Opinion ID: 1700146
Heading Depth: 1
Heading Rank: 9

Heading: did the trial court err in denying authority's motion for prejudgment interest?

Text: The issue of prejudgment interest is a complex one. To consider it one must start at its origin. The Civil Code of 1877 provided for prejudgment interest awards under two sections now codified as 21-1-11 and 21-1-13. CivC 1877, § 1943, CL 1887, § 4577. The provisions exist today in essentially the same form as they did originally. See Uhe v. Chicago, M. & St.P.Ry. Co., 4 S.D. 505, 57 N.W. 484 (1894); Uhe v. Chicago, M. & St.P.Ry. Co., 3 S.D. 563, 54 N.W. 601 (1893); Corcoran v. Halloran, 20 S.D. 384, 107 N.W. 210 (1906). SDCL 21-1-11 provides that: Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day, except during such time as the debtor is prevented by law, or by the act of the creditor, from paying the debt. SDCL 21-1-13, on the other hand, provides that: In an action for the breach of an obligation not arising from contract, and in every case of oppression, fraud, or malice, interest may be given, in the discretion of the jury. In applying these statutes we have continually emphasized that their fundamental purpose is to do justice to one who has suffered a loss at the hands of another. Clark County v. Howard, 58 S.D. 457, 237 N.W. 561 (1931). In other words, when a person retains money by failing to pay for a loss he causes, such person should be charged interest upon the sum he refuses to tender to the injured party. Gearhart v. Hyde, 39 S.D. 273, 164 N.W. 58 (1917). The payment of such sum ought to become due at the time of the injury or loss and failure to do so is then a wrongful detention of the injured person's money. Bunkers v. Guernsey, 41 S.D. 381, 170 N.W. 632 (1919). The prejudgment interest award seeks to compensate the injured party for this wrongful detention of money owed. Id. The general rule under SDCL 21-1-11 provides for an award of prejudgment interest when the amount payable can be readily ascertained by calculation, with reference to well-known standards of customary market values. Gearhart, supra . This rule is based on the principle that a person who causes damages to another cannot be required to pay money where he cannot ascertain how much he ought to pay with reasonable exactness. Id. Alternatively, under SDCL 21-1-13 the jury may determine whether prejudgment interest should be awarded, and if so, how much. See also Uhe, supra, 54 N.W. at 602. SDCL 21-1-11 and SDCL 21-1-13 were intended to apply to different actions. Originally, SDCL 21-1-11 related strictly to contract actions. Bethel v. Janis, 597 F.Supp. 56 (D.S.D.1984). SDCL 21-1-13 applied to actions for damages proper. Corcoran, supra . Nevertheless, SDCL 21-1-11 has recently been applied to actions other than contract. Cert. of Question From U.S. Dist. Court re: Meyer v. Dixon, 369 N.W.2d 658 (S.D.1985) (interest recoverable for pecuniary loss in personal injury action); Barton Masonry, Inc. v. Varilek, 375 N.W.2d 200 (S.D.1985) (interest awarded on costs determined by quantum meruit). The certainty relating to the day of vesting and amount under contract actions is generally not difficult to establish. As the statute was applied to other types of actions, however, these issues became hazy in our efforts to enact the principles espoused. This is due, in part, to the liberal interpretation of prejudgment interest rules in an attempt to honor the right of a party to receive the moneys he is justly due from another. Beka v. Lithium Corp. of America, 77 S.D. 370, 92 N.W.2d 156 (1958); Gearhart, supra . The case before us clearly displays the conflict that exists in the law relating to prejudgment interest. Authority vigorously asserts that it is entitled to prejudgment interest under any of five theories which it asserts establishes the obligation owed to it to the requisite degree of certainty needed by statute. Each of the five theories produce very different amounts of interest, and yet each of the theories has some validity through previous decisions. Authority asserts that its damages are certain because Authority's exhibit listing the specific items of damages was uncontested and was derived from bills they were forced to pay to repair the damage done on account of, or at least in part by, the defendants. Two of Authority's theories are that since the damages are specific and uncontested in amount, either the date of filing the complaint ($51,008.12) or the date of the subrogation claim ($104,261.89) starts the ticking of interest since one date or the other constitutes a demand upon the defendants. We have utilized this premise in the past. Bunkers, supra ; Clark County, supra ; Safeco Ins. Co. of America v. City of Watertown, South Dakota, 538 F.Supp. 49 (D.S.D.1982). See also Hollister v. Donahoe, 16 S.D. 206, 92 N.W. 12 (1902); Corcoran, supra at 210; Roberts v. Shaffer, 36 S.D. 551, 156 N.W. 67 (1916). Alternatively, under its third and fourth theory, Authority asks that interest commence either from the date that Authority first had an obligation to pay out costs ($131,901.66), or the date of the last paid out costs ($103,733.22) on their damages. Such dates have been recognized as valid dates of vesting of a certain amount. McKenna v. Roberts County, 72 S.D. 250, 32 N.W.2d 687, 689 (1948) (date of disbursements); Polaris Industries v. Plastics, Inc., 