Determining which party should bear the loss when the funds are embezzled by the escrow holder is often a difficult and troublesome task. The one who is responsible for the hardship has typically either disappeared or become insolvent, so the two parties to the transaction are left to battle between themselves over the missing funds. An equitable remedy seems impossible in such a situation as both parties are generally innocent of any wrongdoing. The inevitable result is that one blameless party will suffer a substantial loss while the other will still reap the benefits of the deal. This unfortunate situation is exactly where the parties in Bio-Electronics v. C & J Partnership found themselves. In deciding this case, the Nebraska Supreme Court backed away from the previous escrow embezzlement jurisprudence where the purchaser alone had to bear the risk of loss. Instead, the court focused its analysis solely on a technicality of the Nebraska Uniform Commercial Code ("U.C.C."), with almost no reference to the way loss allocation has historically been applied. Part II of this Note explores the development of the rules behind allocation of risk in an escrow transaction, focusing in particular on two cases that had significant roles in establishing these rules. Next, the factual background of Bio-Electronics is discussed in detail in Part III. In Part IV, this Note discusses the implications of the court's holding in relation to the theories of ownership and agency in loss allocation, suggesting that this decision seems to put these two theories at odds in the rare situation like the one involved in Bio-Electronics. In addition, this Note addresses the underlying policy considerations that, although not discussed by the court, may have been at the heart of the holding. Finally, in Part V, this Note concludes that because of the unusual facts of this case and its somewhat anomalous result, the court's holding should and will be narrowly limited in its application to future cases.
Leigh M. Koehn,
Allocating the Risks of Embezzlement by an Escrow Holder: Bio-Electronics v. C & J Partnership, 268 Neb. 252, 682 N.W.2d 248 (2004),
84 Neb. L. Rev.
Available at: http://digitalcommons.unl.edu/nlr/vol84/iss4/6