise to its fiduciary duties. See Kangarlou v. Progressive Title Co., Inc. (2005) 128 Cal.App.4th 1174, 1178-79.

Escrow Holder Liability for Punitive Damages

Typically, negligence (even gross negligence) is not sufficient to justify the award of punitive damages against an escrow holder. An escrow holder may be liable for punitive damages if its conduct provides clear and convincing evidence of fraud, malice, or oppression pursuant to California Civil Code § 3294.

Statute of Limitations to Bring an Action Against an Escrow Holder

When a claim is brought pursuant to a written agreement, the statute of limitations against the escrow holder is four years from the date of the breach. Cal. Code Civ. Proc. § 337. If the claim is brought pursuant to an oral agreement, the statute of limitations is two years from the date of the breach. See Roberts v. Carter & Potruch (1956) 140 Cal.App. 2d 370, 373.

Contact and Experienced Business and Real Estate Attorney in Los Angeles, Orange County, San Diego, Riverside, Palm Springs, San Bernardino, & Silicon Valley

If you believe you have been wronged by an escrow holder, it would serve you well to contact an experience business and real estate attorney today in order to discuss your rights.

Many parties use Code of Civil Procedure Section 998 offers to shift which party will be determined the prevailing party supposing the plaintiff wins less than was offered by the defendant in the § 998 offer. However, parties should carefully consider their options and § 998 offer strategies to attempt to produce a favorable outcome. ... Read...

Many parties use Code of Civil Procedure Section 998 offers to shift which party will be determined the prevailing party supposing the plaintiff wins less than was offered by the defendant in the § 998 offer. However, parties should carefully consider their options and § 998 offer strategies to attempt to produce a favorable outcome. As explained below, it may be wise to consider whether § 998 offers to be inclusive of attorneys’ fees given the calculation of “costs” following a judgment.

Why are 998 Offer Strategies Important?

Strategizing a good 998 offer is important because the terms of a 998 offer may determine who the court considers the “prevailing party.”

A Court Considering the Prevailing Party will Compare the Defendant’s 998 Offer with Plaintiff’s Judgment Plus Plaintiff’s Pre-Offer Costs

When a court determines which party received a “more favorable” judgment than a previously made offer, the court will first add certain costs to the judgment. When a judgment is being compared to an offer made by a defendant, the court will only consider those costs which were incurred by the plaintiff prior to the date the §998 offer was made.

“Costs”, if available by contract or statute, include reasonable attorney fees incurred by each party. (Code Civ. Proc. § 1032 (b)) The plaintiff’s pre-offer attorney costs (and other reasonable costs incurred) are added to its final judgment and compared against the defendant’s §998 offer to determine whether it was “more favorable” than the settlement offer. If a plaintiff rejects a reasonable §998 offer and fails to achieve a “more favorable” judgment, the plaintiff’s judgment, plus pre-offer costs, are offset by the defendant’s costs including attorney fees. (Code Civ. Proc. § 998 (c)(1))

Should Attorneys’ Fees be Included in a § 998 Offer?

A § 998 Offer can be strategically used to cap a plaintiff’s attorneys’ fees. In matters in which attorney fees are recoverable, a defendant may choose whether to (1) have both parties bear their own costs and attorneys’ fees; (2) include the plaintiff’s costs and attorney fees as part of its offer; or (3) “plus costs and attorneys’ fees.” (See Judicial Council form (CIV-090) for options under paragraph 2, section a, subsections (1)- (5)).

§ 998 Offer  “For $X Including Costs and Attorneys’ Fees”

When an offer includes costs and attorneys’ fees, it means that the amount offered is inclusive and will cap the attorneys’ fees to be included in the monetary amount offered. The benefit to including attorneys fees in an offer is that if a plaintiff accepts, the plaintiff’s entire recovery is capped and the amount shall be known at the time of acceptance. However, if the defendant includes the attorneys’ fees, the defendant risks the chance that the plaintiff will receive a judgment lower than the § 998 amount, but still exceed the defendant’s § 998 offer with the addition of attorney fees. If plaintiff rejects the offer and wins a judgment, there is a risk that the plaintiff may artificially inflate its attorneys’ fees to beat the 998 offer.

