Old Orchard by the Bay Associates v. Hamilton Mut. Ins. Co.

• Decision Date: 20 March 1990
• Docket Number: Docket No. 82516
• Citation: 454 N.W.2d 73,434 Mich. 244
• Parties: OLD ORCHARD BY THE BAY ASSOCIATES, a Michigan limited partnership, Plaintiff-Appellant, v. HAMILTON MUTUAL INSURANCE COMPANY, an Ohio insurance corporation, Defendant-Appellee. 434 Mich. 244, 454 N.W.2d 73
• Court: Michigan Supreme Court

Page 73

454 N.W.2d 73

OLD ORCHARD BY THE BAY ASSOCIATES, a Michigan limited partnership, Plaintiff-Appellant, v. HAMILTON MUTUAL INSURANCE COMPANY, an Ohio insurance corporation, Defendant-Appellee.

Docket No. 82516.

434 Mich. 244, 454 N.W.2d 73

Supreme Court of Michigan.

Argued Jan. 4, 1989.

Decided March 20, 1990.

Dykema Gossett by W.A. Steiner, Jr., and Thomas W.B. Porter, Detroit, for plaintiff-appellant.

Hill, Lewis, Adams, Goodrich & Tait by Jimm F. White, and Peter A. Jackson, Detroit, for defendant-appellee.

CAVANAGH, Justice.

I

This litigation arises out of a construction contract dispute between a property owner, plaintiff, and its general contractor's surety, defendant. The plaintiff, Old Orchard by the Bay Associates, filed a complaint on February 10, 1978, in Oakland Circuit Court, alleging that defendant, Hamilton Mutual Insurance Company, was liable under a surety bond for latent defects relating to the construction of an apartment project which Old Orchard owns. The litigation was pending for three years, during which time the parties commenced discovery, and in 1980 the case was mediated.

By a stipulated order filed February 6, 1981, Old Orchard and Hamilton Mutual voluntarily submitted their entire dispute to statutory arbitration. ¹ The arbitration proceedings, including extensive evidentiary hearings, took place throughout 1985. ² On December 6, 1985, five years after the execution of the arbitration agreement, the Commercial Arbitration Tribunal entered an award of $300,000, plus statutory interest, in favor of plaintiff. ³

The arbitrator's interest award to Old Orchard was computed from the date of the filing of the circuit court complaint at the statutory judgment rate, M.C.L. Sec. 600.6013; M.S.A. Sec. 27A.6013. Subsequently, defendant Hamilton Mutual filed several motions, including a claim that the arbitrators erred in awarding interest other than that allowable under the prejudgment interest statute, M.C.L. Sec. 438.7; M.S.A. Sec. 19.4, from the date of the arbitration award. The trial court confirmed the award in all respects on May 21, 1986 including confirmation of the award of interest at the statutory judgment rate.

Defendant Hamilton Mutual appealed on several issues. The Court of Appeals, in an unpublished opinion, affirmed on all issues, except as to the interest award. In a split decision, the Court of Appeals held that M.C.L. Sec. 438.7; M.S.A. Sec. 19.4, should have been applied, allowing for an award of five percent annual interest from the date of the 1985 arbitration award. ⁴

We granted the plaintiff's application for leave to appeal, while denying the defendant's application for leave to appeal as cross-appellant. ⁵ 430 Mich. 891 (1988). The defendant claims that the plaintiff is entitled to interest only from the date of the arbitration award at a five percent annual rate under M.C.L. Sec. 438.7; M.S.A. Sec. 19.4. We reject that argument and reverse the decision of the Court of Appeals on the interest issue and hold as follows: (1) where the parties to a contract dispute have no agreement to arbitrate, and (2) do not later stipulate to an interest entitlement or rate (assuming the original action is not dismissed), ⁶ (3)(a) statutory interest is awardable on the judgment from the date of the filing of the complaint until the judgment is entered, and (b) such interest is also awardable thereafter until the judgment is paid, as provided in M.C.L. Sec. 600.6013; M.S.A. Sec. 27A.6013.

II

Before discussing the merits, the relevant statutory provisions are set forth briefly. Two statutes potentially govern the award of interest to the prevailing party in any contractual dispute. M.C.L. Sec. 438.7; M.S.A. Sec. 19.4 authorizes the award of interest where the parties fail to agree on the matter of entitlement to interest in an action. It applies to specified types of disputes founded on a contract that are resolved less formally "by verdict, report of referees, award of arbitrators, or by assessment made by the clerk of the court or by any other mode of assessment according to law...." Statutory interest under M.C.L. Sec. 438.7; M.S.A. Sec. 19.4, accrues from the date of the award until payment or judgment is rendered thereupon. ⁷

M.C.L. Sec. 600.6013; M.S.A. Sec. 27A.6013, authorizes the payment of interest on all money judgments awarded in "civil actions." ⁸ The award of such statutory judgment interest under M.C.L. Sec. 600.6013; M.S.A. Sec. 27A.6013, is mandatory, although the parties may vary the applicable interest rate within certain parameters. ⁹

III

The statutory interest provision that applies in a given action is a purely legal question to be resolved by means of statutory interpretation, except where the parties stipulate to an interest schedule or otherwise agree on the matter of interest as part of their arbitration agreement. ¹⁰ The parties in the instant dispute, however, never agreed upon the matter of interest.

