• School Districts May Be Held Responsible For Prejudgment Interest On Contractor's Unliquidated Claims
  • October 31, 2003
  • Law Firm: Atkinson, Andelson, Loya, Ruud & Romo, A Professional Corporation - Cerritos Office
  • An "unliquidated" claim is one which is uncertain in amount, such as a claim for damages for "pain and suffering." Contractors frequently present school districts with unliquidated claims, seeking such things as "delay damages," "extended home office overhead," and "loss of bonding capacity." These are "unliquidated" claims because they are uncertain in amount until the parties reach a negotiated figure or a judge, jury, or arbitrator rules on the award amount.

    Historically, California courts have been reluctant to award a contractor interest on such claims because they ruled it was unfair to expect an owner to pay such a claim before the owner was able to compute the amount. The courts indulged in their concern over the fairness for the owner at the expense of a claimant, who might go unpaid for months or years while a case proceeded through the court process. In a recent case, Nelson v. Clovis Unified School District (2001) 90 Cal.App.4th 64, 108 Cal.Rptr. 2d 715, the Court of Appeal re-examined these competing interests, and held that contractors may recover prejudgment interest on unliquidated claims.

    The award of interest on unliquidated claims is discretionary with the court. The court also has discretion to set the starting date for the running of the prejudgment interest. However, under Civil Code Section 3287(b), the starting date for the running of interest can be no earlier than the date a claimant files a lawsuit or files for arbitration. This is different from the rule applied to liquidated claims, which are claims for certain amounts such as the contract balance or retention. Interest on such liquidated claims runs from the date payment was due, even if that date precedes the filing of a lawsuit by months or years.

    The new holding in Nelson increases the risks associated with contractor claims, and suggests that to a greater extent than before, school districts and other public agencies should make prompt, good-faith efforts to resolve claims at the earliest possible time.