KAWASAKI MOTORS FINANCE v. VANAGAS, et al. (N.D. Ill., Doc. No. 07 C 5844)
Larger projects tend to offer better protections to contractors and owners through the issuance of sureties and bonds and the design professional is often left with the court system as the sole remedy for recouping payment either through an action for breach of contract, or to foreclose on a lien. Smaller projects offer similar pitfalls for design professionals… and depending on the amounts owed, recouping the money can seem daunting.
In situations where the fee is a fraction of the total project cost, consider the personal guarantee. It’s an additional agreement signed by an individual, not an LLC or a Corporation obligating the person to the debt owed.
A recent case from the Northern District, Kawasaki Motors, deals with these types of guarantees (albeit in a motor vehicle financing setting) and is illustrative of the shorter method recoupment on the guarantee can take.
In Kawasaki, two individuals had signed personal guarantees for the debts of a corporation that had contracted with the plaintiff. The corporation defaulted on its obligations and ended up owing roughly $76,000 to the plaintiff. The plaintiff had a judgment against the corporation and then sought the money from the guarantors that had signed agreements with the plaintiff guaranteeing the debts of the corporation. The defendants failed to contest the validity of the guaranties and the court ruled in favor of the plaintiffs on summary judgment finding that no issues of fact existed for trial where the contract for they guaranties was not contested and the defendants failed to put forward any reason to contest the amount claimed by the plaintiff.
Someone financing a project should be able to personally guaranty the 7% to 10% fee that the design professional will earn… especially on smaller commercial projects or residential ones. Given that the design professional usually will have completed the majority of its work before financing problems arise, an extra guaranty for those taking such a risk is a welcomed safety net.
