Royal Electric Construction Corp. v. Ohio State University

73 Ohio St. 3d 110

• Court: Ohio Supreme Court
• Decided: August 16, 1995
• Docket: No. 94-419
• Status: Published

Opinions

Douglas, J.

Appellees do not dispute that Royal suffered significant monetary losses as a result of delays and disruptions involving the Lazenby Hall and Hamilton Hall projects. In fact, appellees do not challenge the findings of the trial court and court of appeals that they (appellees) were responsible for certain delays and other problems associated with both projects.¹ Rather, the sole dispute in this case is whether Royal should be compensated for delay in payment of damages which were due Royal. More specifically, we are asked to determine whether Royal is entitled to $73,394 ($58,338 in connection with the Lazenby Hall project and $15,056 in connection with the Hamilton Hall project) in prejudgment interest.

Appellees contend that prejudgment interest is not justified in the case at bar because certain amounts owed to Royal were “unliquidated” (as opposed to “liquidated”) and “not capable of ascertainment by reasonably certain calculations” until judgment was rendered by the Court of Claims. Appellees assert that it would be “unfair to charge a debtor with interest on such an amount disputed in good faith,” that the award of prejudgment interest would violate public policy, and that this award would act as a penalty. We disagree.

Courts in Ohio have long recognized a common-law right to prejudgment interest. See Moskovitz v. Mt. Sinai Med. Ctr. (1994), 69 Ohio St.3d 638, 656-657, 635 N.E.2d 331, 346-347. Additionally, in 1975, Ohio created a statutory right to prejudgment interest in suits against the state.

R.C. 2743.18(A) provides:

“Prejudgment interest shall be allowed with respect to any civil action on which a judgment or determination is rendered against the state for the same period of time and at the same rate as allowed between private parties to a suit.

“The court of claims, in its discretion, may deny prejudgment interest for any period of undue delay between the commencement of the civil action and the rendition of a judgment or determination against the state, for which it finds the claimant to have been responsible.” (Emphasis added.)

In regard to the phrases “period of time” and the legal “rate” of interest “as allowed between private parties,” set forth in R.C. 2743.18(A), R.C. 1343.03(A) provides:

“In cases other than those provided for in sections 1343.01 and 1343.02 of the Revised Code, when money becomes due and payable upon any bond, bill, note, or other instrument of writing, upon any book account, upon any settlement between parties, upon all verbal contracts entered into, and upon all judgments, decrees, and orders of any judicial tribunal for the payment of money arising out of tortious conduct or a contract or other transaction, the creditor is entitled to interest at the rate of ten per cent per annum, and no more, unless a written contract provides a different rate of interest in relation to the money that becomes due and payable, in which case the creditor is entitled to interest at the rate provided in that contract.” (Emphasis added.)

Appellees’ contentions neither comport with the clear language set forth in R.C. 2743.18(A) and 1343.03(A), nor do their assertions support the apparent legislative purposes behind the enactment of the statutes. Appellees’ arguments, if accepted, would have the effect of amending R.C. 2743.18(A) and 1343.03(A) by adding language to the statutes that clearly does not exist. Neither statute contains the words “liquidated” or “unliquidated,” nor do the statutes require that a claim be “capable of ascertainment” prior to a determination by the court. In addition, neither statute uses the language “good faith.” Section (C) of R.C. 1343.03 makes “good faith” a factor, but section (A) of the statute does not. See Moskovitz, supra, at 658-659, 635 N.E.2d at 347-348.

By its very terms, R.C. 2743.18(A) sets forth that upon a judgment or decision rendered by the Court of Claims against the state, the claimant is entitled to prejudgment interest. Indeed, R.C. 2743.18(A) uses the word “shall.” Thus, if a judgment or determination is rendered by the court against the state, the decision to allow or not allow prejudgment interest is not discretionary. The only matter that is discretionary with the court is the determination of “undue delay.” Further, R.C. 2743.18(A) instructs that in computing the interest owed to the claimant, the court must usd the “same period of time” and the “same rate” as is used in suits involving “private parties.” Therefore, in computing the amount of interest owed, the court is required to look to R.C. 1343.03(A) to determine when interest commences to run, ie., when the claim becomes “due and payable,” and to determine what legal rate of interest should be applied.

Appellees also submit that an award of prejudgment interest in a case such as this would “jettison a rule of law that has stood in Ohio for over a century.” In support of this contention, appellees cite Braverman v. Spriggs (1980), 68 Ohio App.2d 58, 22 O.O.3d 47, 426 N.E.2d 526. Again, we disagree.

In Bmverman, the court of appeals held that R.C. 1343.03(A) is limited to “liquidated” debts, that is, debts of a sum certain. In reaching this conclusion, the court in Bmverman did not set forth any rationale for its holding, nor did the court provide any policy reasons behind its interpretation of R.C. 1343.03(A). Rather, it appears that the court reached its decision after reviewing Shawhan v. Van Nest (1874), 25 Ohio St. 490. However, Shawhan did not involve any statutory provision, nor does Shawhan discuss or mention the words “liquidated” or “unliquidated.” Shawhan stands simply for the proposition that in an action based upon breach of contract, the aggrieved party may recover the contract price and interest from the time that the money should have been paid. To a degree, Shawhan actually supports the trial court’s decision in the case at bar. In fact, Shawhan could be cited as persuasive authority that there is a common-law right to prejudgment interest and that the inclusion of such interest is part of compensatory damages.

