News 7.1.11

Collecting Interest and Attorney Fees: Save it Now or Lose it Later

by Annie Murphy
Often, to be truly made whole, a simple money judgment isn't enough. Many of our clients also want to collect interest on the money due to them and attorney fees they spent obtaining the judgment. But whether a client can recover interest and attorney fees depends in part on the contracts they have.

As to attorney fees, Colorado follows what is called the "American rule," which is that parties in litigation do not recover their attorney fees from the other side unless a contract between the parties provides for an attorney fee award. There are also some statutes that provide attorney fees in specific types of actions.

As to interest, a statute provides that a party obtaining a judgment can recover interest at the rate of 8 percent, compounded annually, dating back to the time the money became due. Parties can obtain a higher interest rate than 8 percent if a contract provides a higher rate (so long as the rate doesn't exceed 45 percent, above which is usury).

One way to create an agreement providing attorney fees and a higher interest rate is to state these terms conspicuously on the front side of an invoice.

State It.

We recently tried a case where this was an issue. We based our claim for interest and attorney fees on the fact that language appeared at the bottom of each invoice submitted to the defendant which provided for interest at the rate of 18 percent per annum and collection costs for delinquent accounts.

  In addition, a credit application was signed by the defendant containing the same finance charge provision. The Court considered the parties' prior dealings in which interest and attorney fee language appeared on previous invoices, and the invoices were paid timely by the defendant. The Court also considered that a field employee of defendants signed off on the invoice in question prior to presentation.

  The Court concluded that the conduct of the parties was sufficient to establish a course of conduct supporting the award of the higher rate of interest and reasonable attorney fees.


Make It Noticeable.

If the provision is not clearly visible, it will most likely be unenforceable. In Industrial Products Int'l v. EMO Trans., Inc., 962 P.2d 983 (Colo. App. 1997), the higher interest provision was contained on the reverse side of an invoice. As a result, the Court of Appeals concluded that the reverse side of the invoice did not become terms of the parties' agreement. Similarly, in Surplus Electronics Corp. v. Gallin, 653 P.2d 752 (Colo. App. 1982), the Court of Appeals held that the attorney fee provision at the bottom of an invoice was in print too fine to be considered a term upon which the parties agreed. Make sure that your higher interest and attorney fee provisions are on the front of the invoice and that they catch the reader's eye.


Enforce It.

In Winer's Pumping Units v. Emerald Gas Operating Co., 936 P.2d 627 (Colo. App. 1997), even though the parties' course of dealing included preprinted invoices which contained a clause that 18 percent interest would be charged on late payments, the fact that the contractor had not previously charged the subcontractor 18 percent interest on previous late payments was fatal to the contractor's claim. The lesson to be learned from Winer is, if you send out re-bills, make sure to charge interest as provided in your contract or invoice.

  Disputes can take years to get to trial. In that amount of time, the difference between collecting interest at the statutory rate of 8 percent versus a contractual rate of 18 percent is a big deal. In our case described above, for example, our client was able to realize an additional $80,000.00 due to that extra 10 percent interest over two years.

  Remember, an invoice can be considered a contract. In creating an invoice, two of the most important written contract provisions to consider may be for interest and attorney fees. Failure to include these terms will usually prevent the aggrieved party's ability to be made whole. If you need your invoice rewritten so that you can charge higher interest and collect attorney fees in the event of a dispute, we can help draft invoice forms. Let us know if we can help.

Back to News List

Documents of Interest

[PDF] Download Document : Court of Appeals Decision - Favorable - Interest and Attorney Fees Award