Stories from the Law Desk: Chapter 6 – Escrow Agreements – A Way to Protect Buy/Sell Business Transactions

Posted: 5 December 2022

In these days of online transactions, how can the buyer be assured to receive what has been paid for?

One of our clients recently shared a story about a purchase transaction which could have proved a very costly mistake.

Our client is a pilot who manages a local aviation business. He was in the market to upgrade the avionics in one of his aircraft.  A particular piece of avionics was advertised on Facebook and it was exactly what he was looking for.  The price was on the low side for the equipment however, the equipment was located supposedly in Anchorage Alaska.  The location was not convenient considering our client was based in Australia. However, the price and the need for the equipment encouraged our client to continue to pursue the purchase. The communication between the buyer and the seller commenced via the Facebook related ‘Messenger’ social app and email.

Our client checked the public profile of the seller and here is where the process started to look a little odd. With cyber vigilance in mind, our client found an inconsistency between the seller’s public social profile and its business email address. The seller provided images of the equipment however the background was inconsistent with his explanation of origin and his proof of identity was computer edited. The property owner in Anchorage Alaska advised that the advertised business was not operated at his address. The seller had requested an upfront payment for the shipment with a consignment note as the only assurance of shipment to the buyer.

There is a way to protect both the buyer and the seller in this business transaction.

An escrow agreement is a commonly used to protect both the buyer and the seller during a buy/sell transaction. This would be one way of solving the issue experienced by our client. An escrow agreement is a legal contract where an independent third party holds the money and/or the asset (i.e. in ‘escrow’) until certain conditions such as delivery or payment, are met.

The escrow agreement should deal with matters such as:

  • A complete and accurate description of the goods, including for example serial numbers, model numbers, and condition (used or new); 
  • The method and estimated time for delivery;
  • The delivery address, and in this case, it would usually be to the escrow agent (for example a lawyer) or a person/location appointed by the escrow agent;
  • If it is an offshore transaction, consideration of how to deal with foreign exchange rate fluctuations;
  • The quantum of funds to be held in escrow in the escrow agent’s trust account and the conditions which must be met to facilitate the release of the funds;
  • The escrow agent’s fees and allowable expenses;
  • A detailed outline of what will happen if the goods are not delivered or fail to meet the description; and
  • The jurisdiction and venue in the event that legal action is brought by one of the parties.

Each escrow agreement is tailored to suit different business scenarios.

If you or your company is undertaking significant financial transactions to purchase or sell, for example; machinery, cars, plant & equipment, aeroplanes or even internet domains, consider an escrow agreement. You are welcome to reach out to us. We are keen to assist you with your business needs.

Book a complimentary 30-minute assessment with a member of Apres Legal’s team.

Or call one of our friendly lawyers on 03 8567 7541

This article is not legal advice and should not be relied upon as legal advice. All articles from Apres Legal are intended to provide informative information. Legislation and case law may have been simplified and/or paraphrased. If you would like legal advice based on your current circumstances, you should contact Apres Legal.