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Payment By Joint Check
Tuesday, November 30, 1999 01:32 pm
Payment By Joint Check
A joint check names two or more payees in the conjunctive. Each named payee must endorse the check before it becomes negotiable.
Joint checks are used in the construction industry to assure payment to third parties that are unsure of the financial stability of the company with whom they have contracted. For instance, a subcontractor uncomfortable with the solvency of the prime contractor may request joint checks from the project owner. Or a supplier, unfamiliar with a subcontractor ordering materials, may ask the prime contractor to issue joint checks. Payers agree to joint check arrangements because they want to keep key participants on the job and avoid liens or claims from unpaid subs and suppliers.
Joint checks cannot be used for payment purposes without proper consent. A prime contractor issued a progress payment check payable to its subcontractor and the sub's supplier jointly. The subcontractor had not agreed to this arrangement. A Georgia court held that the prime had breached its payment obligation to the sub by issuing a non-negotiable instrument. Piedmont Engineering & Construction Corp. v. Amps Electric Co., Inc., 292 S.E.2d 411 (Ga.App. 1982); CCM September 1982, p. 3.
Conversely, a third party cannot be forced into a joint check arrangement. A supplier complained to a prime contractor that it was not being paid by the prime's subcontractor. The prime contractor offered to issue the next progress payment check to the sub and the supplier jointly. The supplier declined. The Utah Supreme Court ruled that the supplier's refusal did not waive or impair the supplier's right to later seek recovery from the prime contractor's payment bond. CECO Corp. v. Concrete Specialists, Inc., 772 P.2d 967 (Utah 1989); CCM September 1989, p. 2.
It should also be noted that even after there is consent to a joint check arrangement, the second party is not relieved of its primary payment obligation to the third party. For instance, a prime contractor, subcontractor and material supplier entered into a joint check agreement. The prime contractor failed to issue a joint check. The supplier demanded payment from the subcontractor. The sub argued that the joint check agreement, and the prime's breach of that agreement, excused the sub's nonpayment of the supplier. A Georgia court ruled, however, that the agreement had not relieved the subcontractor of its payment obligation. Georgia Glass & Metal, Inc. v. Arco Chemical Co., 410 S.E.2d 142 (Ga.App. 1991); CCM February 1992, p. 6.
Joint check arrangements can produce unexpected consequences for both first party payers and third party payees. From the payer's standpoint, there is the risk of assuming more payment obligation than intended. Unless a joint check agreement expressly limits the scope of the payer's obligation, the payer may have a direct duty to pay the third party for all labor or materials furnished to the project.
A prime contractor agreed to issue joint progress payment checks to its[...]