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Pennsylvania Superior Court Decision Regarding Prejudgment Interest

In the recent decision of Cresci v. Martin, the Pennsylvania Superior Court issued an opinion qualifying the rule regarding prejudgement interest for breach of a construction contract. In October of 2004, Cresci Construction Services, Inc. (“Cresci”) and James H. Martin (“Martin”) entered into a construction contract (the “Contract”) wherein Cresci agreed to build a home for Martin in exchange for $184,730. The Contract did NOT contain a liquidated damages provision in the event that Cresci caused delays in completing construction, nor did it contain a “no damages for delay” clause, meaning that Martin could sue for his actual damages in the event that Cresci was late in constructing the hom.

Construction of the Martin’s home did not go smoothly, and Martin sued to recover his alleged damages.  After a trial on the merits, the jury found that Cresci breached the Contract and entered a verdict awarding Martin $66,000.00. The jury’s verdict sheet did not subcategorize the amount of damages. After the verdict was entered, Martin filed post-trial motions seeking attorneys’ fees and prejudgment interest on the breach of contract damages. The trial court denied Martin’s motion, and Martin appealed to the Superior Court.

On appeal, the Superior Court affirmed. Regarding Martin’s claim for the prejudgment interest, the Superior Court explained that under Pennsylvania law, prejudgment interest is awarded automatically only when the damage resulting from the breach is liquidated at the time of breach. In all other circumstances, the decision whether to award prejudgment interest is left to the discretion of the trial court. The Superior Court concluded that because Martin’s damages were unliquidated, consequential damages (including items such as mortgage interest and the costs of maintaining two properties), an award of prejudgment interest on those damages was purely discretionary. The Superior Court found no abuse of discretion, and therefore affirmed the denial of prejudgment interest. The Cresci decision reinforces the significance of including liquidated damages provisions in construction contracts.