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JOSEPHINE L. SMITH AND ALLEN H. SMITH v. COMMONWEALTH NATIONAL BANK (04/17/89)

filed: April 17, 1989.

JOSEPHINE L. SMITH AND ALLEN H. SMITH, CO-EXECUTORS OF THE ESTATE OF REYNOLD B. SMITH, DECEASED, APPELLANTS,
v.
COMMONWEALTH NATIONAL BANK, APPELLEE



Appeal from Order of the Court of Common Pleas, Civil Division, of York County, No. 85 SU 04407 01.

COUNSEL

Allen H. Smith, Wrightsville, in propria persona.

Geoffrey S. Shuff, York, for appellee.

Wieand, Olszewski and Tamilia, JJ.

Author: Wieand

[ 384 Pa. Super. Page 67]

The issue in this appeal concerns the liability of an escrow holder for potential income lost on funds removed from an escrow account to pay taxes where the payee, Internal Revenue Service, lost the escrow holder's check, thus requiring the issuance of a new, later check. The trial court held that there was no liability for failure to keep the funds invested where, as here, the escrow holder had removed the funds and drawn the check in full compliance with the terms of the escrow agreement. We agree and affirm.

As part of a transaction involving the purchase of stock by City Investing Company and Uarco Inc. from the Estate of Reynold B. Smith, deceased, the co-executors of the estate, Josephine L. Smith and Allen H. Smith, Esquire, placed in escrow the sum of one million, four hundred seventy thousand ($1,470,000) dollars to insure the payment of estate and other taxes owed by the estate. The escrow holder was Commonwealth National Bank (CNB), which agreed to keep the escrowed amount invested and to release only those amounts which were directed by the parties to the transaction. The agreement provided that the escrow holder "shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized hereby."

On August 1, 1984, the parties to the transaction, including the executors of the decedent's estate, requested CNB to release the sum of eight hundred twenty-one thousand, four hundred eighty-four and eighty-nine one-hundredths ($821,484.89) dollars for the payment of federal estate taxes. CNB thereupon liquidated escrowed investments and

[ 384 Pa. Super. Page 68]

    transferred $821,484.89 to a trust division account, on which it drew a cashier's check in like amount to Internal Revenue Service (IRS). The check, payable within sixty (60) days, was delivered to Allen H. Smith, a co-executor, who caused the check to be mailed to IRS the same day. IRS acknowledged receipt of the check on August 2, 1984.

On or about November 5, 1984, the parties settled and closed the escrow account. A balance of $924,071.75 was paid to the co-executors of the decedent's estate, who accepted the same "in full satisfaction and payment of monies due us upon termination of the escrow account." At the same time, they released CNB "from every claim which we may have in connection with said account." On December 13, 1984, CNB also delivered to the co-executors a check in the amount of $9,761.02, representing the final payment of income earned by the escrowed assets.

On or about March 26, 1985, CNB notified the co-executors that the check issued to IRS had not been presented for payment. At the request of IRS, a stop payment order was issued, and a new check was forwarded to IRS to replace the earlier, misplaced check. This check was subsequently presented and paid. IRS has made no claim for interest or penalty because of late payment.

The co-executors, Josephine and Allen Smith, thereafter commenced an action against CNB to recover interest on the amount of the unpaid IRS check from August 1, 1984 to July 11, 1985, the date on which the replacement check had been issued. They contended that they were entitled to recover this amount as damages (1) for CNB's violation of its duty to keep the escrow funds invested; (2) for CNB's negligence in failing to notify them that the IRS check had not been cashed after sixty (60) days; and (3) on equitable ...


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