The following is provided as an example:

Scenario: The defendant offers the plaintiff $100,000 “including attorneys’ fees.” The plaintiff rejects the offer and continues to trial, receiving a judgment in the amount of $90,000. The plaintiff then argues for, and is granted, $40,000 in costs, including attorney fees. $15,000 worth of attorneys’ fees incurred prior to the defendant’s §998 offer.

Outcome: The total amount the plaintiff received (including the judgment and pre-offer costs and attorney fees) amounts to $105,000. Therefore, the plaintiff’s $105,000 judgment has beaten the defendant’s §998 offer of $100,000. Accordingly, the plaintiff is entitled to not only the $90,000 judgment but also the entirety of the $40,000 of costs. The plaintiff is then entitled to a total of $130,000.

§ 998 Offer  “For $X Plus Costs and Attorneys’ Fees”

A second option for defendants wishing to cap a plaintiff’s attorney fees is to offer a §998 “plus attorney fees.” That means that if the plaintiff rejects the offer, it must win a monetary judgment that is greater than the § 998 offer, excluding the attorneys’ fees. The benefit of this option is that it prevents a plaintiff from exceeding a § 998 by adding on attorney fees, like in the example above. The negative of this option is that it risks the possibility that the plaintiff will accept the §998 offer for a nominal sum, but recover greater attorney fees than anticipated. The following example shows the benefits to a defendant who uses this method:

Scenario: The defendant offers the plaintiff $100,000 “plus attorney fees.” The plaintiff then rejects that offer and continues to trial, receiving a $90,000 judgment. The plaintiff then argues for, and is granted $40,000 in costs, including attorney fees. $15,000 of those attorneys’ fees incurred before the defendant’s §998 offer.

Outcome: Because the plaintiff was awarded $90,000, “plus attorney fees,” it failed to obtain a more favorable judgment than the defendant’s offer of $100,000 “plus attorney fees.”

Since the plaintiff failed to obtain a more favorable judgment, he or she is subject to statutory penalties:

California Code of Civil Procedure section 998 (c)(1) provides:

(c)(1) If an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the plaintiff shall not recover his or her postoffer costs and shall pay the defendant’s costs from the time of the offer. In addition, in any action or proceeding other than an eminent domain action, the court or arbitrator, in its discretion, may require the plaintiff to pay a reasonable sum to cover postoffer costs of the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the defendant.

California Code of Civil Procedure section 998 (e) further provides:

(e) If an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the costs under this section, from the time of the offer, shall be deducted from any damages awarded in favor of the plaintiff. If the costs awarded under this section exceed the amount of the damages awarded to the plaintiff the net amount shall be awarded to the defendant and judgment or award shall be entered accordingly.

Accordingly, the plaintiff cannot recover the $25,000 worth of post-offer costs and attorney fees. In addition, the plaintiff’s $105,000 recovery (judgment plus pre-offer costs) is reduced by the defendant’s costs and attorney fees. Plaintiff’s recovery is severely reduced, and if the defendant’s costs exceed the plaintiff’s recovery, the defendant could receive a judgment against the plaintiff for his or her costs!

By including “plus attorneys’ fees” rather than “including attorneys’ fees” in the § 998 offer, the defendant prevailed by forcing the plaintiff to beat its offer purely on the monetary judgment, without regard for attorneys’ fees.

What Is a Section 998 Offer? A § 998 offer is a statutory offer to compromise developed with the goal of encouraging settlement between parties. A § 998 offer is a reasonable, good faith offer proposed by either the defendant or the plaintiff. A § 998 offer shifts costs to the other party so the ... Read...

What Is a Section 998 Offer?

