Sidestepping the Minefields When Collecting Your Money
By Elizabeth Walters, Esq.
You fulfill the terms of your agreement with your customer on the construction project whether it be a private, public or federal funds paying for your labor and materials. You provide equipment or other services, but do not receive payment. This is a common and real possibility in the construction industry. The following are some of the landmines to avoid in your collections remedies. Signing Away your Rights You fulfill the terms of your agreement with your customer on the construction project whether it be a private, public or federal funds paying for your labor and materials. You provide equipment or other services, but do not receive payment. This is a common and real possibility in the construction industry. The following are some of the landmines to avoid in your collections remedies. Signing Away Your Rights believe many in the construction industry would be surprised to know how often companies seeking payment sign their rights away to important third-party rights, including mechanic’s liens, without even knowing they are doing so. Two of the most common ways of signing away your rights can occur when using joint checks or the releases common to the construction industry. Joint checks: How often is a company presented with a joint check and asked to sign the check back over to the other party on the check? How often have you asked a tier below you to do the same? A common request is, “If you sign the check back over to us, we will write a single-party check to your company.” That sounds simple and fair enough, especially if you are not owed the entire amount of the joint check. However, you need to make sure the state where you are working does not have statutes or case law that supports the loss of third-party rights if a party signs the joint check over to the other party on the check. For example, in California there is the “joint check rule.” This rule, supported by case law, states a material supplier endorsing the check certifies payment of all amounts due to it up to the amount of the check. So, if the material supplier signs the joint check back to the subcontractor (other party on the joint check), the material supplier has lost its third-party rights, including mechanic’s lien rights, for the amount due by the maker of the check as the material supplier is deemed to have been paid. The intent of the maker of the joint check is to discharge its obligations to all payees. This does not, however, appear to impact a company’s ability to pursue breach of contract remedies against its customer.
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