Joint checks are usually an effective way of protecting against mechanic's lien and bond claims of subcontractors and suppliers. On occasion, owners will issue joint checks to their contractors and suppliers or subs as well. General contractors may also issue joint checks to certain subcontractors and their suppliers.
The effectiveness of using joint checks depends upon the care involved. Certain guidelines should be followed.
First, the joint check must be made out to the proper parties. If, for example, it is intended that the check be jointly payable to Shocking Electric and Electrical Supply Co., avoid the shortcut of typing "Shocking Electric & Electrical Supply Co." Shocking Electric may want to get its hands on the entire check proceeds and endorse the check as if the check is payable only to one party with that combined name. Careless bankers might miss the fact that it is a joint check and pay the entire proceeds to Shocking Electric.
Accordingly, the check should carefully name all joint payees and' for added caution, include after their names, the words "jointly" or "as joint payees."
It may also be wise to use a rubber stamp the check with the language "This is a joint check and endorsements of all payees are required. Any alterations will render this check void."
Second, many careful contractors take precautions against delivering the check to the subcontractor-payee to avoid any possibility of having the subcontractor forge the endorsement of his supplier. A number of methods are used, including that of having the subcontractor endorse the check after which the contractor forwards it directly to the supplier or transmitting the check directly to the supplier first and letting him make arrangements to obtain the subcontractor's endorsement.
Third, the check should identify the specific project for which payment is being made so that the supplier credits the proper job. Otherwise, the law may permit the supplier to apply the payment to the subcontractor's account for materials on another job. A method should be adopted to clearly advise the supplier that his proceeds of the joint check are to be properly credited.
Fourth, the supplier should be required to execute a lien waiver or release. Printed or stamped restrictive endorsements on the back of the check should be used, along with a separate waiver and release document as well.
There are numerous forms of restrictive endorsements in use in the construction industry. One such form provides:
By endorsement and upon payment of this check payee(s) acknowledge payment in full for all sums due on account of labor, materials, suppliers and other lienable items furnished by payee(s) on the________ project on or prior to the date of this check. Payee(s) hereby waive and release all claims they may have under applicable mechanic's lien, bond or other laws on account of such labor, materials and services provided to that date.
Care in the use and preparation of joint checks may easily save thousands of dollars for diligent owners and contractors.