Who must sign a joint check agreement, and why would that even matter? Getting ink from the appropriate parties is a critical step in executing a valid joint check agreement. As explained in prior posts within the Joint Check Blog Series, joint check agreements are commonly misunderstood leaving parties with an empty promise from the developer or general contractor. While the language of the agreement makes a difference in this area, its quite common for the enforceability of a joint check agreement to boil down to this simple question: who signed it?
Joint Check Agreements Are Exception To General Contract Rules – Obligating A Third Party To A Debt
Joint check agreements create an exception to a party’s typical contractual responsibilities.
Normal circumstances see only two contracting parties: the obligee and the obligor. In the construction context, the obligor is the party charged with furnishing labor or materials to a project, and the obligee is the party who will receive the benefit of that furnishing. For example, a general contractor will contract with a subcontractor for performance of some scope of work. The subcontractor is charged with performing according to the contract and is the obligor. The general contractor will receive the benefit of that work and is considered the obligee.
All contract talk aside, the important take-away from this example is that there are only two parties to a typical agreement. There is the obligor and the obligee. One party is required to perform the work and the other party will receive and pay for it.
Third parties (such as the property owner, the construction manager, the lender, the sub-subcontractor, and so on) are not parties to the agreement. They cannot demand that the obligor perform anything, and in turn, the obligor is only able to go after the obligee for payment. In fact, the restriction upon an obligor (like a subcontractor) to only seek payment from the party it directly contracts with is one of the primary justifications for filing a mechanics lien, as the mechanics lien provides authority to proceed against other parties up the contracting chain for payment (see 17 Ways A Mechanics Lien Works To Get You Paid).
Entering into a joint check agreement carves out an exception to the general rules of contracting. Although the contracting agreement is between only two parties, a third party jumps in and promises to guarantee payment to the performing party by agreeing to write all checks to both parties of the original contract. Realize that this requires three parties to agree:
(1) The third party who will write the joint checks must agree to take on the additional obligation;
(2) The obligee to the original contract must agree to allow the third party to write these joint checks and pay the obligor directly; and
(3) The obligor must agree to accept payment from the joint checks.
What’s that mean?
All Three Parties To A Joint Check Agreement Must Sign The Agreement
All of this confusing contract law babble means just one thing: get everyone to sign the joint check agreement.
If every one of the three parties to a joint check agreement doesn’t sign the agreement it could come under attack. The only party who could possibly be forgiven for not signing the agreement is the lowest tier who is receiving the benefit of the agreement (i.e. the original contract’s obligor), and that’s because many state’s case law suggests that the party receiving the benefit of an obligation need not sign the agreement to claim the benefit. Nevertheless, why roll the dice on this? If you’re benefiting from a joint check agreement you might as well sign it, too.