As a third party that facilitates the distribution of money from a buyer to a seller, what should I do if there is a dispute?

Get Legal Help Today

Compare Quotes From Top Companies and Save

secured lock Secured with SHA-256 Encryption

As a third party that facilitates the distribution of money from a buyer to a seller, what should I do if there is a dispute?

Business Model: Buyer hires Seller to complete a task. Buyer pays me and his funds are placed into an escrow account. Seller completes the task. Buyer is then asked to release the funds to Seller and fund are released. Question: If the Buyer is not happy with the work performed what should I do? Do I release the funds to the Seller anyway? Return the funds to the Buyer? Do nothing, and allow the funds to remain in the escrow account until both parties have come to a mutual agreement or legal has intervened? Or something else? What types of systems, contracts or other should I have in place?

Asked on July 13, 2010 under Business Law, Colorado


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 13 years ago | Contributor

This is dangerous terrritory; before doing anything consult with an attorney and let an attorney answer your questions, help set up the structure, but first, let you know if you can effectively do this. Some shortfalls:

1) If you're going to hold money for another, you will be taking a fiduciary position or relationship in regards to one or both parties; that provides additional obligations for you that you need to understand fully.

2) If you're hired by one person for this (e.g. you're retained by the buyer), how do you contractual obligations to your client conflict with any fiduciary obligations?

3) Are there any regulatory or reporting hurdles  that you need to be aware of, as someone holding money for another?

As a general matter, funds held in an escrow capacity cannot be released until either (a) all conditions of the escrow have been met and/or (b) the two parties agree; that means that usually, when there is a dispute, the funds have to be held until there is an adjudication or settlement.

At a minimum, you will want to set this up as a separate LLC or corporation, and one that  you will otherwise maintain minimum assets in (to avoid exposure); you will also need the appropriate "fiduciary" insurance, which can be expensive.

You need an attorney to really research this for you, to make sure you cover all grounds.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

Get Legal Help Today

Find the right lawyer for your legal issue.

secured lock Secured with SHA-256 Encryption