Multiparty Checks In Construction

Multiparty Checks In Construction

If a check is directed as payable to two or more payees whose names are separated on the payee line by a diagonal slash, or virgule symbol (as in the form of “John Smith/Bob the Builder, Inc.”) they are considered to be payable in the alternative and not jointly.  Therefore, in many jurisdictions, endorsement by only one of the named payees on such check can be deemed adequate.

In Florida, banks will generally negotiate checks when they are endorsed by only one of the two payees if it is ambiguous whether the check was drafted as payable in the alternative.  But what happens if a check is issued to “stacked payees,” as follows:

John Smith
Bob the Builder, Inc.

A bank presented with such a payee designation  may consider that the payee is ambiguous and as a result, the check may be appropriately payable to either one of the two payees, therefore requiring only one endorsement. So, John Smith could go to his bank, cash the check without any endorsement from Bob the Builder, and leave Bob the Builder out in the cold. Not a good result for Bob.

THE IMPORTANCE OF “AND”

Multiparty checks in construction can become a problem. Contractors therefore need to be especially mindful of the consequence of failing to specify an “and” in between payees when expecting such a payment.

Florida law, as many other jurisdictions, now makes clear the following:

If an instrument is payable to two or more persons alternatively, it is payable to any of them and may be negotiated, discharged, or enforced by any or all of them in possession of the instrument. If an instrument is payable to two or more persons not alternatively, it is payable to all of them and may be negotiated, discharged, or enforced only by all of them. If an instrument payable to two or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively.

The next time you are to receive a multiparty check,  request the inclusion of “and”. Otherwise, you could find out that only one party can negotiate the check and that party did so without  you.

Multiparty Checks In Construction was last modified: April 18th, 2016 by Alexander Barthet

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