Johnson v. Schultz

The Schultzes (defendants) hired attorney Parker to close their property purchase from the Johnsons (plaintiffs); Parker deposited the Schultzes' purchase funds into his trust account, the deed was executed and recorded, and Parker issued the Johnsons a check for the proceeds — which bounced the next day because Parker had misappropriated the trust account funds. The Johnsons sued to rescind the deed and recover title; the trial court held the Johnsons bore the loss because they were entitled to the funds at the time of the misappropriation, and the Johnsons appealed, arguing the entitlement rule only applies to true escrows and that the Schultzes, who hired Parker, should bear the loss instead.