Joint Checks:  How They Can Be Great or Tragic For Your Company
 

Joint Checks: How They Can Be Great or Tragic For Your Company

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Presentation analyzes Joint Check Agreements. This is a popular - but dangerous -instrument in the construction industry. This presentation reviews how joint check agreements work and helps you ...

Presentation analyzes Joint Check Agreements. This is a popular - but dangerous -instrument in the construction industry. This presentation reviews how joint check agreements work and helps you understand how they can be used to help your business and how they can wind up destroying your business.

This is a summary of lien's blog series on Joint Check Agreements, which you can view at: http://www.zlien.com/blog/tag/joint-check-blog-series/

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Joint Checks:  How They Can Be Great or Tragic For Your Company Joint Checks: How They Can Be Great or Tragic For Your Company Presentation Transcript

  • BLOG SERIESJOINT CHECKAGREEMENTS
  • What is a Joint CheckAgreement?A contractual agreement betweenmultiple parties in which one party agreesto or is given permission to makepayment jointly to two or more parties.
  • The Basics:• Entered into a General, a Subcontractor and a Material Supplier• The parties agree that all payments for work involving the suppliers materials will be written jointly to the Sub and Supplier• Joint Check Agreements (JCA) are created by contract, not statute.• There is no such thing as a standard JCA; the parties to a JCA can write the agreement any way they desire View slide
  • Flow of payment without a JCA Payment with a JCA View slide
  • Most CommonMisunderstandings:• Do the terms of your JCA place an obligation upon the paying party?• Paying parties typically do not want to incur a JCA obligation• Paying parties do like the power of permission to issue a JC• Are the terms of your JCA obligatory or permissive? Misunderstanding the specific terms of your agreement can be dangerous.
  • Waiving Mechanics LienRights in a JCA• No Lien Clauses are invalid in many states - even when part of a JCA - These are invalid as a matter of law; They are considered an exception to the “Freedom to Contract” general rule, and are deemed against public policy.• When you sign the JCA can make a difference in your rights; if executed at the the beginning of a project it will likely be treated the same as if it were in the contract and therefor invalid; if executed after furnishing labor/materials the clause will likely be valid
  • A Great Tool for CreditManagers• If your company is confronted with a non-payment situation that may be solved by acquiring a promise to pay from a more solvent and reliable contractor, having a JCA ready to go is important.• Proactive JCAs are signed before furnishing and before incurring debt• Reactive JCAs are signed after the debt is incurred
  • What is the Joint CheckRule?A jurisprudential principal of law providing that wheneveran owner or a general contractor issues a joint check to asubcontractor and the subcontractors material supplier,the material supplier endorsing and depositing the jointcheck is certifying that it has been paid all amounts due upto the date of the joint check.
  • Joint Check Rule Can LimitSuppliers Claims • Endorsing/depositing a joint check that does not cover the entire outstanding debt will waive your rights to the remaining debt. Youll be unable to sue for the unpaid portion, and any claims you file will be considered invalid. • If you receive a joint check that does not pay the entire debt, you should obtain a written agreement from the owner and general contractor providing that the endorsement and/or deposit of the joint check is an acknowledgment of receipt of the amount actually paid to you, and not an acknowledgment of receipt of all amounts owed to you to date.
  • Who Must Sign a JCA?• All 3 parties to a JCA must sign the agreement: (1) The third party who will write the joint checks must agree to take on the additional obligation; (2) The obligee to the original contract must agree to allow the third party to write these joint checks and pay the obligor directly; and (3) The obligor must agree to accept payment from the joint checks.
  • JCA Fraud: Understand andPrevent It• Subcontractors and others with credit problems have been known to forge a general contractors or developers signature on a JCA. S end an email or make a phone call to the general contractor or developer to confirm that they did sign the JCA and understand their obligations.• Forging endorsement on JCAs is less common. If this happens, contact the maker of the check and have them file a fraud report with their bank. If done quickly its possible the bank will be capable of reversing the deposit.
  • 3 Fatal Mistakes• Overlooking the importance of language in the JCA; ex. Are you accidentally waiving your lien rights?• Accepting a JCA or Joint Check without the word “And” in it• Trusting the other parties will understand and meet their obligations
  • JCA vs. Mechanics Liens• Mechanics Lien Claims are secured by the Property and Joint Checks are only secured by the Parties• Mechanics Lien rights are created by statute and Joint Check rights are created by agreement• Mechanics Liens are rooted in Statutory Law• Joint Check Agreements are rooted in Contract Law
  • JCA & Bankruptcy • Bankruptcy Code allows the trustee to turn back the clock for 90 days before the bankruptcy was filed. If you get paid too close to a bankruptcy filing, you may be required to pay the customer back! • Payments under a JCA can be affected by a bankruptcy preference • Your ability to recover unpaid amounts under a JCA can be affected when your joint payee is bankrupt
  • Best Practices to AvoidBankruptcy Perils 1. Make your company a party to the JCA 2. Obligate the owner or contractor to pay you 3. Make the JCA restrictive on your joint payee 4. Do not allow any portion to go to the joint payee