FEINBERG v. INTRASTATE ESCROW CORPORATION (1963)

Defendant has appealed from the judgment rendered against it in this action which was brought on the theory that defendant, acting as an escrow agent for one Patricia Kennedy, had cooperated with her in fraudulently representing to the plaintiff that he would receive over $4,000 out of the escrow. The trial court did not find the allegations of fraud to be true, but based its judgment on the closely analogous theory of estoppel and also on the theory that there was a breach of an obligation founded upon an instrument in writing. We have concluded that the evidence plainly fails to support the last theory, and fails at an important point to support that of estoppel.

The story begins with Patricia Kennedy owing the plaintiff a sum of money, probably $2,800. Patricia owned a piece of property upon which she wished to borrow some money and opened an escrow with defendant to accomplish her purpose. Becoming aware, in some way, that plaintiff purposed to bring an action against her and attach her property, she and defendant came to an understanding with him. He agreed to refrain from levying an attachment on the property against which Mrs. Kennedy was seeking to negotiate a loan, and she in turn agreed to instruct the defendant to pay the plaintiff from the proceeds of the expected loan, and the defendant agreed to accept such instruction and to act upon it.

The trial court found that three such instructions were ‘prepared and accepted by defendant, with knowledge of the very valuable consideration moving from plaintiff and of his reliance on the agreement.’ Patricia Kennedy signed these instructions, the first one dated June 19, authorizing defendant to pay plaintiff $2,800, the second, three days later, increasing the amount to $3,800, and the third, July 24, boosting the total to $4,175 ‘to be paid upon close of escrow.’ The first two instructions appear in the first escrow and the third instruction in an escrow established to replace the first one. The reason for the several instructions appears from this finding: ‘Plaintiff relied on the agreement and the escrow instructions hereinabove found, and in such reliance not only refrained from levying attachment on Mrs. Kennedy's said property, but even lent sums of money to Mrs. Kennedy additional to those that had been lent to her before such agreement was entered into and said instructions were given.’

Looking at the escrow files we discover that the only instructions in the first two were those referred to signed by Patricia Kennedy, and that no money was ever placed in the custody of the defendant in either of them. A lender became a party to a third escrow, who intrusted $4,875 to it, the sum of $3,375 being the amount left over after the payment of charges and disbursements.

Viewed so far, we find that there was an escrow in which there was an instruction to the defendant that from the proceeds $4,175 was to be paid to plaintiff. Had there been such proceeds, plaintiff would have had a cause of action up to $4,175 against the defendant for plaintiff would appear as the third party beneficiary of an agreement made in part for his benefit. (Orloff v. Metropolitan Trust Co. (1941), 17 Cal.2d 484, 487, 110 P. 396.) The cause of action, incidentally, would be one founded upon an instrument in writing (Amen v. Merced County Title Co. (1962), 58 A.C.A. 540, 25 Cal.Rptr. 65, 375 P.2d 33) and so not outlawed.

These are not all the facts, however. Not only were no proceeds ever in either of the first two escrows but two further instructions appear in the second escrow. First, an instruction dated August 1, signed by Patricia Kennedy, stated: ‘You are hereby authorized and instructed to ignore any authorization contained in amendment dated July 24, 1956. Said instructions are to be considered null and void.’ Another instruction of the same date cancelled the escrow. It was only in the new escrow that commenced August 1 that there were any proceeds and this new escrow never contained an instruction that plaintiff was to be paid anything. It will not do, as the trial court ‘found,’ to say that the three escrows, having the same object, ‘constituted in reality one escrow transaction.’ An escrow, even one made for the benefit of a third party, is subject to cancellation before the third party enforces it. (Civ.Code, § 1559; Orloff v. Metropolitan Trust Co., supra (1941), 17 Cal.2d 484, 487, 110 P.2d 396.) The fact is that there were, as stipulated, three escrows involved in this case.

It may well be, however, that the defendant is estopped to rely upon the switch over to the third escrow. He was an active participant in the arrangement by which the plaintiff was to give up the exercise of his right to bring an attachment action in order that Patricia Kennedy might obtain a loan. He knew that the plaintiff relied upon the arrangement made and carried out in the first two escrows, and so relying had not filed his action. Until put on notice that the arrangement made was not going to be carried out, the plaintiff had a right to continue to rely on it, as he did. However, among the facts found is none that gives a clue as to the relations of the parties between August 1 and August 6 when the last escrow was closed and its net proceeds of $3,375 paid to Patricia Kennedy. If the plaintiff had been put on timely notice that the instructions that protected him had been cancelled August 1, and he did nothing to further protect himself, the defendant would not be estopped to point out the facts that ended plaintiff's trustful inaction. On the other hand, if, as the evidence suggests the facts to be, the defendant lulled the plaintiff into continuing his patient wait for the escrow to close by saying nothing of the cancelled instructions and by counseling further patience, then the defendant should be estopped to rely upon the facts that actually occurred.

We are told that ‘* * * since estoppel is not favored and must clearly be proved * * * it will not be enforced unless substantiated in every particular’ (Doria v. International Union (1961), 196 Cal.App.2d 22, 40, 16 Cal.Rptr. 429, 439), and ‘The doctrine of estoppel is to be applied strictly and must be established in every particular.’ (Born v. Keep (1962), 200 Cal.App.2d 519, 531, 19 Cal.Rptr. 379, 386.) Keeping these admonitions in mind, we conclude that the findings fail, at a crucial point, to support the judgment on the theory of estoppel.

Two other theories on which the plaintiff might have recovered justify but little comment in view of what has been observed. The theory of the original, and also of the first amended, complaint was, as already noted, one not too different from estoppel; that is, fraud. But the trial court discarded this theory and the findings fail to support it. A second theory was that the parties had entered into a contract by virtue of which the defendant owed the plaintiff at least $3,375. This theory falls afoul of the aptly pleaded two-year statute of limitations, if it means that the defendant had assumed some contractual obligation not encompassed in his obligation as the escrow holder, for there are no other writings that create any liability on his part. What has already been said disposes of the possibility of supporting the present judgment by reliance upon the escrows.

The judgment is reversed.

FOOTNOTES

FOOTNOTE.  

BISHOP, Justice pro tem.* FN* Assigned by Chairman of the Judicial Council.

BURKE, P. J., and JEFFERSON, J., concur.