299 N.W.2d 414, 418 (Minn.1980) (date each item of expense incurred). Fullerton Lumber Co. v. Reindl, 331 N.W.2d 293 (S.D.1983) (when the plaintiff should have mitigated his damages); Shaffer v. Honeywell, 249 N.W.2d 251 (S.D.1976) (upon the happening of the injury itself). However, in the case at hand, neither solution is reasonable. Neither would properly compensate Authority for the loss of use of funds which were owed by the defendants. Since Authority was found to be partially responsible for its losses by the jury, to award Authority prejudgment interest from the date they paid an expense in total would result in Authority receiving interest on money it was not entitled to receive. This would result in Authority reaping a windfall at the expense of the defendant as the defendants were obligated to only pay a portion of the losses sustained at the time. By the same token, it would not be consistent with the principle of restitution, if that is the sole principle involved, to award prejudgment interest only after all of the damages have been incurred by Authority. Defendant would then incur a windfall and would not fairly compensate Authority for expenses it incurred prior to the final expense. The last alternative Authority suggests is to grant prejudgment interest on each item of damage when it was billed to Authority at a rate of 70.07% ($111,284.92). This percentage is derived from the total amount of damages less a reduction based upon the jury verdict, accountable apparently to the jury findings of Authority's comparative fault. This approach is not one which we have dealt with in the past. In all of Authority's proposals, other than the 70.07% solution, the date of vesting and certainty of amount are inextricably intertwined. Prejudgment interest is based on the principle that one should not hold onto the money he owes another when that amount is reasonably ascertainable on a date certain. Gearhart, supra . Assuming liability for the sake of applying prejudgment interest, one would expect the obligor to in effect reach in his pocket and hand over to the obligee an amount he can reasonably anticipate he will ultimately be held to pay to compensate for the loss sustained by the other. Hanson v. Funk Seeds Int'l, 373 N.W.2d 30 (S.D. 1985); Cole v. Melvin, 441 F.Supp. 193 (D.S.D. 1977) (test is, assuming liability, whether damages are reasonably ascertainable). But for Authority's comparative negligence, this could have reasonably been done. At the time Authority was obligated to pay those who repaired the Dome, the cost of repair was reasonably certain. Also, at that time, there was no real question that the repairs were related to the roof's failure, nor was there any question that the repairs and the cost thereof were reasonable. Therefore, Authority's loss became liquidated upon receiving the billing for the repairs, and upon paying for such repairs. It was at that time Authority was denied the use of money due it from defendants. If Authority's claim was not clearly liquidated at the time of the injury, it became so at the time the billing for the repairs were submitted. Authority is not required to make a demand for payment of the repairs upon defendants. The demand requirement is essential only where the person liable can not reasonably know what sum he owes. Beka, supra at 159. Jones v. Jenkins, 277 N.W.2d 815 (Wis.1979); Safeco, supra; Aetna v. Studer & Sons, 365 F.2d 997 (8th Cir.1966). The issue is not whether or not the person liable knew he was liable, but whether assuming liability he knew with reasonable certainty the extent of the physical loss. Amert v. Ziebarth Constr. Co., 400 N.W.2d 888 (S.D.1987). Potter v. Hartzell Propeller, Inc., 291 Minn. 513, 189 N.W.2d 499 (1971); State ex. rel . Farmers State Bank v. Ed Cox and Son, 81 S.D. 165, 132 N.W.2d 282 (S.D.1965); Fullerton, supra . This knowledge may be constructive or actual. In contract actions, a demand is generally not necessary because the person liable is deemed to have knowledge of the breach. Beka, supra ; Garber v. Haskins, 84 S.D. 459, 172 N.W.2d 721 (S.D.1969); In re La Fleur's Estate, 88 S.D. 97, 215 N.W.2d 653 (S.D.:1974); Lien v. Lien, 278 N.W.2d 436 (S.D.1979); American Property Services, Inc. v. Barringer, 256 N.W.2d 887 (S.D.1977). Pecuniary loss incurred in personal injury actions is also deemed known. Certification of Question, supra. In these cases, we did not toll interest during the time no demand was made. Demand has been required only where the person liable would not otherwise know of the loss. In these cases, interest accrues only after notification of the loss, presentation or a demand for payment is made. Clark County, supra (date demand for insurance benefits); North River Ins. Co. v. Golden Rule Constr., Inc., 296 N.W.2d 910 (S.D.1980) (date insurance coverage refused); Bunkers, supra (mistake in sale contract, interest accrued date person liable was notified thereof and if no notification, date action filed). Amert, supra (date an objective measurement of loss submitted to defendant). Unfortunately, these cases do not provide an answer for the case before us. Defendants asserted that Authority was contributorily negligent, and the jury clearly found that Authority bore a portion of the blame since there was a clear reduction of the damages defendants were obligated to pay. We