Business Escrow Explained
Escrow is a third-party process requiring the payment of a fee to an independent individual or entity that will act as an “escrow agent”. If the transaction goes as planned, the funds and property placed in escrow will be transferred in accordance with an agreement that was negotiated between the parties. If, on the other hand, the contract is not fulfilled or is breached, the contents of the escrow account can be returned to the parties.
Additional Protection
The additional layer of protection is through California’s Escrow Law (i.e., California Civil Code Section 1057). Specifically, Code Section 1057 sets forth binding standards for interim or “escrowing” transactions and restrictions on how escrow may be utilized. There is also an escrow agent whose primary responsibility is ensuring the funds and property involved in the transaction are exchanged in accordance with the agreement. The escrow agent essentially serves as a temporary custodian of the assets in order to protect both buyer and seller against claims of breach of contract if and when they have to return any portion of the escrow to either party.
The Two Types of Escrow Processes in California
There are generally two types of escrow arrangements used in California transactions: (i) bilateral escrow and (ii) unilateral escrow.
Bilateral escrow is an arrangement in which the parties to a transaction are granted an equal right to request the escrow agent to maintain funds and property during a transaction. On the other hand, unilateral escrow is an arrangement in which only one party has the authority to request the escrow agent maintain funds and property.
Prerequisites for a Valid Escrow
There are generally three prerequisites that must be met for a valid escrow in California:
- Valid contract between the Grantor and Grantee – The agreement between the parties, whether an actual written agreement or verbal agreement, must clearly set forth that an escrow is involved. In addition, both parties need to agree to the terms of the escrow.
- Delivering the Deposited Item, or Items, to the Depositary – For an escrow arrangement to be valid, the grantor’s item, or items, must be delivered by them to an individual or entity authorized to hold the item, or items, during the pendency of the transaction.
- Communicating the Negotiated Conditions to the Depositary – The terms of the escrow need to be relayed to the escrow agent so they are aware of what conditions must be met before they turn over possession of the property to either party.
Have Questions about the Business Escrow Process? Contact an Experienced Los Angeles Business Litigation Attorney at Omni Legal Group Today
Escrow is a helpful tool that can assist business owners in mitigating the risk of dealing with unknown third parties or business entities over the phone or via online transactions. Business escrow also affords a level of due diligence from both sides participating in an agreement, which may help improve communications and trust between parties negotiating an agreement. Of course, before entering into the escrow process, it is imperative to ensure that you have a clear understanding of how an escrow works. This is where the business litigation attorneys at Omni Legal Group can help. Omni Legal Group is a premier Patent, Trademark, and Copyright law firm located in Los Angeles. For further information or to schedule a consultation please contact Omni Legal Group at 855.433.2226 or visit www.OmniLegalGroup.com to learn more.