Joint Check Agreement

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Joint Check Agreement

A Brief Introduction About the Joint Check Agreement

What is a Joint Check?

A check which is drawn in favor of two parties is known as a joint check. These checks are usually issued, for example, in the construction industry where payment is to be made to a sub-contractor and supplier.

A joint check agreement is used mostly in the construction industry because there are so many layers of people involved in construction projects.

What is a Joint Check Agreement?

This agreement is a tripartite agreement between the general contractor, subcontractor, and material supplier. The subcontractor generally hires the supplier. The supplier, to ensure that there are no payment issues, enters into this agreement, so that a joint payment is made to them and the subcontractor. The joint check is issued by the general contractor in the names of the subcontractor and supplier.

Who Takes the Joint Check Agreement? – People Involved

When it comes to payments made in the construction industry, a joint check is issued. There are numerous parties involved in this industry, and payments are made through a joint check to avoid complications.

Purpose of the Joint Check Agreement – Why Do You Need It?

If you enter the agreement as a material supplier, then payment will not be a problem as the subcontractor is bound by the contract to pay you if the general contractor has paid them.

The general contractor pays the combined consideration due to the subcontractor and material supplier through one check to the subcontractor. Without this agreement, the general contractor can pay the subcontractor, and the subcontractor may not pay the supplier.

These agreements are not governed by state or federal laws, and therefore, there are no specific guidelines with regard to framing the agreement. This essentially means there is no standard content when it comes to this agreement. It will vary from agreement to agreement, depending on the requirements of the parties involved.

[ Also Read: Construction Subcontractor Agreement ]

Contents of the Joint Check Agreement – Inclusions

Though there is no standard agreement form, you can use one as a guide and then modify it according to your specific needs.

Here are the contents of a joint check contract:

  • The names of the parties to the agreement; the owner, contractor, and supplier.
  • The effective date of the agreement.
  • Joint payment clause
  • Purchase restriction
  • Owner’s guarantee
  • State lien laws
  • Disclaimer of liability
  • Limitation of liability
  • Lien release
  • Full and final payment
  • No independent obligation

How to Draft the Joint Check Agreement?

Points to Consider While Preparing the Agreement

A joint check agreement template can be referred to while preparing an agreement. However, you need to make the necessary modifications required to the template according to your requirements.

Here they are the points to be considered while drafting this agreement:

  • Incorporate the basics
  • Competent to contract
  • Offer in a contract
  • Standard information
  • Simple language
  • Provision for an addendum
  • Confidentiality clause
  • Adherence to law

Negotiation Strategy

Before the agreement is finalized, the owner should ensure that the subcontractor and supplier are agreeable to the terms. The three parties to the agreement should study each clause in the agreement, and any negotiations regarding any clause should be settled. This will ensure that there are no disputes in the future.

Benefits & Drawbacks of the Joint Check Agreement

The benefits of this agreement are as follows:

  • Protection of interest
  • Limiting purchase
  • Hassle-free payment
  • Limits to obligation

Here are the drawbacks of the agreement:

  • Uncertainty of payment
  • Without the agreement, the supplier may presume the owner is the guarantor for payment and exercise the state lien laws for payment
  • The owner will have to make separate payments to the subcontractor and supplier. This will mean more record-keeping and more hassles.
  • The subcontractor may have to pay the supplier out of pocket as there is no joint check agreement.

What Happens in Case of Violation?

In case of violation of a joint check contract, depending on the nature of the breach, the following are the remedies available:

  • Non-payment by owner: Where the owner has not issued the joint check, then legal action can be taken provided, the payment is obligatory or permissive. If the agreement says that the owner may pay the check as opposed to must pay the check, then the supplier will be in trouble as the owner cannot be taken to court
  • Specific performance clause: If this clause is included in the contract, then the defaulting party has to fulfill the obligation as ordered by the court and monetary compensation would not be accepted
  • Restitution: The affected party has to be restored to its original position, and the money paid to the other party has to be returned
  • Reformation: If the court feels that the terms of the agreement are unfair, then the court steps in to rectify this.

The agreement has been of great benefit to the construction industry, where there is more than one party to be paid. Instead of issuing separate checks to all the parties, a consolidated amount is issued by the owner through a joint check.

Certain clauses need to be incorporated in such agreements to protect the interest of all the parties.

A limitation of liability clause should be inserted to protect the owner from being a guarantor on behalf of the subcontractor. In the absence of this clause, the supplier might take legal action against the owner in the event of non-payment.

The no-independent obligation clause ensures that the subcontractor does not have to pay the supplier out of pocket in the event the owner defaults in payment. If there is an agreement, the supplier cannot force the subcontractor to pay.

All parties to the agreement need to read the terms and conditions of the agreement to avoid any disputes(1).