Here is a secret: If you have a joint check agreement, the paying party may not be obligated to issue a joint check. The joint check agreement you signed may instead just give them the permission to issue such a check. This is a very common issue and suppliers get burned on the misunderstanding every day.
Do The Terms Your Joint Check Agreement Place An Obligation Upon The Paying Party?
As explained in the “What Is A Joint Check Agreement” post, there is no such thing as a standard joint check agreement, and these agreements are subject to the contractual will of the parties. As a result, there are differences from agreement to agreement. One huge difference between agreements is that some obligate the paying party to issue a joint check, and others merely give permission to do so.
Paying Parties Typically Do Not Want To Incur A Joint Check Obligation
Joint check agreements primarily benefit the lowest tiered party (like a building material supplier). The party making the initial payment – usually the general contractor or property owner – do receive a slight benefit from these agreements, but the benefit pales in comparison to the benefit afforded the party getting the payment.
General contractors or developers typically do not want to incur an additional obligation through a joint check agreement.Accordingly, the motivation to the general contractor or developer in signing a joint check is usually pretty low. It is for this reason that these parties typically do not want to incur an additional obligation through a joint check agreement.
If they sign an agreement with a lower tiered sub or supplier and obligate themselves to issue a joint check for any work involving that lower tier, that creates a pretty inconvenient obligation. There are a few reasons why a paying party would want to avoid such an obligation:
- Keeping track of which lower tiered parties have joint check agreements and which don’t is difficult, and prone to mistake;
- Having to dissect each payment into its component parts to make sure each lower tier gets paid in the correct proportion is an added and unnecessary administrative task;
- Any mistake mades leaves the paying party subject to an obligation it normally would not have.
Paying Parties Do Like The Power Of Permission To Issue A Joint Check
While paying parties want to avoid incurring a new obligation with a lower tiered subcontractor or supplier, they do like the power that comes with permission to issue a joint check.
Absent a joint check agreement, a general contractor or developer cannot usually issue a check to a lower tier. Instead, they must follow the standard payment pattern (paying their contractor and trusting the contractor will pay people down the line). Entering into a joint check agreement whereby their customer gives permission to pay lower tiers on a joint check gives the general paying party some additional power to control the payment flow.
While they may not need to do this often, if circumstances warrant it is a good risk control tool.
Look To The Terms Of Your Specific Joint Check Agreement To See If It Is Obligatory or Permissive
What dictates whether the paying party must or merely may issue joint checks? The joint check agreement, of course.
Since there are no “standard” joint check agreements, you’ll need to review the language within the specific joint check agreement at play to see which rules apply to your situation. Yes, we know how boring and complex that is.
Here is an example of language that is obligatory, meaning it will obligate the paying party to issue a joint check. If the joint check is not issued and you have language like this in your contract, you’ll likely be able to file a lawsuit directly against the paying party.
In consideration of the benefit to the Paying Party by Lower Tier Party’s supplying materials to the project, the subcontractor and the Paying Party hereby agree and guarantee that Lower Tier Party’s invoices will be paid by joint checks to be sent directly to Lower Tier Party.
Contrary to this, here is an example of language that is permissive, meaning that it will not obligate the paying party to issue the joint check, but will merely allow the paying party to issue the joint check:
In consideration of the materials supplied and/or labor furnished by the Lower Tier Party to the Subcontractor for work performed at the project, the Subcontractor authorizes the Paying Party to make all payments, with respect to the materials supplied and/or labor furnished by the Lower Tier Party, in the form of a check jointly payable to both the Subcontractor and the Lower Tier Party.
Can you see the difference?
Why Not Understanding The Terms Can Be Dangerous To Your Company
This part of the post should be obvious.
If you think your joint check agreement obligates the paying party to pay you, when in actuality it only gives the paying party permission, you may have a very difficult time getting paid if the paying party winds up not issuing a joint check.
From the paying party’s perspective on the other hand, misunderstanding that permission is required only when an actual obligation exists can create a similar bad situation.