Construction Law – Joint Payment Arrangements

GETTING TO YES WHEN YOU WANT TO SAY NO – JOINT PAYMENT ARRANGEMENTS IN CONSTRUCTION

Whether selling materials, renting equipment, or providing labor, consider whether your customer has the financial ability to pay without funds from the project. Perhaps, establish a “joint payment” arrangement with either the owner or general contractor when you want to say “no” to the customer, but “yes” to the project. Beware, however, of some pitfalls.

Joint Check Agreements. First, analyze your customer’s contract. Check the contract for “pay-when” and “pay-if” paid terms that could impact when and if payment will occur.

Second, understand the joint payment agreement is a contract creating rights and obligations. In White Construction Company, Inc. v. Sauter Construction Company, Inc., 731 P.2d 734 (Colo. App. 1986), a sub-subcontractor was held liable to the general contractor for work not performed in a workmanlike manner because the general contractor and the sub-subcontractor had entered into a joint check agreement. In Buttermore v. Firestone Tire and Rubber Company, 721 P.2d 701 (Colo. App. 1986), the owner was held to be personally liable to subcontractors because of a joint check arrangement on a project.

Finally, employ caution when using the owner’s or general contractor’s joint payment agreement form. Many owners and general contractors, in order to limit liability to suppliers, will include such language as: “This arrangement is made merely as an accommodation to the supplier and is not intended to be relied upon by the supplier or to prove any contractual obligations owing from contractor to supplier.” Others will include language: (1) limiting their payment obligation to the amount due the subcontractor; (2) incorporating arbitration or other dispute resolution conditions stated in the subcontract agreement; and (3) language waiving mechanic’s lien rights or other supplier’s payment remedies. If you are a supplier, beware of these limitations.

Remitting joint payments to your customer. Some material suppliers remit portions of the joint check proceeds to their customers even though they are still owed money for materials for the project. A materialman can make loans to his customer, but not with the owner’s or general contractor’s money intended to avoid liens against the property. Section 38-22-127, C.R.S. Additional language would need to be added to the joint payment form if you are planning to remit funds to your customer from joint payments received. Be sure to keep the owner or general contractor apprised as to the amounts remitted.

Payment application. Often suppliers will apply joint payments received to oldest invoices rather than to the invoices for the project – even knowing the source of funds. In the case of Jackson v. A.B.Z. Lumber Co., 155 Colo. 33, 392 P.2d 288 (1964), the Colorado Supreme Court found that a lumber supplier could not maintain its mechanic’s lien against the property because the lumber company knew the source of funds used by the subcontractor to pay the delinquent material bill even though the subcontractor never directed the lumber company how to apply the payment.

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