Joint Check Agreements– Who’s on First
By Bruce Nathan, Esq.
Material and service providers for real estate construction projects frequently use a joint check agreement as additional security for payment of their claims against financially troubled general contractors or subcontractors. A project owner might enter into a joint check agreement with its general contractor and subcontractor to assure the subcontractor payment of the contractor’s invoices. Alternatively, a general contractor may enter into a joint check agreement to jointly pay its subcontractors and their suppliers of materials and/or services to assure payment of the suppliers’ invoices. Sometimes, the joint check is used to pay the balance due the supplier and subcontractor. In other joint check arrangements, the entire check is for sums payable to the supplier.
While frequently used in construction transactions, joint check agreements are not well understood and are frequently mischaracterized. In the C&S Electric, Inc. case, pending in the Hawaii Bankruptcy Court, a general contractor had entered into a joint check agreement with a subcontractor and supplier of materials. The agreement required the general contractor to pay the material supplier’s invoices by (a) issuing a joint check in the amount of the supplier’s unpaid invoices, made payable to the subcontractor and supplier; (b) delivering the joint checks to the supplier; and (c) requiring the subcontractor to endorse the joint checks and return them to the supplier.
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