Royal Electric Constr. Corp. v. Ohio State Univ.

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State: Ohio

Court: Supreme Court

Docket No: 1994-0419

Case Date: 08/16/1995

Plaintiff: Royal Electric Constr. Corp.

Defendant: Ohio State Univ.

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Royal Electric Construction Corporation, Appellant, v. Ohio
State University et al., Appellees.
[Cite as Royal Electric Constr. Corp. v. Ohio State Univ.
(1995), Ohio St.3d .]
Court of Claims -- Prejudgment interest -- R.C. 2743.18(A),

construed and applied -- Interest when rate not stipulated
-- R.C. 1343.03(A), construed and applied.

---

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. (R.C. 2743.18[A] and 1343.03[A],
construed and applied.)

---
(No. 94-419 -- Submitted April 18, 1995 -- Decided August
16, 1995.)
Appeal from the Court of Appeals for Franklin County, Nos.
93AP-399 and 93AP-424.

This appeal involves prejudgment interest. The parties
involved in this case are appellant, Royal Electric
Construction Corporation ("Royal"), and appellees, the Ohio
State University ("OSU") and the Ohio Department of
Administrative Services ("ODAS"). The facts and procedural
posture of this appeal can be gleaned from the decisions of the
trial court and court of appeals.

The facts giving rise to this appeal concern two contracts
entered into by the parties. Royal was hired to work on two
buildings located on the campus of OSU. Both projects were
publicly bid and Royal submitted the lowest and best bid for

each project.

Specifically, on June 4, 1987, Royal entered into a
contract to perform electrical renovations involving Lazenby
Hall. The project, regarding the work to be performed by
Royal, was scheduled to be completed on September 9, 1988. The
project was, however, fraught with numerous delays and/or
disruptions and, consequently, Royal's work on the project was
not completed or substantially completed until March 12, 1989.

Further, during the time that Royal was involved with the
Lazenby Hall project, Royal tendered a bid to participate in
the renovation of Hamilton Hall. Royal tendered its bid on
January 19, 1989, and was later asked to extend the terms of
the bid through April 28, 1989. Royal agreed to the extension
and was awarded the contract. Thereafter, a notice to proceed
was issued authorizing Royal to commence work on May 31, 1989.
The work was to be completed by May 31, 1991. However, the
commencement date was postponed by appellees until September 1,
1989, and, as a result, the work was not completed or
substantially completed by Royal until September 1, 1991.

The delays experienced by Royal involving both the Lazenby
Hall and Hamilton Hall projects were not the fault of Royal.
Rather, the delays were the responsibility of appellees.

As a result of the delays and other problems associated
with the projects, Royal attempted to seek redress under the
"Article 8" administrative review procedures set forth in both
contracts. Eventually, Royal filed suit in the Court of Claims.

In its amended complaint, Royal alleged that appellees
breached both the Lazenby Hall and Hamilton Hall contracts,
that appellees were responsible for "delays and disruptions"
regarding the Lazenby Hall project, and that appellees caused a
"substantial delay" in the commencement of the Hamilton Hall
project. Royal claimed that the delays were caused by the
appellees' failure to issue "change orders" and their refusal
to resolve disputes under the terms of the contracts. Royal
further alleged that as a result of the delays it was required
to perform "extra work," that it "incurred additional costs and
expenses," that it "suffered damage to its overhead," and that
it "suffered serious damage to its business." Moreover, with
respect to the Lazenby Hall contract, Royal claimed that
appellees wrongfully refused "to remit $8,184.00 in retainage
still owed * * *." Additionally, with regard to the Hamilton
Hall contract, Royal alleged that appellees breached the
contract "by insisting that Royal * * * revise * * * and
replace certain fixtures that were already installed, even
though the fixtures originally ordered and supplied by Royal *
* * were in full compliance with the Hamilton Hall Contract."

The parties conducted discovery and the case proceeded to
trial. At trial, the court heard extensive testimony from
numerous witnesses (resulting in approximately four thousand
pages of trial transcript) and hundreds of pages of exhibits
were admitted into evidence.

Thereafter, the trial court issued an exhaustive
decision. The court discussed the various theories and issues
raised by the parties in support of their positions, including
various methods and data utilized by the parties in determining
the amount of damages owed by appellees to Royal. On February
19, 1993, the trial court entered judgment in favor of Royal.

In the February 19, 1993 judgment entry, the trial court
set forth the specific damages owed by appellees. With respect
to Lazenby Hall, the trial court held that Royal was entitled
to $96,541 for "lost man-hours expended," $32,238 for
"unabsorbed home office overhead losses," and $58,338 for
"prejudgment interest." With regard to the Hamilton Hall
project, the trial court held that Royal was entitled to
$38,815 "for unabsorbed home office overhead," $50,951 "for
losses ocassioned [sic] by the wrongful rejection of
plaintiff's R-3 lighting fixtures," and $13,914 for
"prejudgment interest." The trial court also found that Royal
was entitled to $1,659 from ODAS, individually, for interest on
the amount wrongfully retained under the Lazenby Hall contract.

