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How to Handle Cancellation Instructions in California?

Due Diligence

We welcome our blog contributor PJ Garcia of Beach Escrow this week to discuss her view on cancellation instructions this week.

Cancellation instructions are always a concerning and sometimes controversial area. In the November Residential Purchase Agreement (RPA) revision, California Association of Realtors (CAR) included some language that provides for unilateral cancellation of a sort which presents one of those controversies. Upon review of this language, the Escrow Attorneys and veteran Escrow Officers I have spoken to so far are effectively saying “Danger Will Robinson”! (and now I have dated myself).

There are many considerations for escrow agents in handling cancellation instructions. How individual companies decide to handle that remains to be seen, so I recommend checking with your escrow officer before advising your clients they can cancel unilaterally.

To cancel without a mutual cancellation instruction would require assessments and determinations on the part of the escrow agent that are really outside the scope of our role as a neutral fiduciary. These include consideration of the impact of forfeiture statues governing the liquidated damages clause. Please note that the liquidated damages paragraph is not listed in the Joint Escrow Instructions to Escrow Holder. Additionally, the Cancellation language in Paragraph 14G uses the term “notice”, but does not provide a process for that notice. Unlike Liquidated Damages, 14G does not require a specific acknowledgment, enhancing the “I didn’t see it” argument.

For your further information, here is an article on the subject of Liquidated Damages from the publication California Lawyer.

Contributor: PJ Garcia, Beach Pacific Escrow




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