Security Trust Etc. Bank v. Carlsen

In substance my view is that the escrow agreement between the buyer and seller had been fully performed by the buyer Carlsen, and that inasmuch as he waived the condition respecting certificate of title to be furnished by the seller (a provision made for his own exclusive benefit) he thereby became entitled to delivery of the deed and other documents constituting the conveyance. If this position is sound, it necessarily follows that the escrow party was in law under the specific duty and obligation to make said delivery to said buyer. This obligation may not be cast upon the shoulders of another, not even the other party to the escrow. It is no concern of the other party. The conflict is between the purchaser and the escrow depositary.

Section 386 of the Code of Civil Procedure clearly does not apply to this situation. An escrow has been defined as follows: "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." (Sec. 1057, Civ. Code.) When the purchaser fully performed upon his part, according to the terms of the document, the depositary became a trustee for him. This principle was well expressed in the recent case of Law v. Title Guarantee TrustCo., 91 Cal.App. 621 [267 P. 565, 568], as follows:

"It will be observed that it is only while the instrument is subject to the conditions imposed that the deposit will be deemed to be an escrow. When the conditions upon which the deposit of the instrument have been fully performed, the relationship of the interested parties automatically changes and the depositary is then deemed to hold the instrument as a trustee for the party entitled thereto." The same principle is announced inFeisthamel v. Campbell, 55 Cal.App. 774 [205 P. 25]; also in Shreeves v. Pearson, 194 Cal. 699 [230 P. 448]. In 10 R.C.L., page 640, it is said: ". . . Upon the happening of the event or the performance of the condition upon which manual delivery should be made by the depositary to the grantee, although not in fact physically delivered to him, a deed theretofore in escrow becomes ipso facto the deed of the grantee in whom the title vests, and that thenceforth the depositary or holder is regarded as the mere agent or trustee of the grantee." (See, also, Wilson v. Coffey, 92 Cal.App. 343 [268 P. 408].)

It requires no extended citation of authority to show that the seller lost control of the documents by the deposit of them in escrow. A redelivery could not be compelled except upon failure of the purchaser to pay the purchase price specified, which is not and could not be claimed. (Cannon v. Handley, 72 Cal. 133, 139 [13 P. 315]; McDonald v. Huff, 77 Cal. 279, 282 [19 P. 499]; Bradbury v. Davenport 120 Cal. 152, 154 [52 P. 301]; Trask v. Garza, 51 Cal.App. 739, 743 [197 P. 807]; Law v. Title Guarantee Trust Co., supra.)

Clearly the complaint in Carlsen v. Security Trust SavingsBank, supra, stated a cause of action against the depositary for an alleged breach of duty to the plaintiff (Law v. TitleGuarantee Trust Co., supra; Vinson, Jones, etc., v. Pugh,172 N.C. 843 [90 S.E. 122]; Collins v. Kares, 46 S.D. 385 [193 N.W. 130]; Johnston Realty etc. Co. v. National CityBank, 95 Fla. 282 [116 So. 229]). Under these facts, upon what ground can it be contended that a bill of interpleader is allowable? Does there exist a defendant who would not want to shed his troubles on another by this method if it could be done? The case of Johnston Realty etc. Co. v. National City Bank,supra, is similar in facts and identical in principle with the case before us, and the court there said: "The bank seeking an interpleader has no ground for relief. It cannot cast upon the parties defendant the burden of settling the question of whether it had obligated itself to one of them. By declining to comply with its duty a situation afterwards arose which the bank now makes the occasion for its bill, but the bank had nothing to do with that controversy, even assuming that the question had been properly raised."

The other members of the court seem to base their holding almost entirely upon the wording of the escrow agreement appended to the original agreement of the parties, as follows: "No rescission of this escrow or modification of its terms or any notice or demand shall be of any effect without joint consent in writing, subscribed by the undersigned, and assented to by the bank." It is said that the seller wrote into that provision indemnity against his own failure to perform. I cannot attribute this weakness to it. Extended discussion would weaken and not clarify the answer to such a contention. Did the parties contract or was the seller guilty of a sham? In the first place, he only agreed to transfer all of his right, title, and interest, the legal equivalent of a quitclaim deed. Shall it be held that he did even less than this by ruling that he was always protected against any covenant on his own part? It seems self-evident that the contract should not be held to have been merely an idle act.

Importance also may have been attached to the provision that the bank should assent to any modification of the terms of the escrow. It seems too clear for argument that under said clause it is not a change or modification of the escrow for one party to waive a provision expressly intended for his sole benefit. In 13 C.J., p. 672, the law in this respect is stated as follows: "In general proof of the waiver of performance by the party who is entitled to insist on performance is tantamount to a performance. . . . A mere waiver of a condition in the contract does not amount to the substitution of a new contract. On the contrary, waiver of performance of a contract or extension of the time therefor, in the case of a condition precedent, is equivalent to the performance thereof at the stipulated time and leaves the original contract intact." (See, also, Barton v.Gray, 57 Mich. 622 [24 N.W. 638]; Leahy v. LuciusEngineering Co., 186 App. Div. 354 [174 N.Y. Supp. 310].)

It is my view that the petition for rehearing in this case should have been granted.

Rehearing in Bank denied.

Seawell, J., and Preston, J., dissented.