WI Court of Appeals rules escrow agent has no duty toward incidental beneficiaries.

Byline: David Ziemer

An escrow agent has no duty toward incidental beneficiaries, the Wisconsin Court of Appeals held on Feb. 15.

When Victoria and Gunnard Black got divorced, they owned a home, and the marital settlement agreement and judgment provided as follows:

"Upon the sale of the property, the remaining mortgage and all costs and expenses shall be paid off and the resulting balance shall be split between the Petitioner [Victoria] and Respondent [Gunnard] as follows: fourteen thousand one hundred dollars ($14,100) will be given to the Petitioner and then the remainder will be split equally between the Petitioner and the Respondent."

In 2001, Victoria took part in a transaction where she was to sell her interest in the property to Gunnard, and First State Mortgage was to refinance the property. The equity at that time was approximately $96,200. Metro Title, Inc., acted as the closing and escrow agent for the transaction.

According to the complaint, Victoria executed a quitclaim deed, transferring her interest in the property to Gunnard. However, she was then informed by Metro's agent that she would only be receiving the $14,100 portion of the settlement and not her half of the equity.

Victoria then refused to sign the real estate transfer tax return and left with that unexecuted return. However, Metro drafted a new return, and had Gunnard sign as both grantor and grantee.

Gunnard later sold the home for $125,000, but there was less than $10,000 in equity at that time. According to the court, Gunnard "squandered" the proceeds from the refinancing.

Victoria then brought suit against Metro, alleging negligence, but Waukesha County Circuit Court Judge Mark Gempeler granted summary judgment to Metro. Victoria appealed, but the court of appeals affirmed in a decision by Judge Richard S. Brown.

The court held that an escrow agent has no duty toward incidental beneficiaries to an escrow, and Victoria was only an incidental beneficiary.

Reviewing case law from other jurisdictions, the court found that, in order for a duty to exist, the plaintiff must be a party to the escrow contract.

The court acknowledged exceptions - where a third party is the victim of fraud on the part of the escrow agent, or where the agent engages in self-dealing or has a conflict of interest. However, the court found that none of the exceptions...