A shareholder in a company had a right of first refusal to purchase shares in the company. Parties who sought to exploit this right entered into an escrow agreement under which the shareholder would purchase shares in the company for them and they would pay her the shares price and bear the associated costs. However, the escrow agreement did not specify the payment dates by one of the beneficiaries, and when he did not pay his share, even though the escrow agent paid the sellers, the escrow agent announced the termination of the escrow agreement with him and kept the shares.
The Court held that the escrow agreement was duly terminated due to its breach by the beneficiary. An escrow is formed by law or an agreement. When it comes to an escrow created by an agreement, the parties to the agreement are entitled to shape the purpose of the escrow and its terms, including when and how it will end. Sometimes an escrow is similar to an agency, in which the agent must act according to the instructions of the principal, and sometimes the escrow agent is seen as a factor with independent discretion. Here, the parties made use of the escrow institution in order to simplify the purchase and in an agreement that brings the parties' relationship closer to an agency relationship. Considering the nature of these relationships, the absence of explicit provisions that the purchase be made with the escrow agent's money and the reference in the escrow agreement to the purchase agreement indicates that the beneficiaries were required to pay their share ahead of the payment to the sellers, and if they did not do so, the beneficiary violated the provisions of the escrow agreement and the escrow agent had the right to terminate it.