## Facts

- The Millers agreed to sell a Phoenix tavern interest to Mary E. Crouse, with attorney Harry E. Craig engaged to prepare closing documents and act as escrow agent.
- Crouse deposited $5,000 with Craig as earnest money to be held in escrow.
- The escrow instructions authorized only two dispositions: (1) apply the deposit to the purchase price at closing, or (2) release it to the Millers as liquidated damages upon Crouse’s default; no other disbursement authority was stated.
- Crouse sued the Millers for rescission and return of the deposit; the Millers counterclaimed for specific performance and damages.
- The trial court entered judgment stating Crouse could “recover of the defendants” $5,000, but it did not direct Craig to release the escrow funds or identify the escrowed deposit as the payment source.
- Without notifying or consulting the Millers, Craig paid the $5,000 to Crouse after Crouse’s counsel presented the judgment and demanded payment.
- The judgment in favor of Crouse was later reversed on appeal, and judgment was entered for the Millers for the amount of the earnest-money deposit.
- The Millers sued Craig for conversion and breach of fiduciary duty; the trial court granted summary judgment for Craig and denied the Millers’ cross-motion.

## Issues

1. Whether a judgment awarding the purchaser $5,000 against the sellers, without directing payment from a specific escrow fund or directing the escrow agent to act, authorized the escrow agent to disburse the escrowed deposit to the purchaser.
2. Whether the escrow agent’s unilateral disbursement of the deposit, contrary to escrow instructions and without the vendors’ consent, constituted breach of fiduciary duty and/or conversion.
3. Whether a contractual clause limiting the escrow agent’s liability for acts done with “reasonable prudence” barred liability for the unauthorized disbursement.

## Decision

- The Court of Appeals reversed the summary judgment for Craig.
- The court held the underlying judgment did not authorize disbursement of the escrowed funds because it did not direct payment from that fund or instruct Craig to release it.
- The court concluded Craig breached his duties as escrow agent by paying the deposit to Crouse without the Millers’ permission and contrary to the escrow instructions.
- The court remanded with directions to enter judgment for the Millers for $5,000.

## Legal Principles

- An escrow agent is a fiduciary and must strictly comply with the escrow instructions governing receipt and disbursement of escrowed property.
- A judgment between the contracting parties does not, by itself, modify escrow instructions or authorize an escrow agent to disburse funds contrary to those instructions unless the judgment expressly directs the agent to do so or identifies the escrowed fund as the source.
- Even if a trial court judgment is effective for many purposes pending appeal, an escrow agent may not rely on that fact to justify conduct that violates escrow duties.
- An exculpatory clause tied to “reasonable prudence” does not shield an escrow agent who disburses escrow funds in a manner not authorized by the escrow agreement.

## Conclusion

Because the escrow instructions did not permit payment of the earnest-money deposit to the buyer based solely on a judgment against the sellers, and the judgment did not direct disbursement of the escrow fund, the escrow agent’s unilateral release of the money to the buyer breached fiduciary duties and required entry of judgment for the sellers to recover the $5,000.


Miller v. Craig, 27 Ariz. App. 789, 558 P.2d 984 (Ct. App. 1976)