JOINT CHECK AGREEMENTS

By Jonathan Sauer

Let’s discuss joint check agreements for a minute. Suppliers to subcontractors take great comfort in having them signed by general contractors, believing them to be automatic guarantees of payment. As a practical matter, in the ordinary circumstance, they are not guarantees of payment at all. Basically, the main purpose behind a joint check agreement from the general contractor’s standpoint is to give the general contractor permission from the subcontractor to pay the supplier under certain circumstances so that in doing so, the general contractor is not in material breach of its contract with the subcontractor by diverting contract funds.

Therefore, if your company depends on joint check agreements – particularly for unbonded jobs, larger orders or working for someone for the first time – it might be worthwhile to have your form checked by your counsel to try to ascertain to what extent the general contractor is binding itself to you at all.

A few years ago, a client asked me to give him a good form. I gave him a variation of the first form, which is three pages in length. He said he didn’t think he would ever get anyone to sign this form because of the fact that it was . . . . three pages in length!. He said to shorten the form to two pages, which is the second effort below. Obviously, the first form provides more protection.

JOINT CHECK AGREEMENT

(Longer and better form; some general liability under limited circumstances)

Job Name: __________________________________________

Address: __________________________________________

Owner: __________________________________________

Owner’s Address: __________________________________________

General Contractor: __________________________________________

General Contractor’s Address: __________________________________________

Customer: __________________________________________

Customer’s Address: __________________________________________

Your Name and ______________________ (Customer) have a contractual agreement whereby Your Name will supply materials to Customer at or for the above-identified job (meaning deliveries may be to the Customer’s shop or other location, as well as to the job), provided that this Agreement is executed by all parties hereto.

Customer has requested Your Name to extend credit for these purposes. In consideration of the benefit to the above General Contractor and Customer by Your Name’s supplying materials to the above-referenced job, Customer and General Contractor hereby agree and guarantee that all of Your Name’s invoices for the above-referenced job shall be paid in the following manner. Your Nameshall submit contemporaneous duplicate copies of its invoices to Customer to General Contractor in the ordinary course of business. If, for any reason, Customer objects to any portion of these invoices, it shall notify both Your Name and General Contractor of that fact with specific details within seven days of receipt of the invoices and General Contractor is entitled to rely on the accuracy of quantities and prices contained therein in the absence of such written notification. General Contractor agrees that all such invoices will be paid in the ordinary course of business and as per the payment obligations contained in its subcontract/purchase order with Customer but not to exceed forty-five days after receipt of such Your Name invoices by joint checks made payable to Your Name and Customer, which checks shall be sent directly to Your Name at its address give address.

General Contractor’s obligations under this agreement, except as provided below, are limited to those monies in Customer’s account as may be adjusted and that General Contractor is entering into this Agreement as an accommodation to Customer and to Your Name and not as an individual guarantor of Customer’s credit. General Contractor and Customer agree that Your Name’s invoices shall be paid out of the first monies Customer is entitled to out of any of Customer’s requisitions as to which Your Name’s invoices are a component part and out of any other of Customer’s requisitions to General Contractor on this or on any other job to the extent that any of the monies owed to Your Name on this job are overdue. As an inducement to Your Name to continue supplying Customer with materials for the above-referenced job, General Contractor herein agrees that if, at any time, there are insufficient monies left in Customer’s account to honor Your Name’s invoices as submitted, General Contractor will so notify Your Name in writing of such fact within ten days of receipt of Your Name invoices for which there are insufficient Customer funds remaining in its account for this job to satisfy Your Name invoices in whole or in part. The settlement as to what amounts are owed between Customer and General Contractor for the above-referenced job shall be determined by them solely in whatever manner they determine. General Contractor, for the purposes of this Agreement, shall not be required to issue joint checks in the event that its backcharges or claims against Customer at any time exceed the monies otherwise then owing to Customer but General Contractor will so advise Your Name of such fact within the ten day period indicated above. Your Name will rely on the absence of any such notification (s) as evidence that there are sufficient monies in Customer’s account for the above-described job to honor invoices representing its deliveries until notified to the contrary in accordance with this Agreement.

All parties hereto acknowledge that General Contractor’s acquiescence to this Agreement stated herein is as an accommodation to Customer and creates no independent obligation on its part to pay Your Name out of General Contractor’s own funds. Further, General Contractor will have no liability for damages to Your Name out of its own funds in the event of any breach of this Agreement excepting in two circumstances: (1) in a situation where General Contractor fails to give to Your Name the written notice (s) of insufficient funds described in the previous paragraph and Your Name continues to supply the job, in which case General Contractor shall be liable to Your Name only for those deliveries made after the ten day period would have taken place; (2) General Contractor fails to live up to its obligations assumed herein for no legally sufficient reason, in which case General Contractor’s liability to Your Name will be solely limited to Your Name’s reasonable expense in enforcing this agreement, including attorneys’ fees, plus interest on Your Name’soutstanding invoices at the rate of 1 1/2% per month running from forty-five days after the affected invoices have been sent to General Contractor. All parties hereto agree that the terms of this Agreement are specifically enforceable and that in the event that any of the terms of this agreement are invalid as a matter of law, all remaining valid terms shall be deemed to survive.

