By: Richard E. Guttentag, Esq., Stearns, Roberts & Guttentag, LLC
Where a disputed claim becomes liquidated by the court as to the amount recoverable, prejudgment interest is to be awarded from the date the payment was due. This rule of law was applied by the court inCurrent Builders of Florida, Inc. v. Certified Lower Keys Plumbing, 2012 WIL 6603066 (Fla. 3rd DCA 2012).
In Current Builders of Florida, Inc., a Contractor was retained by a Developer to construct improvements on the Developer’s property. The Contractor entered into a subcontract agreement with a plumbing subcontractor (“Subcontractor”) to perform plumbing work on the property under which the Subcontractor agreed to receive payment from the Contractor when the Contractor was paid by the Developer. The Developer was unable to pay the Contractor’s final payment for the improvements it furnished to the property. In lieu of the final payment, the Contractor accepted a note and mortgage from the Developer and then ultimately received title to one of the units constructed on the property. The unit was valued at approximately $2,500,000.00. The transfer of the unit to the Contractor was in consideration of a full satisfaction of all of the Contractor’s prior claims against the Developer.
Despite the Contractor receiving title to the Unit, the Contractor did not pay the Subcontractor its final payment of $130,482.17 as required by the terms of the Subcontract. Instead, the Contractor transferred the Unit to its sister company, and represented to the State of Florida in its articles of dissolution that no debt of the Contractor remained unpaid. Subsequently, the Subcontractor brought an action against the Contractor, the Contractor’s surety, the Developer, among others seeking payment for the work it performed on the property.
The trial court rejected the Contractor’s position that with no assets in its possession, it had no obligation to pay the Subcontractors. The trial court found that the Contractor was paid in full by the Developer by receiving the deed to the Unit, and entered a judgment in favor of the Developer. The trial court also entered a judgment in favor of the Subcontractor as to its claims against the Contractor and the Contractor’s surety. The Contractor and its surety appealed the trial court’s decision.
The appellate court agreed with all of the trial court’s rulings except on one minor point – the starting date used in assessing prejudgment interest on the payment owed to the Subcontractor. On appeal, the Contractor argued that under the Subcontract, prejudgment interest should have been calculated from the date the Developer paid the Contractor, and not from the date the Subcontractor completed its work on the property. The appellate court agreed with the Contractor on this point.
Once a court or jury sets the amount of damages to be awarded, the damages are retroactively considered liquidated damages, and the plaintiff is entitled to prejudgment interest from the date payment was due. In this case, payment was not due to the Subcontractor until the Contractor was paid by the Developer. Therefore, the Court held that prejudgment interest should have been calculated from the date the Contractor accepted the note and mortgage from the Owner (i.e. the date the Contractor was paid), rather than the date the Subcontractor completed its work. Accordingly, the appellate court reversed the judgment in order for the trial court to recalculate the prejudgment interest award.
This case demonstrates that prejudgment interest on a past due payment begins to accrue on the date that the payment becomes due. However, the date the payment is due could be contingent on the terms of the contract between the parties, and not necessarily when the work for which the payment is due is completed.
About the Author: Richard E. Guttentag is a partner with Stearns, Roberts & Guttentag, LLC, and is Board Certified in Construction Law by the Florida Bar. Mr. Guttentag exclusively in construction law including construction lien claims and defense, payment and performance bond claims and defense, bid protests, construction contract preparation and negotiation, and construction and design defect claims and defense. He can be reached for consultation at [email protected].