Whether we are cognizant of it or not, money is worth more today and than it is tomorrow. This is the time value of money and is a method that Illinois lawyers can increase value on a breach of contract claim for their clients. Practically speaking, if you are owed $100,000 and you have to wait two years to get a money judgment for the debt, you must take affirmative steps to obtain prejudgment interest on your claim. Illinois law has recognized that the time value of money is real, but provides only a few ways that a judgment creditor can get prejudgment interest on a claim for money damages. The first, not surprisingly, is if the contract between the parties provides for prejudgment interest. The second method to obtain prejudgment interest is by statute, either the Illinois Interest Act ("Interest Act") or a different Illinois statute that provides for prejudgment interest. The third and most nebulous way to recover prejudgment interest in Illinois is when equity requires an award of post-judgment interest.
The Interest Act can be found in the Illinois Code of Civil Procedure and enumerates a number of separate circumstances in which prejudgment interest may be awarded. The Interest Act comes into play absent a contractual requirement in a suit for money damages. The Interest Act provides for prejudgment interest to be awarded:
Creditors shall be allowed to receive at the rate of 5% per year for all amounts of money after they become due on "any bond, bill, promissory note, or other instruments of writing; on money lent or advanced for the use of another; on money due on the settlement of account from the day of liquidating accounts between parties and ascertaining the balance; on money received to the use of another and retained without the owner's knowledge; and on money withheld by an unreasonable and vexatious delay of payment. In the absence of an agreement between the creditor and debtor governing interest charges, upon 30 days' written notice to the debtor, an assignee or agent of the creditor may charge and collect interest as provided in this Section on behalf of a creditor." See 815 ILCS 205/2.
As you can see, the majority of the requirements are fairly straight forward as to when the Interest Act may be utilized in Illinois law, but one thing is clear, if the Interest Act is utilized, the instrument must be in writing before prejudgment interest can become authorized. The Interest Act does not define a written instrument, but Illinois courts have supplied a limiting definition, requiring that a written instrument under the Interest Act establishes a creditor-debtor relationship and that the amount owed by the debtor on the instrument be fixed and easily calculable (or put differently, capable of legal ascertainment). See New Hampshire Ins. Co. v. Hanover Ins. Co., 296 Ill.3d 701 (1998).
However, Illinois courts have clarified this by holding that prejudgment interest will be awarded for amounts due on an instrument in writing ONLY if the amount was liquidated or was easily computed. Id. In addition, prejudgment interest can be warded on money payable when a claimed right and the amount due still require legal ascertainment, despite the fact that the parties might reasonably differ as to their liability. Id. Clarifying this, Illinois courts have held that while a good-faith dispute could preclude an award of prejudgment interest in a claim brought for an unreasonable refusal to pay, such a dispute does not preclude the recovery of prejudgment interest on money due under an instrument of writing. Id.
Illinois law on prejudgment interest is not in perfect harmony with the economic theory that justifies such interest, but it is reasonably predictable. If you take anything away from this article, it is to give prejudgment interest the deference it deserves. It is often forgotten by practitioners, but should not be. If someone in Illinois owes you money and it is based on a written instrument, or if you are unsure, contact us for a free consultation. The time value of money is real and there is no time like the present!