A § 998 offer is a statutory offer to compromise developed with the goal of encouraging settlement between parties. A § 998 offer is a reasonable, good faith offer proposed by either the defendant or the plaintiff. A § 998 offer shifts costs to the other party so the prevailing party can recover certain costs from the losing party. This encourages both parties to evaluate the value of the case one last time before it goes to trial. Courts want to encourage settlements outside of the courtroom as much as possible, and a § 998 offer is an effective tool that could be beneficial to both parties.

Why Would I Want a Section 998 Offer?

In many cases, making a § 998 offer saves time, money, and hassle for everyone. It can help cut the legal process short and gives the other party a financial incentive to resolve things quickly and easily.

Also, because a § 998 offer shifts one party’s costs to the other party, it encourages all parties involved to think more carefully about the circumstances they’re facing. It causes the other side to reconsider the value of the case before proceeding to trial.

What Are the Elements of a 998 Offer?

To correctly make a § 998 offer, there are several required elements:

• Must be in writing and include a statement with the terms and conditions of the award
• The offer must specifically name CCP § 998
• The offer must include a provision that allows the accepting party to indicate acceptance by signing a statement that the offer is accepted.

There are several limitations to a § 998 offer:

• Cannot require release of all other potential claims against defendant (i.e. you cannot include release of liens)
• Court must be able to assign monetary value to the 998 offer. “To trigger the potential § 998 penalties, the terms and conditions must be sufficiently certain to be capable of valuation. Otherwise, it may not be possible to determine whether any recovery at trial is ‘more favorable.’”
  Po-Jen Chen v. Interinsurance Exch. of Auto. Club (2008) 164 Cal. App. 4th 117, 121.
• § 998 offers do not apply to eminent domain actions

Rather than drafting a § 998 Offer from scratch, you may use the following § 998 Offer Sample Judicial Council form (CIV-090) provided on the California Courts website and simply fill in the blanks. Use of the Judicial Council Form is not mandatory.

When Can I Make a 998 Offer?

California Code of Civil Procedure § 998 (b) provides that either party may make an offer at least 10 days before the commencement of trial or arbitration.

How do I accept a 998 offer?

Any acceptance of the offer, whether made on the document containing the offer or on a separate document of acceptance, shall be in writing and shall be signed by the accepting party’s attorney or by the accepting party. (Code Civ. Proc. § 998 (b))

For the offer to be valid, it must be accepted within 30 days, or before arbitration and trial, whichever occurs first. Otherwise, it is considered rejected. It can be revoked in writing within the 30 day period or at the start of arbitration or trial

What Can I Sue a Trustee For? Various issues can arise when choosing, drafting, or funding a trust. Knowing the duties and of both the trustee and the beneficiary is an important step to better understanding the complicated nature of wills and trusts. We highly recommend you consult with an experienced trust & estate attorney ... Read...

What Can I Sue a Trustee For?

Various issues can arise when choosing, drafting, or funding a trust. Knowing the duties and of both the trustee and the beneficiary is an important step to better understanding the complicated nature of wills and trusts. We highly recommend you consult with an experienced trust & estate attorney who can help you draft or enforce a will or trust.

A trustee is a fiduciary appointed to fulfill the requirements of a trust. If a trustee does not abide by trust instructions or their legal obligations, probate litigation can be used to suspend, remove, replace, and recover damages from the trustee. Cal. Prob. Code, §16420.

What is a Trust?

Trust Definition: A trust is created by a person (trustor) who transfers property to a third party (trustee) for the benefit of chosen persons (beneficiaries). The trustee holds and administers the property for the benefit of the beneficiaries.

What is a Trustee?

Trustee Definition: The Trustee is the person named to manage the assets within the trust. The Trustee is the legal owner of all trust assets.

What is a Beneficiary or Heir?

Beneficiary or Heir Definition: Beneficiaries or heirs are those that are set to receive assets from the trust. Typically, family members, friends, and charities are the beneficiaries or heirs of trusts.