Name may have and is without waiver of any of them; (2) this agreement shall be deemed to have been entered into in Massachusetts and may be enforced in and by the courts of Massachusetts; (3) this Agreement may be terminated by any party hereto by certified mail notice to the other two parties and the Agreement will be terminated as to all future deliveries to Customer made after five days from the date Your Name receives actual notice of said termination by either Customer or General Contractor.

Nothing in this Agreement obligates Your Name to supply materials to Customer or to the above-referenced job. This Agreement of three pages shall be binding upon the parties hereto and on any other related companies to the parties hereto, their successors and assigns and as a sealed contract. Agreement shall be deemed effective when signed by all three parties hereto and upon Your Name’sreceipt of transmittal of the same from a representative of General Contractor’s on General Contractor’s letterhead. Copies of this Agreement are deemed to be effective as originals.

_________________________ _____________________________

Your name Witness

By an authorized representative

______________________

Date:

_________________________ _______________________________

Subcontractor Witness

______________________

Date:

________________________ _______________________________

General Contractor Witness

By an authorized representative

______________________

Date:

JOINT CHECK AGREEMENT (Shorter form)

Job Name: __________________________________________

Address: __________________________________________

Owner: __________________________________________

General Contractor: __________________________________________

Customer (Subcontractor): __________________________________________

General Contractor’s obligations under this agreement are limited to those monies in Customer’s account as may be adjusted and that General Contractor is entering into this Agreement as an accommodation to Customer and to Your Name and not as an individual guarantor of Customer’s credit. General Contractor and Customer agree that Your Name’s invoices shall be paid out of the first monies Customer is entitled to out of any of Customer’s requisitions as to which Your Name’sinvoices are a component part and out of any other of Customer’s requisitions to General Contractor on this or on any other job to the extent that any of the monies owed to Your Name on this job are overdue. As an inducement to Your Name to continue supplying Customer with materials for the above-referenced job, General Contractor herein agrees that if, at any time, there are insufficient monies left in Customer’s account to honor Your Name’s invoices as submitted, General Contractor will so notify Your Name in writing of such fact within ten days of becoming reasonably aware that there are insufficient Customer funds remaining in its account for this job to satisfy Your Name’sinvoices in whole or in part. The settlement as to what amounts are owed between Customer and General Contractor for the above-referenced job shall be determined by them solely in whatever manner they determine. General Contractor, for the purposes of this Agreement, shall not be required to issue joint checks in the event that its monies otherwise then owing to Customer but General Contractor will so advise Your Name of such fact within the ten day period indicated above. Your Name will rely on the absence of any such notification (s) as evidence that there are sufficient monies in Customer’s account for the above-described job to honor invoices representing its deliveries until notified to the contrary in accordance with this Agreement.

Customer and General Contractor acknowledge that this Agreement is entered into for valuable consideration (the extension of credit by Your Name to Customer and the supply of materials to the above-referenced job) and that each is specifically benefited by Your Name’s supply of materials. Further, all parties hereto acknowledge : (1) that this agreement is in addition to any other legal rights that Your Name may have and is without waiver of any of them; (2) this agreement shall be deemed to have been entered into in Massachusetts and may be enforced in and by the courts of Massachusetts; (3) this Agreement may be terminated by any party hereto by certified mail notice to the other two parties and the Agreement will be terminated as to all future deliveries to Customer made after five days from the date Your Name receives actual notice of said termination by either Customer or General Contractor. Nothing in this Agreement obligates Allied to supply materials to Customer or to the above-referenced job. This Agreement of two pages shall be binding upon the parties hereto and on any other related companies to the parties hereto, their successors and assigns and as a sealed contract. Agreement shall be deemed effective when signed by all three parties hereto and upon Your Name’s receipt of transmittal of the same from a representative of General Contractor’s on General Contractor’s letterhead. Copies of this Agreement are deemed to be effective as originals.

____________________________ _______________________________

Your name Witness

By an authorized representative

______________________

Date:

____________________________ ______________________________

Subcontractor Witness

By an authorized representative

______________________

Date:

_____________________________ ______________________________

General Contractor Witness

By an authorized representative

______________________

Date: