Quick Overview
- California commercial creditors can recover prejudgment interest from the date the debt became due until judgment or settlement
- California uses simple interest (not compound) for prejudgment calculations under Cal. Civ. Code §3287(b)
- Interest rates vary by claim type: statutory rate (10%), contract rate (if specified), or Prompt Payment Act rate (2%/month for construction)
- This calculator computes daily interest accrual and shows the impact on total recovery, including net-to-client comparison at standard contingency rates
- The calculation helps evaluate case value and recovery potential before pursuing collection action
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California Prejudgment Interest Statutory Rates
The following statutory provisions govern prejudgment interest in California commercial claims:
| Statute | Claim Type | Interest Rate | Key Requirements |
|---|---|---|---|
| Cal. Civ. Code §3287(a) | Interest as of Right (Liquidated Claims) | Contract rate if specified; otherwise statutory rate | Claim must be "liquidated" (fixed amount), not contingent or disputed |
| Cal. Civ. Code §3287(b) | Interest Where Defendant Fails to Pay (Unliquidated) | Statutory rate set by statute | Available in actions for breach of contract where defendant fails to pay |
| Cal. Civ. Code §3289(a) | Contract Rate Governs | Rate specified in contract (if not usurious) | If contract specifies interest rate, that rate applies instead of statutory rate |
| Cal. Civ. Code §3289(b) | Default Statutory Rate | 10% per annum (simple interest) | Applied when no contract rate is specified; effective date varies by case law |
| Cal. Civ. Code §8818 | Prompt Payment Act (Construction) | 2% per month (24% per annum) | Applies to construction contracts; payment required within 30 days after invoice |
| CCP §685.010 | Post-Judgment Interest | 10% per annum (simple interest) | Applies to interest accruing after judgment is entered; different from prejudgment rate |
Important Notes on Interest Calculation
- Simple Interest Only: California requires simple interest for prejudgment calculations, not compound interest. This calculator uses the formula: Interest = Principal × Annual Rate × (Days / 365)
- Liquidated vs. Unliquidated: "Liquidated" claims (fixed, undisputed amounts) typically earn interest as of right from the date the obligation was due. "Unliquidated" claims (disputed or damages-based) may earn interest only from the date of judgment or as allowed by courts in discretionary decisions.
- Effective Date Disputes: Courts sometimes dispute the "effective date" from which interest accrues. Some courts count interest from when the invoice was issued; others from when payment was due; others from when a demand was made. This calculator uses the date you specify and does not address this dispute.
- Statutory Rates Change: The statutory interest rate under Cal. Civ. Code §3288 is adjusted bi-annually based on the Federal Reserve rate. Always verify the current rate for your calculation date.
Understanding Prejudgment Interest in California
What is Prejudgment Interest?
Prejudgment interest is the interest that accrues on a debt from the date the debt becomes due until a final judgment is entered. In commercial debt collection, prejudgment interest can significantly increase the total recovery amount and should be calculated and tracked from the beginning of the dispute resolution process. For example, on a $50,000 debt owed for 500 days at 10% annual interest, prejudgment interest would total approximately $6,849—nearly 14% of the original claim amount.
When Does Prejudgment Interest Apply?
Prejudgment interest applies in California commercial claims when:
- Commercial nature: The debt arises from a commercial transaction (business-to-business), not a consumer debt or personal injury claim
- Contract-based: The claim is based on a contract or written agreement establishing the debt amount and due date
- Liquidated claim: The claim amount is "liquidated" (fixed and certain), not estimated or dependent on court determination of damages
- Timely demand: The creditor has demanded or pursued payment from the debtor through demand letters, collection notices, or litigation
Key Distinction: Liquidated vs. Unliquidated Claims
California law distinguishes between two categories of claims for interest purposes:
Liquidated Claims: Claims for fixed, ascertainable amounts where the obligation to pay is clear. Examples include unpaid invoices for goods or services, loan principal with fixed terms, or contract price for completed work. Under Cal. Civ. Code §3287(a), interest is awarded "as of right" from the date due. No additional proof is required.
Unliquidated Claims: Claims where the amount is disputed, estimated, or dependent on court determination. Examples include breach of contract claims where damages must be proven, or claims where the debtor contests liability. Under Cal. Civ. Code §3287(b), courts have discretion to award interest from either the date the claim arose or the date of judgment. This is a discretionary award, not automatic.
Contract Rate vs. Statutory Rate—Which Applies?
California law creates a clear hierarchy:
- Express Contract Rate First: If the parties' contract specifies an interest rate, that rate governs prejudgment interest under Cal. Civ. Code §3289(a), provided it is not usurious (in violation of California usury laws)
- Statutory Rate Second: If no contract rate is specified, the default statutory rate applies. Under Cal. Civ. Code §3289(b), this is currently 10% per annum (simple interest)
- Special Rates: Certain claims have specialized rates, such as the Prompt Payment Act rate of 2% per month (24% per annum) for construction contracts under Cal. Civ. Code §8818
How Courts Calculate Prejudgment Interest
California courts use the simple interest formula for prejudgment calculations:
Interest = Principal × Annual Rate × (Number of Days / 365)
For example, on a $50,000 debt at 10% annual interest for 365 days: Interest = $50,000 × 0.10 × (365 / 365) = $5,000.
Courts do not use compound interest. The calculation is straightforward and does not recalculate based on growing principal.
Impact on Total Recovery
Prejudgment interest significantly increases the total recovery in commercial debt cases. Consider these examples:
- $25,000 debt at 10% for 1 year: Prejudgment interest = $2,500 (10% of principal). Total owed = $27,500.
- $100,000 debt at 10% for 2 years: Prejudgment interest = $20,000 (20% of principal). Total owed = $120,000.
- $50,000 debt at 24% (Prompt Payment Act) for 1 year: Prejudgment interest = $12,000 (24% of principal). Total owed = $62,000.
In extended collection disputes lasting 18-24 months, prejudgment interest can represent 15-40% of the original claim amount. This is why early, aggressive collection action (which shortens the accrual period) is valuable to creditors.
Frequently Asked Questions
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