can find no similar situation in our case law, nor the case law of any other jurisdiction. In the past, we have considered the application of setoffs and counterclaims as they relate to prejudgment interest. In 1980, with little discussion, we found the amount on the claim was certain although there was a slight setoff allowed for premiums due the other party. North River, supra . Four years later in Williams Ins. Agency v. Dee-Bee Contracting Co., 358 N.W.2d 231 (S.D.1984), we allowed recovery of prejudgment interest to both the plaintiff and the defendant on liquidated claims, although the trial court originally denied such interest. In Williams, we awarded the interest after we reversed the trial court on its finding that there was contributory negligence, which presumably was its basis for denial of prejudgment interest. The following year, while we denied a request for prejudgment interest where the interest claim was made against a greater amount of liquidated damages, we nonetheless reiterated our position that interest should not be precluded by the fact that the party against whom it is asserted may have put forward an unliquidated setoff or counterclaim. Subsurfco, Inc. v. B-Y Water Dist., 369 N.W.2d 129, 131 (S.D. 1985). Under circumstances where the setoff is more than adequate to liquidate the items for which prejudgment interest is requested, there is no unlawful detention of money and no money improperly retained, detained or withheld. Id. at 131. We have recently diverted from these decisions. In Hepper v. Triple U Enterprises, Inc., 388 N.W.2d 525 (S.D.1986), against an unliquidated award of $286,000, defendant requested prejudgment interest on its liquidated damages of $202,000. Without elaboration, we simply said defendant's damages arising from Heppers' breach of contract were not certain ... until the jury returned its verdict. Id. at 531. We denied interest without further discussion of the underlying issues. Primarily relying upon Hepper, we again denied prejudgment interest where a liquidated claim of $7,222,530 was set off by an unliquidated counterclaim award of $300,000. Kehn Ranch, Inc. v. Milbank Mutual Ins. Co., 394 N.W.2d 709 (S.D.1986). In these recent decisions, as well as in our previous decisions we have held that where damages are uncertain until a jury has reached a decision, prejudgment interest cannot lie. Fullerton, supra ; Amert, supra . Our sister state of Nebraska, in dealing with case law which parallels our statute, decided against prejudgment interest in a car/bus accident where the jury found contributory negligence on the part of the plaintiff. The court stated [T]he damages claimed were unliquidated and were incapable of determination with reference to the ordinary standards, such as calculation and market value. There was no data from which the liability could be fixed without judicial intervention. National Fire Ins. Co. of Hartford v. Evertson, 157 Neb. 540, 60 N.W.2d 638, 640 (1953); See also, Muller Enterprises Inc. v. Gerber, 178 Neb. 463, 133 N.W.2d 913 (1965). The uncertainty lies not in the damages themselves, but rather in the proportion of those damages that a defendant caused, which only a jury can decide. There is a balance which must be struck in applying our prejudgment interest statute. While South Dakota has accepted the principle that prejudgment interest is appropriate to insure full compensation of an injured plaintiff, that right to collect prejudgment interest under 21-1-11 is limited to circumstances where a defendant can ascertain with reasonable certainty what those damages are. Those damages are damages for which the defendant is responsible. It goes without saying that the defendant cannot be responsible for damages which he has not caused. It is, therefore, not a question in this case of what losses did the plaintiff sustain, but rather what does the defendant owe the plaintiff for the damages which the plaintiff sustained. We have very recently stated that When the person who is liable does not know what sum he owes, however, or cannot ascertain the amount he ought to pay with reasonable exactness, then he cannot be in default for not paying. (emphasis added) Arcon v. S.D. Cement Plant, 405 N.W.2d 45, 47 (S.D.1987). See also, Amert, supra ; Aetna, supra; Beka, supra ; Gearhart, supra . SDCL 21-1-11 could perhaps more specifically be read, in part, as follows: Every person who is entitled to recover damages (caused by another) certain, or capable of being made certain .... If the extent of damages caused by another are not certain, then prejudgment interest should not lie under this statute. Since a defendant cannot, with any degree of certainty, tender an amount of damages to a plaintiff until a jury sets the proportionate fault, he cannot be held responsible for prejudgement interest under 21-1-11. It should be clearly noted that the issue here is not a setoff or counterclaim, but rather a contributory negligence verdict, and as such there is no way for a defendant to reasonably know what percent of fault a jury would find. It is, therefore, impossible for a defendant to know what it should pay a plaintiff for the damages even though the damages themselves are clear. Beka, supra at 159; Ed Cox & Son, supra at 291; Fullerton, supra . Therefore, the trial court's denial of prejudgment interest to Authority is affirmed.