What is the Standard of Care of a Trustee?

Standard of Care Definition: A trustee must administer a trust with reasonable care, skill, and caution that a prudent person would exercise to accomplish the goal(s) of a trust. Cal. Prob. Code, §16040. Trustees that have a special skill (i.e. expert in investing) are required to use those skills in administering their trustee duties. Cal. Prob. Code, §16014.

What Duties Does a Trustee Owe a Beneficiary?

Adherence to Trust Language

A Trustee must execute the terms of a trust. Cal. Prob. Code, §16000.

Duty of Loyalty

A trustee must act impartially between beneficiaries. Unless specified in the trust terms, a trustee may not favor a beneficiary or class of beneficiaries. Cal. Prob. Code, §16003.

Further, a trustee must act in the best interest of the beneficiaries and must administer the trust with the sole purpose being to benefit the beneficiaries. Cal. Prob. Code, §16002.

A trustee must not engage in self-dealing and must avoid conflicts of interest. Self-dealing is present when a trustee prefers one beneficiary they like (i.e., their own child) over another, or when a trustee sells trust property to their own family member etc. Cal. Prob. Code, §16004.

What Happens When a Trustee Breaches Their Duty of Loyalty?

If the breach of duty of loyalty resulted in a loss to the trust, the trustee must make good the loss by paying for it out of their own pocket. If the trustee makes a profit from their breach, then the trustee is considered a constructive trustee and must turn over those profits to the intended beneficiary of the trust. Cal. Prob. Code, §16440.

Duty of impartiality

A trustee cannot favor one beneficiary over others. Cal. Prob. Code, §16003.

Duty to invest

In California, a trustee is subject to the Uniform Prudent Investor Act which holds a trustee must manage and invest trust assets as a prudent investor. In doing so, a trustee can consider the purpose and terms of the trust. Cal. Prob. Code, §16047.

Under the Uniform Prudent Investor Act, each individual investment is not scrutinized, rather, the entire trust portfolio is evaluated.

Unless the trust states otherwise, the trustee has a duty to invest trust property, preserve it, and make it productive.  Cal. Prob. Code, §§16006–16007.

Duty to Diversify

A trustee has a duty to diversity trust investments unless the terms of the trust say otherwise. Cal. Prob. Code, §§16046(b), 16048.

Subject to the terms and intent of the trust, the trustee has a duty to make the trust property as productive as possible. Cal. Prob. Code, §§16007, 16046(b).

Duty to Earmark

A trustee must label trust property as trust property (i.e., Jim Halpert as Trustee of John Doe’s Revocable Living Trust). Importantly, if there is a failure to earmark, and that failure results in a loss to the trust, the trustee is held personally liable. Cal. Prob. Code, §16009.

Duty to Segregate

A Trustee cannot comingle their own personal funds with trust funds nor may a trustee comingle funds from one trust with funds from another. Cal. Prob. Code, §16009. If a Trustee breaches this duty, the trustee may be removed from their position and be held personally liable for any loss.

Duty not to Delegate

A trustee has a duty not to delegate their powers (even to another trustee). However, a trustee may delegate their duty to invest. Moreover, a trustee may rely on professional advisors in making a decision. Cal. Prob. Code, §16052.

Duty to Account

The duty to account requires the trustee, on a regular basis (annually, at trust termination, change of trustee), to give beneficiaries a statement of income and expenses of the trust. Cal. Prob. Code, §16062. If a trustee fails to do so, beneficiaries may file an action for accounting.

The trustee must keep beneficiaries reasonably informed about the trust and its administration. Cal. Prob. Code, §16060.

Duty of Disclosure

A trustee must keep trust beneficiaries reasonably informed and disclose all material facts necessary to protect the beneficiary’s interests in the trust. Cal. Prob. Code, §16060.

