Collecting Pre-Judgment Interest

In Washington State, parties seeking damages related to breach of contract, often can recover interest on those damages pursuant to contractual provisions governing interest. Promissory notes, construction contracts, lease agreements, and many other types of contracts may specify an interest rate that accrues on a principal balance in the event of a default. Typically, the contract governs interest rates (both pre- and post-default), and this is the best practice so that the parties to the contract have the same general expectations.

However, a party seeking to recover damages against its counterpart that has breached a contract, may still recover pre-judgment interest even in the absence of a contractual provision entitling the claimant to interest. RCW 19.52.010 states that: "Prejudgment liquidated damages bear interest at a statutory rate of 12% per annum in the absence of a different contractual rate in the writing between the parties."There are exceptions for prejudgment interest on medical debt, which generally cannot exceed 9%, and for leases involving personal goods, which often does not qualify under the statute. Washington law on prejudgment interest is based on the principle that a party "who retains money which he ought to pay to another should be charged interest on it." Prier v. Refrigeration Eng'g Co., 74 Wn.2d 25, 442 P.2d 621 (1968). In other words, the goal is to compensate a party for the loss of the use of money that has been wrongfully withheld by another party. Mall Tool Co. v. Far W. Equip. Co., 45 Wn.2d 158, 169, 273 P.2d 652 (1954).

One critical piece of prejudgment interest is that the claim must be liquidated for statutory interest to apply. This means that the contractual documents, without outside evidence, must be sufficient for the calculation of damages, and that the calculation must be certain. If the calculation of damages instead requires testimony for its establishment, expert opinions, or court discretion, then the court cannot find those damages as liquidated. See Williams v. Queen Fisheries, Inc., 2 Wash. App. 691, 469 P.2d 583 (Div 1 1970). Ultimately, if the contractual documents cannot establish, within their four corners, the calculation of damages, that damages claim is not liquidated, and statutory prejudgment interest does not apply.

Another unique aspect of prejudgment interest arises when competing claims for damages arise. Circumstances may arise, for example, where one party seeks prejudgment interest on a liquidated claim, while the other party seeks damages for an unliquidated claim. If both parties are successful on their claims, the damages awarded to one party may be offset by the damages awarded to the other party. The question will come up how the prejudgment interest is calculated in a circumstance where the liquidated claim is subject to an offset. Washington State follows a general rule that the "interest on the whole rule", where the court calculates and awards prejudgment interest on the liquidated claim prior to deducting the opposing unliquidated counterclaim. See Mall Tool Co., 45 Wn.2d at 177-78. In other words, the claimant entitled to prejudgment interest will receive the entire benefit of that prejudgment interest before an offset for the competing award is applied. There is a notable exception, however, where the two competing claims are directly tied together arising out of the same breach.

Contractual disputes involve a variety of issues that arise, from finding breach and liability, to appropriately calculating damages, to properly seeking prejudgment interest and attorney's fees and costs where applicable. The attorneys at Beresford Booth have experience in drafting, interpreting, and litigating over a large variety of contractual disputes, both residential and commercial. If you have any questions regarding your contractual rights, or need guidance with a contractual relationship or dispute, please do not hesitate to contact us.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.