Legal Definitions - interest as damages

Interest as damages refers to a monetary sum awarded by a court to compensate a party for the financial loss incurred due to the delayed payment of money that was rightfully owed to them. Unlike interest charged on a loan, this type of interest is not a contractual fee but rather a form of compensation for the time value of money that the wronged party was deprived of. It aims to put the injured party in the financial position they would have been in had the payment been made on time.

Here are some examples illustrating this concept:

• Breach of Contract for Payment:

  Imagine a small business, "GreenTech Solutions," completes a large software development project for a client, "Global Innovations," with an agreed payment of $250,000 due upon completion. Global Innovations, however, delays the final payment for eight months beyond the contractual due date. GreenTech Solutions eventually sues to recover the unpaid amount.

  Illustration: A court might award GreenTech Solutions the $250,000 owed, plus an additional sum calculated as "interest as damages" for those eight months. This interest compensates GreenTech for the financial opportunities they missed or the additional costs they incurred because they did not have access to the $250,000 when it was due. It acknowledges the economic harm caused by the delay.

• Delayed Personal Injury Judgment:

  Consider a person who suffers significant injuries in a car accident caused by a negligent driver. The accident occurs in January 2020, but due to complex litigation, a jury does not award the injured party $750,000 in compensation for medical expenses, lost wages, and pain and suffering until December 2023.

  Illustration: The court may add "interest as damages" to the $750,000 award, calculated from the date of the accident or a specific point during the lawsuit. This interest accounts for the fact that the injured person was deprived of that compensation for nearly four years, during which time they had to cover expenses or lost the ability to invest or use that money. It ensures the compensation reflects its value over time.

• Wrongful Withholding of Funds:

  Suppose a landlord wrongfully withholds a tenant's $1,500 security deposit for six months after the tenant moved out, despite the property being left in pristine condition and the lease terms met. The tenant repeatedly requests the deposit but receives no response, eventually leading them to pursue legal action.

  Illustration: A court could order the landlord to return the $1,500 security deposit *plus* "interest as damages" for the six-month period it was wrongfully withheld. This interest compensates the tenant for the inconvenience and financial disadvantage of not having access to their own money when they were legally entitled to it, acknowledging the time value of that $1,500.