What fiduciary duties do escrow agents owe when title issues arise? Cooper Enterprises v. Brighton Title Company Explained

Background and Facts

In Cooper Enterprises v. Brighton Title Company, Brighton Title served as both escrow agent and title insurance agent for a real estate transaction. Before accepting $100,000 in earnest money, Brighton discovered that the seller held only contractual rights to purchase the property, not fee title as represented. Brighton’s underwriter refused to issue title insurance, yet Brighton still accepted the earnest money from the buyer. When the buyer failed to deposit additional required funds by the deadline, Brighton released the initial deposit back to the buyer rather than to the seller as liquidated damages under the purchase contract.

Key Legal Issues

The case presented the question of an escrow agent’s fiduciary duties when the seller lacks actual title to the property. Brighton argued it had no duties to the seller in this split closing transaction and was not bound by the real estate purchase contract since it did not sign the agreement.

Court’s Analysis and Holding

The Utah Court of Appeals affirmed summary judgment for the seller, holding that Brighton breached its fiduciary duty. The court emphasized that escrow agents assume fiduciary duties to both parties when accepting funds for deposit. Brighton’s knowledge of title problems before accepting the earnest money did not excuse its duties. The court noted Brighton could have protected itself through tailored escrow instructions or by filing an interpleader action when competing demands arose.

Practice Implications

This decision reinforces that escrow agents cannot unilaterally resolve disputes over escrowed funds. When title complications arise, the proper course is interpleader rather than independent disbursement decisions. The ruling also clarifies that fiduciary duties arise from accepting funds and serving as escrow agent, regardless of which party’s title company is involved in split closings.