Contact an Experienced Attorney in Los Angeles, Orange County, San Diego, Riverside, Palm Springs, San Bernardino, & Silicon Valley

We highly recommend you consult an experienced California trust, estate, and probate attorney. For a free consultation, contact the attorneys at Talkov Law at (844) 4-TALKOV (825568) or info(at)talkovlaw.com.

Receivers & Referees in Partition of Real Estate Owned by Tenants in Common and Joint Tenants When in a dispute with a co-owner of a piece of real estate, each co-owner has an absolute right to file an action to partition the property. We have posted a free form complaint to file in a partition ... Read...

Receivers & Referees in Partition of Real Estate Owned by Tenants in Common and Joint Tenants

When in a dispute with a co-owner of a piece of real estate, each co-owner has an absolute right to file an action to partition the property. We have posted a free form complaint to file in a partition action.

Using this form may help lower the costs associated with a partition action. As an aside, costs of a partition action may be subject to offsets arising from one co-owner’s undertaking of certain expenses. Costs recoverable potentially include attorney’s fees. However, when using this form, it is always prudent to consult with an experienced real estate attorney to ensure compliance with applicable laws.

Further, there is a requirement to promptly file a lis pendens (or notice of pendency of action). Among other potential issues, if improperly filed, the lis pendens may be subject to expungement. To ensure you have properly filed the lis pendens, consult this free checklist.

The court must then decide whether a partition action should proceed in-kind or by sale. There are three tricks to use to help win a partition action, as well.

Given all of the issues arising in a partition action, it is prudent for a co-owner to do all that she can to protect the property while the partition is pending or after the judgment ordering a partition is entered. The question becomes: what is the best way to protect my property?

In short, the most efficient way to protect a piece of property subject to partition is to have a referee appointed under Code of Civil Procedure section 873.010(a) providing that: “The court shall appoint a referee to divide or sell the property as ordered by the court.”

Alternatively, a receiver can be appointed, with Section 564(b)(9) of the California Code of Civil Procedure noting that a receiver may be appointed: “In all … cases where necessary to preserve the property or rights of any party.” A partition action is one of these actions where a receiver may be deemed “necessary to preserve the property.”

When is a Receiver or Referee Appointed to Partition of Real Estate?

Section 564(a) of the Code of Civil Procedure notes that a court may appoint a receiver during the pendency of the proceeding in which a receiver is required. California cases affirm the court’s ability to appoint a receiver during the pending litigation. See Chalta v. Biller (1931) 212 Cal. 745, 747. “The following applicable rules of law on the merits of the case are settled: A superior court has jurisdiction to appoint a receiver as an ancillary remedy in an action for partition of real property between tenants in common.” Lent v. H.C. Morris Co. (1938) 25 Cal.App.2d 305, 307. “The superior court has jurisdiction to appoint a receiver as an ancillary remedy in an action for partition of real property among tenants in common and should do so when the circumstances require it.” Blodgett v. Haddock (1949) 95 Cal.App.2d 17, 18. Generally, the court is required to appoint a referee to market and sell the property. Code Civ. Proc. § 873.010(a).

Referees & Receivers – What Do They Do?

Generally, a receiver or referee is a neutral third party who is appointed to preserve a piece of property and any person’s rights in the property pending a judgment in the outstanding litigation. See Cal. Rules of Court Rule 3.1179; Code Civ. Proc. § 564.  Indeed, a partition referee is prohibited from having a relationship with the the judge or the court. Code Civ. Proc. § 873.050.

A receiver is an officer or representative of the court, appointed to take the charge and management of property which is the subject of litigation before it, for the purpose of its preservation and ultimate disposition according to the final judgment therein.” Kreling v. Kreling (1897) 118 Cal. 421, 422.

