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Joint Check Agreements

Monday, April 03, 2006 06:08 pm

 
Joint Check Agreements

Subcontractors and suppliers on construction projects sometimes have concerns regarding the creditworthiness of the party with whom they are doing business. The sub or supplier can ask the next party up the payment chain, typically a project owner or prime contractor, to issue payment in the form of joint checks naming the sub or supplier as an additional payee. The check cannot be negotiated without the sub or supplier's endorsement, providing leverage to assure payment.

Joint check arrangements are generally, although not universally, enforceable against the party agreeing to issue the joint checks. But for the subcontractor or supplier seeking to assure payment, endorsement of joint checks can have unintended consequences.

Enforceability

In one case, a prime contractor's agreement to issue progress payment checks payable jointly to a subcontractor and the sub's supplier created a direct payment obligation running from the prime to the supplier. When the subcontractor became insolvent and left the project, the prime contractor had to pay the supplier. Glen-Gery Corp. v. Warfel Construction Co., 734 A.2d 926 (Pa.Super. 1999); CCM November 1999, p. 3.

The same result occurred when a project owner agreed to issue joint checks to a prime contractor and the contractor's supplier. Agway, Inc. v. Marotti, 540 A.2d 1044 (Vt. 1988); CCM August 1988, p. 8. And likewise when a prime contractor agreed to issue joint checks to a subcontractor and [...]

 
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