What are joint checks? How are they used on construction projects? Are they a perfect solution?
A joint check is a check made payable to two or more payees in the conjunctive, e.g. “Jane Doe Masonry, Inc. and Good Brick, Inc.” A financial institution should only honor the check if both payees have correctly endorsed it.
A joint check may provide the parties on a construction project an additional level of security. For example, an owner may issue a joint check payable to both the general contractor and the subcontractor. By endorsing this check, both the general contractor and subcontractor will be admitting receipt of payment: the general contractor from the owner, and the subcontractor from the general contractor. By virtue of this fact, the owner has some assurance that the general contractor has paid the subcontractor at least some portion of what the subcontractor is properly owed. Furthermore, the subcontractor will know when and how much the general contractor has been paid.
Joint checks are not foolproof. People and financial institutions can intentionally or carelessly circumvent the security joint checks may offer.
In our Law 101 posts, we define terms, phrases, or concepts with the goal of conveying core information in order to set the stage for more complex discussions.