California Prejudgment Interest

Prejudgment interest is the amount of interest the law provides to a plaintiff to compensate for the loss of the ability to use the funds. In California, prejudgment interest is also recoverable on tort damages and contract damages.

Author: Brad Nakase, Attorney

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The interest that a creditor, usually a plaintiff in the case, is entitled to collect, derived from the amount of a judgment, which compensates the creditor for an injury which occurred before the judgment. California Civil Code section 3289 provides guidance and specifies that prejudgment interest on a tort claim is set at seven percent (7 percent) per annum, in simple interest. (Michelson v. Hamada (1994) 29 Cal.App.4th 1455.) Prejudgment interest is recoverable on tort damages under California Civil Code § 3287(a).

Civil Code section 3289 states:

(a) Any legal rate of interest stipulated by a contract remains chargeable after a breach thereof, as before, until the contract is superseded by a verdict or other new obligation.
(b) If a contract entered into after January 1, 1986, does not stipulate a legal rate of interest, the obligation shall bear interest at a rate of 10 percent per annum after a breach.

For the purposes of this subdivision, the term contract shall not include a note secured by a deed of trust on real property.

In this article, our business dispute attorney in San Diego discusses prejudgment interest in California as follows:

1. How can a plaintiff get prejudgment interest on a judgment?

2. What is the prejudgment interest for tort?

3. What is the prejudgment interest for contract?

4. Who is entitled to prejudgment interest?

How can a plaintiff get prejudgment interest on a judgment?

A plaintiff who wins his claim against a defendant may request the court to award prejudgment interest by making a motion for prejudgment interest under California Civil Code 3289. Prejudgment interest is essentially additional money that a court can award based on the interest that the judgment would have earned over the period of time from when the claimant was entitled to receive those monies.

Prejudgment interest serves two purposes: first, it compensates the plaintiff for the loss of the use of his or her money; and, second, it forces the defendant to relinquish any benefit that it has received by retaining the plaintiff’s money in the interim. Prejudgment interest is allowed on most judgments entered in the federal courts from the date of judgment until paid.

What is the prejudgment interest for tort?

A 7% prejudgment interest is also recoverable on tort damages under California Civil Code § 3287(a). Where interest is awarded on tort and other non-contractual claims, the rate is 7% per annum. See California Constitution, Article 15, section 1; and Children’s Hospital and Medical Center v. Bonta, (2002) 97 Cal. App. 4th 740, 775.

What is the prejudgment interest for contract?

Under California Civil Code § 3289(a) “Any legal rate of interest stipulated by a contract remains chargeable after a breach thereof…until the contract is superseded by a verdict or other new obligation.” However, “[i]f a contract does not stipulate a legal rate of interest, the obligation shall bear interest at a rate of 10 percent per annum after breach.” California Civil Code § 3289(b).

Who is entitled to prejudgment interest?

Only prevailing parties can recover interest on prejudgments. What does this mean? In brief, a prevailing party is a party that wins in court or succeeds with its lawsuit.

The winning party does not need to win a set amount. For example, even if the court awards the plaintiff less money or damages than they sought, the winning plaintiff is still the prevailing party and is treated as such.

However, when a settlement occurs before or during the trial, the prevailing party does not exist.

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