Joint Check Agreements
A joint check agreement is a common arrangement in the construction industry. Typically, it is an agreement by a general contractor with its subcontractor, to issue the subcontractor’s progress payments in the form of a check, which is made jointly payable to the subcontractor and to some other supplier or sub subcontractor. By making the check payable to both parties, the maker gives each a right to control the cashing of the check. Both signatures must be on the check before it can be cashed. This arrangement gives each of the named payees the bargaining power to assure that it will receive its proper portion of the proceeds. A joint check is not a guaranty by the general contractor, however, and a joint check agreement is not “security,” equivalent to a mechanic’s lien.
A joint check agreement, for instance, will not remain enforceable if one of the parties goes into bankruptcy. Also, joint check agreements need to be handled with great care, since the imprudent endorsement of a joint check could end up barring your claims. Never, for example, endorse a joint check back to your customer in exchange for its ordinary business check; if your customer’s check does not clear the bank, you have effectively given away your right to file a mechanic’s lien claim or a surety bond claim, or to otherwise pursue the general contractor for the full amount of the joint check.
If someone should cash your joint check without your endorsement, you may have the right to recover from that party or even from the bank that took the check. It is a good practice to include a provision in the agreement requiring the general contractor to obtain the subcontractor’s signature on the check first, and then forward the check directly to you. If you experience a problem with joint checks, bring it promptly to your lawyer’s attention.