This makes clear that a receiver or referee is not an agent of either of the parties of the subject litigation, but acts as a fiduciary with the duty to protect the interests of both parties to the litigation if appointed during the proceeding. See Cal. Rules of Court Rule 3.1179; Shannon v. Sup. Ct. (1990) 217 Cal.App.3d 986, 992-93; Security Pacific Nat’l Bank v. Geernaert (1988) 199 Cal.App.3d 1425, 1431-32; Maggiora v. Palo Alto Inn, Inc. (1967) 249 Cal.App.2d 706, 712. Given that the receiver is appointed to uphold its fiduciary duty to protect the interests of the co-owners of the subject property, it necessarily follows that a receiver has a duty to act as a prudent  owner would with respect to her own property. See Vitug v. Griffin (1989) 214 Cal.App.3d 488, 496.

The partition laws even provide that: “The referee may perform any acts necessary to exercise the authority conferred by this title or by order of the court.” Code Civ. Proc. § 873.060. Many times, a partition referee may be given authority to change the locks if a co-tenant or occupant is uncooperative, make repairs, or hire professionals to maintain the property.

Appointing a Referee to Carry Out Partition In Kind

If, pursuant to an interlocutory judgment, a court orders a partition to ensue “in-kind” (i.e., physical division of the property rather than a sale of the property and split of the proceeds from sale), a referee may be appointed to divide the property according to the court’s instruction. Code Civ. Proc. § 873.210. Subject to court approval, the referee is entitled to engage attorneys, brokers, and other agents to carry out the referee’s duties. Code Civ. Proc. § 873.110 et seq.

Appointing a Referee to Carry Out Partition by Sale

If a court orders a property partitioned by sale (i.e. sell the property and proceeds of sale are split between co-owners subject to partition action), a court may appoint a referee to carry out the sale pursuant to Code Civ. Proc. § 873.510. The court often refers to the referee to determine whether to sell the property by public auction or by private sale. Code Civ. Proc. § 873.610.

In order to follow through with the sale of the property subject to partition by sale, the referee must provide a report of the sale to the court including items required pursuant to Code Civ. Proc. § 873.710. Only upon court approval will the sale by a referee be deemed as final; a motion to confirm or set aside the sale may be made by the purchaser, a party to the partition, or the referee herself. Code Civ. Proc. § 873.720.

At this hearing, the court may confirm the sale, vacate the sale, or allow higher bids for the purchase of the partitioned property. Code Civ. Proc. §§ 873.730, 873.740.

How Does a Partition Referee Get Paid?

Typically, referees are paid on an hourly basis. This will be paid by the parties to the parition action should the partition proceed as an “in-kind” division of the property.

If the partition is orderd by sale, the costs of sale including the referee’s fees will be paid out of the proceeds of the sale. Code Civ. Proc. § 873.820.

Contact an Experienced Real Estate Partition Attorney in Los Angeles, Orange County, San Diego, Riverside, Palm Springs, San Bernardino, & Silicon Valley Today

Given the complexities associated with filing a partition action generally, and the complexities of getting a receiver appointed to protect your interest in a given piece of property, it would serve a potential litigant well to contact an experience real estate attorney to discuss the particulars of their case.

What is Escrow? What is an Escrow Account? Escrow disputes may arise in a real estate or business context. One typical area where escrow is used and may be the source of litigation is in the course of a purchase and sale. Escrow disputes are one of many potential issues which may arise in the ... Read...

What is Escrow? What is an Escrow Account?

Escrow disputes may arise in a real estate or business context. One typical area where escrow is used and may be the source of litigation is in the course of a purchase and sale. Escrow disputes are one of many potential issues which may arise in the purchase of real property, generally, or in the bankruptcy context. Thus, it is important to understand what escrow is in order to properly describe the potential liability of an escrow holder to third parties.

The definition of escrow or an escrow account is provided in the California Civil Code.

A grant may be deposited by the grantor with a third person to be delivered on performance of a condition, and, on delivery by the depositary, it will take effect. While in the possession of the third person, and subject to condition, it is called an escrow.

Cal. Civ. Code § 1057.

Escrow has also been defined in California case law.

An escrow involves the deposit of documents and/or money with a third party to be delivered on the occurrense of some condition.

Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 711.

