Bulletin: TX2014005

Dear Associates: 

On March 13, 2014, the Texas Courts of Appeal issued its opinion in a case that affects an escrow agent’s fiduciary duties under the definition of “good funds” in Rule P-27 of the Basic Manual of Rules, Rates and Forms for the writing of title insurance in the State of Texas. In Capcor at KirbyMain, L.L.C. v Moody National Kirby Houston S, L.L.C., et. al., No. 01-13-00068-CV, (Tex. Ct. App. 1st Dist., Houston, 2014) at 2014 Tex. App. LEXIS 2808, the court held that while Rule P-27 lists cashier's checks as a form of "good funds", Rule P-27 does not require that a title insurer accept all enumerated types of good funds, in this case a cashier’s check, and does not prohibit or limit a title insurer's authority to refuse any particular forms of payment at closing that may qualify as good funds.

At issue in Capcor was whether an escrow agent could refuse to accept a purchaser’s cashier’s check as “good funds” on the day of the closing and instead require that the purchaser wire the funds for disbursement at closing. The escrow agent notified the purchaser by e-mail the day before the closing date and at the closing table that the purchaser would need to wire the balance of the purchase proceeds to the title company by the end of closing. When the purchaser tendered a cashier’s check later on the closing date anyway, the escrow agent refused the check, and the underlying contract/transaction terminated. Capcor sued the escrow agent, among others, for violation of her fiduciary duty by refusing to accept the cashier’s check as “good funds” at the closing. The escrow agent testified at trial that she was instructed by her title insurer not to accept cashier’s checks as good funds due to recent problems with fraudulent cashier’s checks and that the cashier’s check would require a 3-day holding period, which when received at closing, would not be “good funds” in time for disbursement for the closing.

After Capcor lost the jury trial, it appealed the verdict and subsequent judgment. On appeal, the Houston Court of Appeal affirmed the trial court’s judgment and ruled that while Rule P-27 lists cashier's checks as an enumerated form of "good funds", Rule P-27 does not require that a title insurer accept all of the enumerated types of good funds, and does not limit a title insurer's authority to refuse any particular forms of payment that may qualify as good funds. Rather, the court concluded, Rule P-27 only prohibits disbursements before the good funds have been received and deposited, consistent with Texas Insurance Code §2651.202 (2009), which prohibits disbursements from trust accounts until sufficient good funds have been received and deposited to fund the disbursements.

What you might do:

Since good funds is primarily an escrow issue, we are simply suggesting that you consider availing yourself of the protection afforded by this decision and modifying your good funds notice in your commitments along the following lines:

“Procedural Rule P-27 promulgated by the Texas Department of insurance provides a list of the types of financial documents and instruments which satisfy the requirement that we disburse only when we have received good funds as required by said rule and Section 2651.202 Insurance Code. Please be advised that we reserve the right to determine on a case-by-case basis what form of good funds is acceptable. Unless we agree in writing to accept a different form of good funds, we require a wire transfer.” 

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