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Xie v. Stern, Lavinthal, Norgaard & Kapnick

97-4467 (U.S. Dist. Ct. D. N.J. 1999) (Unpublished)

CONTRACTS; DEPOSITS; ESCROWS—An escrow agent is not liable for releasing a contract deposit to a seller without the buyer’s consent if the deposit is non-refundable and no other harm comes to the buyer.

A buyer entered into a contract to purchase financially troubled property. The offering price was less than the outstanding mortgage. The contract required a deposit which was payable to the attorney for the mortgagee. Although the contract provided that the deposit monies were not to be paid over to the seller prior to the closing of title unless agreed in writing by both buyer and seller, the buyer did not contest that it understood the deposit to be non-refundable. The law firm holding the deposit as escrow agent allegedly removed the money from its trust account and used the deposit money to postpone a Sheriff’s sale of the property. The buyer asserted that the law firm breached its fiduciary duty by releasing the deposit. The Court, however, pointed out the buyer failed to demonstrate that the law firm’s application of the deposit to postpone the Sheriff’s sale caused the buyer any harm. Because the deposit was non-refundable, it would not have been refunded whether or not the sale went through. “Since the plaintiffs would not have received their money back in any case, irrespective of whether the Sheriff’s sale had been postponed, it does not matter what [the lawyers] used the money to do.” The buyer’s claim against the mortgagees also failed because it was dependent upon the inadequate claim against the law firm.


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