Plaintiff Old Orchard alleges that it was error for the Court of Appeals to state as a broad rule that "interest on an arbitration award in an action founded on a contract is governed by MCL 438.7; MSA 19.4." ¹¹ We agree. This conclusion is based on a close examination of both the language and history of the two interest statutes at issue, as well as the purposes that the Legislature sought to accomplish in enacting these provisions.

IV

As this Court stated in White v. Ann Arbor, 406 Mich. 554, 562, 281 N.W.2d 283 (1979), and Advisory Opinion re Constitutionality of 1972 PA 294, 389 Mich. 441, 478, 208 N.W.2d 469 (1973), the interpretative task at hand requires the Court to infer legislative intent from the language used in the statute, as well as to consider the statutory language in the context of the special subject matter which it addressed. The meaning of the statute must be viewed "in light of the general purpose sought to be accomplished or the evil sought to be remedied by the constitution or statute." White, supra 406 Mich. at 562, 281 N.W.2d 283.

The rationale for awarding statutory interest under M.C.L. Sec. 600.6013; M.S.A. Sec. 27A.6013, is primarily a compensatory one. The Revised Judicature Act interest statute serves the purpose of compensating the prevailing party for loss of the use of the funds awarded as a money judgment, as well as offsetting the costs of bringing a court action. In Denham v. Bedford, 407 Mich. 517, 534-536, 287 N.W.2d 168 (1980), this Court wrote:

"The Michigan Legislature has dictated that interest should accrue from the date of filing the complaint.... [T]he legislative purpose was to compensate the prevailing party for the delay in payment of money damages and to cover the costs of litigation...." ¹²

The second purpose of awarding judgment interest is to provide an incentive for prompt settlement. See Gage v. Ford Motor Co., 423 Mich. 250, 257, 377 N.W.2d 709 (1985). The award of statutory prejudgment interest under M.C.L. Sec. 600.6013; M.S.A. Sec. 27A.6013, in suits to collect on an insurance contract is a useful illustration; in this context, prejudgment interest serves a distinct deterrent function by both encouraging settlement at an earlier time and discouraging a defendant from delaying litigation solely to make payment at a later time. See Matich v. Modern Research Corp., 430 Mich. 1, 12-15, 420 N.W.2d 67 (1988).

V

In this case, the plaintiff filed a complaint to resolve a contract dispute in the absence of any prior agreement to arbitrate or any agreement on the appropriate interest rate. Is this a "civil action" resulting in a judgment of recovery in the form of "money damages" and therefore governed by the prejudgment interest provisions of M.C.L. Sec. 600.6013; M.S.A. Sec. 27A.6013? Or, is the plaintiff's recovery more properly considered a "liquidation" or "ascertainment" of debt pursuant to the "award of an arbitrator" and therefore governed by M.C.L. Sec. 438.7; M.S.A. Sec. 19.4?

Since 1965 there have been two prejudgment interest statutes in Michigan, rather than just one. Until recently, the statutory scheme was more orderly. ¹³ By exploring the history of the two interest statutes, one can see that they share both common purposes as well as common origins.

A summary of the evolution of the two interest statutes which must be interpreted is summarized in the margin. ¹⁴ The right to judgment interest originated in an 1827 Michigan territorial statute which created an entitlement to interest from the time a judgment was entered. See 2 Laws of Territory of Michigan, p 491 (1874). In an even earlier statute (an act of 1809), a conventional rate of interest was authorized (at the specific rate of six percent) under any contract--with only a few specified exceptions. (The 1809 act was copied from a Vermont statute, see 4 Laws of Territory of Michigan, pp 61-62 [1884] ). Both statutes then appeared together in chapter 6 of the Revised Statutes of 1838. ¹⁵

The placement and language of these provisions indicate that they were intended to further a common purpose. Section 8 (now M.C.L. Sec. 600.6013; M.S.A. Sec. 27A.6013) applied to all actions resolved by means of formal dispute resolution, and Sec. 9 (now M.C.L. Sec. 438.7; M.S.A. Sec. 19.4) applied to contract-based claims where the amount owed was to be determined by report of referees, award of arbitrators, or by any other mode of assessment according to law. Yet, the purpose of both provisions was the same as is evident from their language and function. The two statutes were coordinated to accomplish the same goal of compensating parties for the loss of the use of funds wrongfully detained for the period when they were due but unpaid.

The subsequent history of the two provisions, prior to 1965, does not alter this conclusion. While these statutory provisions have since been assigned to separate chapters in the Compiled Laws, ¹⁶ their language was, until 1965, essentially the same as when originally...