Potential Pitfalls in Subsequent Bankruptcies of Reliance on Joint Check Agreements
For those lower tiered subcontractors and suppliers who attempt to bolster their financial security on a construction project when their contracting party runs into financial trouble, a joint check agreement (JCA) may not be the answer. In the Truland case, the courts held that, even though the general contractor issued the check payable jointly to the subcontractor and its supplier under a joint check agreement that required the subcontractor to endorse the check and return it to the general contractor for delivery to, and collection by, the supplier, the process resulted in the transfer of property of the subcontractor for purposes of preference law. The courts were able to reach this conclusion only because the joint check agreement was formally entered into during the preference period after the bulk of the equipment was delivered. Under those circumstances, the courts found the joint check agreement to constitute a preferential transfer of property of the debtor on account of antecedent debt that could itself be avoided. In the courts’ view, because the joint check agreement was avoidable as a preference, it was not effective to impress a trust on the jointly payable check and its proceeds for the benefit of the supplier.
For complete post click here.
Disclaimer
While we are pleased to have you contact us by telephone, surface mail, electronic mail, or by facsimile transmission, contacting Kilpatrick Townsend & Stockton LLP or any of its attorneys does not create an attorney-client relationship. The formation of an attorney-client relationship requires consideration of multiple factors, including possible conflicts of interest. An attorney-client relationship is formed only when both you and the Firm have agreed to proceed with a defined engagement.
DO NOT CONVEY TO US ANY INFORMATION YOU REGARD AS CONFIDENTIAL UNTIL A FORMAL CLIENT-ATTORNEY RELATIONSHIP HAS BEEN ESTABLISHED.
If you do convey information, you recognize that we may review and disclose the information, and you agree that even if you regard the information as highly confidential and even if it is transmitted in a good faith effort to retain us, such a review does not preclude us from representing another client directly adverse to you, even in a matter where that information could be used against you.
