What Is A Joint Check Agreement?
In the construction industry there are many different parties working on a project, often in a hierarchical structure. That is, one party will hire another, then another, then another. They are still working on the same goal, and the same project, but they are different companies (or individual contractors).
Often, however, payment will be made to a party higher up on the “food chain,” leaving lower companies at their mercy for payment. For example, an owner may make a payment to a general contractor, that includes payment for a subcontractor. However, the subcontractor is then left to hope that the general contractor does, in fact, pay the subcontractor from those funds.
The Joint Check Agreement
One way that those entities lower on the payment totem pole can ensure that they get paid from funds given directly to another company on the construction project is through what is known as a joint check agreement.
This is an agreement that requires that any payment that is made include both companies on the check. So, in our example, the subcontractor would agree with the general contractor and the owner, that checks from the owner be made out to the contractor and the subcontractor and thus require the signature of both the contractor and the subcontractor.
By doing this, the subcontractor knows, exactly, when the general contractor is paid, and how much.
Benefits of the Agreement
The main benefit to a joint check agreement is, of course, ensuring that you get paid, if you are a subcontractor, supplier, or someone hired to work on a construction project, and you are relying on other companies to pay you for your work. It avoids a contractor absconding with full payment, and leaving you with nothing (or else, leaving you to file a lawsuit to get paid).
Drawbacks to Joint Check Agreements
However, there are some drawbacks as well. This is especially true if you are a company “higher up,” which is hiring or working with subcontractors or other specialized independent contractors.
These companies lower down in the hierarchy, such as subcontractors, can easily hold you “hostage,” if they are upset about something by refusing to sign the check.
Additionally, by signing and depositing the check, you could be tacitly confirming that the payment amount, and the amount on the check, is correct. You are certifying that the check paid that you have endorsed is, in fact, the correct amount of payment. That means that you may not be able to accept a partial payment of the amounts that may be owed to you, or you would be waiving your right to collect on the balance.
Drawbacks for the Payors
Payors of joint checks—those obligated to include multiple parties on a check—may now be potentially incurring liability from multiple parties. The payors will have to verify the existence of joint check obligations between parties, and confirm whether they exist, and whether the paying party does, in fact, have to issue a joint check. A mistake could lead to legal liability.
Our Fort Lauderdale construction attorneys at Sweeney Law P.A. at 954 440-3993 can help you with your construction contracts, and help you enforce them if needed.