It is apparent that courts in Ohio have attached great significance to the liquidated-unliquidated dichotomy, or have refined this rule and allowed prejudgment interest in situations where the claim is unliquidated but “capable of ascertainment.” See, e.g., Shaker Sav. Assn. v. Greenwood Village, Inc. (1982), 7 Ohio App.3d 141, 7 OBR 184, 454 N.E.2d 984. It is also apparent that these judicial creations (liquidated-unliquidated and capable-of-ascertainment tests) have caused much confusion among members of our bench and bar in deciding under what circumstances prejudgment interest is warranted.² Hence, we believe that the focus in these types of cases should not be based on whether the claim can be classified as “liquidated,” “unliquidated” or “capable of ascertainment.” Rather, in determining whether to award prejudgment interest pursuant to R.C. 2743.18(A) and 1343.03(A), a court need only ask one question: Has the aggrieved party been fully compensated?

An award of prejudgment interest encourages prompt settlement and discourages defendants from opposing and prolonging, between injury and judgment, legitimate claims. Further, prejudgment interest does not punish the party responsible for the underlying damages as suggested by appellees, but, rather, it acts as compensation and serves ultimately to make the aggrieved party whole. See, generally, Moskovitz, supra, at 656-657, 635 N.E.2d at 346-347. See, also, McCormick, Damages (1935) 205, Section 50 et seq.; 3 Restatement of the Law 2d, Contracts (1981) 150-151, Section 354(2); Annotation (1974), 60 A.L.R.3d 487, 495, Section 2; Note, Developments in the Law [ — ] Damages[:] Interest (1947), 61 Harv.L.Rev. 113,136-138; and Note, Recent Developments [ — ] Prejudgment Interest as Damages: New Application of an Old Theory (1962), 15 Stan.L.Rev. 107-113. Indeed, to make the aggrieved party whole, the party should be compensated for the lapse of time between accrual of the claim and judgment.

Appellees further suggest that prejudgment interest should not be allowed in this case because “[t]he majority of American jurisdictions, in determining whether prejudgment interest is awardable in contract cases, follow the liquidated/capable of ascertainment test — also called the ‘degree of certainty’ test — or some variant thereof.” However, we are not here concerned with what is or is not the majority view. Rather, we are only concerned with the law of this state as pronounced by our General Assembly. In addition, we are more persuaded by those states that have moved away from the medieval notion that interest is evil. See, e.g., State v. Phillips (Alaska 1970), 470 P.2d 266, 274 (“At the moment the cause of action accrued, the injured party was entitled to be left whole and became immediately entitled to be made whole. * * * All damages then, whether liquidated or unliquidated, pecuniary or nonpecuniary, should carry interest from the time the cause of action accrues * * *.”). See, also, McCormick, supra, Historical Development of the Modem Law as to Interest, at 206-211, Section 51.

Accordingly, we hold that in a case involving breach of contract where liability is determined and damages are awarded against the state, the aggrieved party is entitled to prejudgment interest on the amount of damages found due by the Court of Claims. The award of prejudgment interest is compensation to the plaintiff for the period of time between accrual of the claim and judgment, regardless of whether the judgment is based on a claim which was liquidated or unliquidated and even if the sum due was not capable of ascertainment until determined by the court.

In the case now before us, the trial court determined that Royal had substantially completed the Lazenby Hall project by March 12, 1989 and the Hamilton Hall project by September 1,1991, and that the damages sustained by Royal as a result of the delays and other problems associated with the projects accrued (became “due and payable”) at the time that Royal had substantially completed each of the projects. In this regard, the trial court held that interest awarded on the damages involving Lazenby Hall and Hamilton Hall commenced on March 12, 1989 and September 1, 1991, respectively.

We believe that the trial court properly awarded prejudgment interest to Royal. Accordingly, we reverse that portion of the judgment of the court of appeals denying prejudgment interest to Royal.

Judgment reversed.

Resnick, F.E. Sweeney, Pfeifer and Cook, JJ., concur. Moyer, C.J., and Wright, J., concur in part and dissent in part.

1 . In fact, according to the parties, most of the claims submitted by Royal were paid by appellees prior to this appeal.

2 . It is apparent that courts in this state, when attempting to determine if prejudgment interest should be granted in these types of situations, have been utilizing a subjective analysis, which has led to many confusing, inconsistent and oft-times irreconcilable decisions. A case in point is the case at bar. Here, the trial court concluded that the sums owed by appellees to Royal were “liquidated” debts. The court of appeals, on the other hand, determined that the debts were “unliquidated.” Compare Conti Corp. v. Ohio Dept. of Adm. Serv. (1993), 90 Ohio App.3d 462, 629 N.E.2d 1073.