Subsequently, in a judgment entry dated May 3, 1993, the
trial court corrected its prior award to Royal involving the
light-fixture matter. The court concluded that the proper
amount owed by appellees to Royal was $58,320, not $50,951.
Given this correction, the court held that Royal was entitled
to $15,056 in interest on losses incurred by Royal concerning
the Hamilton Hall project. Moreover, in this entry, the trial
court reaffirmed the propriety of awarding prejudgment interest
to Royal regarding both projects:

"* * * After considering all of defendants' arguments,
the court finds that the interest awarded is justified for
several reasons. Contrary to defendants' analysis, the claims
of the plaintiff were capable of calculation by the state and
were therefore liquidated debts. Also, the state through
reasonable application of its Article 8 proceedings, could have
determined the amount due under any number of standards
recognized in the construction industry. The mere act of
disputing the amount does not control whether the debt is
liquidated or unliquidated. Finally, the court considers the
award of prejudgment interest necessary to make plaintiff
whole." (Emphasis added.)

Upon appeal, the Court of Appeals for Franklin County
held, among other things, that the trial court properly awarded
damages to Royal for the delays encountered by Royal on the
Lazenby Hall and Hamilton Hall projects. The court of appeals
also remanded the cause to the trial court to consider and
clarify certain matters regarding the trial court's
calculations of overhead losses suffered by Royal. The court
of appeals, however, held that the trial court erred in
awarding prejudgment interest to Royal. The court of appeals
determined that the interest awarded by the trial court was not
justified because certain damages sought by Royal were
"uncertain" and "unliquidated." Specifically, in considering
the trial court's May 3, 1993 judgment entry, the court of
appeals stated:

"* * * While the court is correct that the state could
have attempted to calculate its potential liability using
construction industry standards, the amount of damages for
which the state was ultimately responsible would still have
been uncertain because such calculations are dependent upon a
number of contingencies, such as the number of additional
man-hours expended on the two jobs and the amount of unabsorbed
overhead. Contingencies affecting the amount of damages are
factual issues to be resolved at trial by the finder of fact.

Indeed, this court has previously held that where the amount of
unabsorbed overhead in a construction delay dispute is
uncertain, the debt is unliquidated and is not the proper
subject of prejudgment interest."

Subsequently, Royal filed a motion for reconsideration,
requesting that the court of appeals reconsider its ruling with
respect to the denial of prejudgment interest. The court of
appeals denied Royal's motion.

The cause is now before this court pursuant to the
allowance of a motion to certify the record.

McFadden, Winner & Savage and James S. Savage, for
appellant.

Betty D. Montgomery, Attorney General, and Susan M.
Sullivan, Assistant Attorney General, for appellee Ohio State
University.

Betty D. Montgomery, Attorney General, and Daniel A.
Malkoff, Assistant Attorney General, for appellee Ohio
Department of Administrative Services.

Clark, Perdue, Roberts & Scott and Edward L. Clark, urging
reversal for amicus curiae Ohio Academy of Trial Lawyers.

Bricker & Eckler and Luther L. Liggett, Jr., urging
reversal for amicus curiae National Electric Contractors
Association, Inc.

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 use 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, i.e., 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
OhioApp.2d 58, 22 O.O.3d 47, 426 N.E.2d 526. Again, we
disagree.

In Braverman, 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
Braverman 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 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 Modern 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.

FOOTNOTES:
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.

Moyer, C.J., concurring in part and dissenting in
part. I agree with the observation of the majority that we

should put to rest the medieval view that prejudgment interest
is a penalty for wrongdoing. Rather, as the General Assembly
acknowledged in enacting R.C. 2743.18, prejudgment interest
should be awarded as a means of fully compensating an injured
plaintiff. I too believe we should obviate the liquidated
versus the unliquidated damages distinction because, in some
instances, it can preclude the compensation of a party who has
contracted with the state, where it has been determined that
the state has economically injured the contracting party. R.C.
2743.18(A) provides that "[p]rejudgment 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." Reference to R.C. 1343.03 that provides the
"period" for which a "rate" at which prejudgment interest is
determined in civil actions is only partially helpful.
Subsection (A) of R.C. 1343.03 is the only subsection that
refers to judgments arising out of contract; it states the rate
at which interest is computed on civil judgments. Subsections
(B), (C) and (D) all refer exclusively to civil actions based
on the tortious conduct. Subsection (C) states that
"[i]nterest on a judgment, decree, or order for the payment of
money rendered in a civil action based on tortious conduct and
not settled by agreement by the parties, shall be computed from
the date the cause of action accrued to the date on which the
money is paid ***."

Since the General Assembly has not expressly stated a
period for which prejudgment interest is to be paid in a civil
action arising from contract, I would not begin the period at
the accrual date but rather at the date when an action is filed
by the plaintiff. There is considerable commentary on the
issue in legal journals. See, e.g., Comment, Prejudgment
Interest: Survey and Suggestion (1982), 77 Nw. U.L. Rev. 192;
McCormick, Damages (1935) 229, Section 58. I am persuaded that
the fairest rule is to begin the computation of prejudgment
interest with the filing of plaintiff's complaint. Such a rule
obviates the circumstances under which a plaintiff can control,
to some extent, the amount of prejudgment interest that may be
received by delaying the filing of a complaint. To the extent
the majority holds contrary to that rule, I dissent.

For the foregoing reasons I concur and dissent in the
judgment of the majority.

Wright, J., concurs in the foregoing opinion.

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