As if these two sources did not clear up the issue enough, the term escrow is also defined in California’s Financial Code.

‘Escrow’ means any transaction in which one person, for the purpose of effecting the sale, transfer, encumbering, or leasing of real or personal property to another person, delivers any written instrument, money, evidence of title to real or personal property, or other thing of value to a third person to be held by that third person until the happening of a specified event or the performance of a prescribed condition, when it is then to be delivered by that third person to a grantee, grantor, promisee, promisor, obligee, obligor, bailee, bailor, or any agent or employee of any of the latter.

Cal. Fin. Code § 17003(a).

Escrow Holder Liability

Given the obligations created by the creation of an escrow account, the escrow holder’s liability is typically limited to the parties to the agreement under which the escrow holder is granted possession of the material in the account.

An escrow holder is an agent and fiduciary of the parties to the escrow. The agency created by the escrow is limited – limited to the obligation of the escrow holder to carry out the instructions of each of the parties to the escrow.

Markowitz v. Fidelity Nat. Title Co. (2006) 142 Cal.App.4th 508, 526.

In limited cases, however, an escrow holder may be liable for damages suffered by a person who is not a party to the escrow.

Escrow Holder Liability to Third Parties Based on Direct Contract

There are situations where escrow instructions directing the escrow holder to comply with instructions provided by a third party not in privity with the escrow agreement. Thus, when an escrow holder agrees to abide by a third party’s instructions, the escrow holder has entered into a separate contract binding it to comply with the third party instructions, or face being held liable to the third party. The two most common instances of this third party liability arise when an escrow holder enters into a contract with a lender or enters into a contract with a creditor of one of the parties to the escrow.

Escrow Holder Liability to Third Party Lenders

It is not uncommon for third party lenders to provide closing instructions to an escrow holder that provide the conditions upon which the lender will fund the escrowed transaction. See Plaza Home Mortgage, Inc. v. N. Am. Title Co. (2010) 184 Cal.App.4th 130, 136.

Recently, a lender sued an escrow holder for failing to comply with the lender’s closing instructions when disbursing the loan proceeds in connection with the sale of a business. Money Store Investment Corp. v. Southern Cal.  Bank (2002) 98 Cal.App.4th 722. The court held that when the escrow holder and lender exhibited mutual consent to the lender’s closing conditions, a contract was created between the escrow holder and lender allowing the court to impose liability on the escrow holder for damages suffered by the lender arising from the escrow holder’s breach of that contract. Id. at 728.

Escrow Holder Liability to Third Party Creditors of a Party to the Escrow

An escrow holder may also agree with a party to the escrow and a creditor of that party to the third party creditor with the proceeds held in the escrow. When the escrow holder enters into an agreement such as this one, the escrow holder is obligated to disburse the funds in accordance with the agreement. By agreeing with the party to the escrow and its third party creditor, the escrow holder becomes a party to a new contract with the party’s creditor, subjecting the escrow holder to typical contractual duties owed to the third party creditor. Thus, an escrow holder may be liable to breach of contract to this third party creditor. See Warrington Lumber Co. V. Fullerton Mortgage & Escrow Co. (1963) 222 Cal.App.2d 706, 710-11.

Escrow Holder Liability to Third Parties Based on Equitable Estoppel

An escrow holder may also face liability to third parties unassociated with the escrow agreement when the formal elements of contract are not met. If the third party relies on the escrow agreement to its detriment, the escrow holder may be held liable to the third party who detrimentally relies on the escrow agreement.

For example, a recent California case gave rise to a third  party’s recovery from an escrow holder based on equitable estoppel. Feinberg v. Intrastate Escrow Corp. (1963) 216 Cal.App.2d 80, 82-84. In that case, the escrow holder knew of the creditor’s reliance on an original escrow agreement by refraining from attaching property in reliance on the escrow agreement’s instructions to pay the creditor with the proceeds of a sale. Id. The party to the escrow agreement then entered into a new agreement with the escrow holder whereby the escrow holder would provide all proceeds to the party, and leave the creditor with no assets to collect a debt from. Id. 

