A joint check agreement is an extremely popular tool in the construction world. In fact, there is a common misconception that joint check agreements are only used in the construction industry. It is also commonly believed that joint check agreements are all the same and that there is a standardized agreement language. With so many myths about joint check agreements circulating around, we wanted you to be aware of the following important points:
What is a Joint Check Agreement?
A joint check agreement is an agreement between two parties, allowing one to pay a balance due by writing a check issued to two or more payees.
When is a Joint Check Agreement Used?
Joint check agreements are typically used by parties when things are going wrong in some way. For example, a joint check agreement can be used when your customer doesn’t have the credit with you. In such a case, you may seek a joint check agreement with another party to help back up your customer. You may also seek a joint check agreement when your customer runs into cash problems and you need to continue furnishing.
Does a Joint Check Agreement Guaranty Safety?
Safety is not guaranteed with a joint check agreement. Because a joint check agreement is used when something is going wrong or when your customer isn’t in a good financial position, you should always be cautious. The parties are not simply out of the woods simply because a joint check agreement is used. Many times one party will not endorse the joint check, rendering the check useless.
What is the “Joint Check Rule?”
The “Joint Check Rule” may expose you to a substantial financial loss. According to the interpretation of this rule adopted in several states, when a subcontractor and his materialman are joint payees, and no agreement exists with the owner or general contractor as to allocation or proceeds, the materialman will be deemed to have received the money due to him by endorsing the check. Thus, every time a joint check is received by a supplier, the supplier should only cash the check if the amount paid is the total amount due as of the date of the deposit. Every supplier in every state should consider the joint check rule applicable to his/her project. This can be a powerful and useful tool to use in conjunction with normal intake procedures such as a written credit application, contract and personal guarantee.
Though there are many examples of when a joint check agreement can be an asset for your company, there are also a lot of misunderstandings about this agreement and its potential pitfalls. Thus, make sure to be educated on the pros and cons of a joint check agreement. Speaking to a professional about the potential risk of a joint check agreement may be helpful. Here at Smiley Law, we are ready to take all your joint check agreement questions.