Because the escrow holder knew of the creditor’s detrimental reliance on the original agreement, the escrow holder was able to be held liable for the damages suffered by the third party creditor arising from the party to the escrow’s fraudulent conduct in which the escrow holder was compliant. Id.

Escrow Holder Liability to Third Parties Based on Implied Contractual Indemnity

A third party may recover from an escrow holder may arise from an escrow holder’s breach of an obligation to a party to the escrow which would indemnify that party from liability for the escrow holder’s failure to comply with its obligations. This recovery would be based on a theory of implied contractual indemnity.

A recent California case provides an example of an escrow holder’s liability to a third party based on implied contractual indemnity. Bear Creek Planning Com. v. Title Ins. & Trust Co. (1985) 164 Cal.App.3d 1227, 1236-39 (disapproved of on other grounds by Bay Dev. Ltd. v. Sup. Ct (1990) 50 Cal.3d 1012).

In Bear Creek, the escrow holder failed to comply with instructions in the escrow agreement obligating the escrow holder to properly record covenants, conditions, and restriction on all four units in a certain subdivision. Id. The homeowners association of the recent development disallowed construction for a buyer who proposed a development which would have been in violation of the covenants if they had been recorded by the escrow holder. Id. The homeowners association was sued for slander of title (as an aside, when filing a quiet title action, it is necessary to file a lis pendens (notice of pendency of action) concurrently with the complaint for quiet title) due to its recordation of a notice of violations against the buyer. Id. 

The escrow holder was held to be liable for the foreseeable damages suffered by the homeowners association incurred in an attempt to enforce the covenants which would have been recorded if the escrow holder had complied with the escrow agreement. Id. Thus the association was awarded a judgment for fees and costs associated with defending the suit brought after the escrow holder’s failure to comply with the escrow agreement. Id.

Escrow Holder’s Liability to Third Party Broker

An escrow agreement may provde instructions to the escrow holder to disburse some proceeds derived from the sale of property to pay a broker’s commission. Generally, because a broker is not a party to the escrow agreement, the seller of a property may always amend the instructions to cut the broker out of the proceeds held in escrow. If the seller does so, the  escrow holder does not have liability to the broker for following the seller’s instructions and failing to disburse the commission to the broker. See Contemporary Investments, Inc. v. Safeco Title Ins. Co. (1983) 145 Cal.App.3d 999, 1003,04 (holding that becayse broker was not party to an escrow, an escrow holder has to follow instructions of the parties to the escrow which were amended by the seller to revoke the order to pay the commission of the broker from the proceeds of the sale).

Escrow Holder’s Liability to Third Parties Based on General Negligence Law

Generally, as with all other tort law, an escrow holder must owe some sort of duty of care to the third party trying to hold the escrow holder liable under general negligance law. See Paz v. State of Cal. (2000) 22 Cal.4th 550, 559. An escrow holder generally does not owe a duty of care to third parties not privy to the escrow agreement. See Summit Financial Holdings, Ltd., supra, (2002) 27 Cal.4th at 716.

The determination whether in a specific case the defendant will be held liable to a third person not in privity it a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendants’s conduct and the injury suffered, the moral blame attached to the defendant’s conduct, and the policy of preventing future harm.

Biankanja v. Irving (1958) 49 Cal.2d 647, 650.

Thus, if on balance, the brunt of these factors weigh in favor of holding the escrow holder liable to a third party under the general principles of negligent tort law, a court may hold the escrow holder liable.

Contact an Experienced Business and Real Estate Attorney in Los Angeles, Orange County, San Diego, Riverside, Palm Springs, San Bernardino, & Silicon Valley

Given the ability of third parties to hold an escrow holder liable, it would serve an escrow holder or third party well to contact an experienced business and real estate attorney to talk through the specifics of their dispute and their likelihood of recovery or liability.

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