Are Public Bodies Such As Board of Education Liable to Pay Prejudgement Interest for Breach of Contract Case Filed Against It ?

In McKee-Berger-Mansueto, Inc. v. Board of Education of the City of Chicago, 626 F.2d 559 (7th Cir. 1980), the Board of Education of the City of Chicago (Board of Education) entered into a contract with the plaintiff for "construction management services for the Board's school rehabilitation program." McKee, 626 F.2d at 561.

The plaintiff subsequently filed a breach of contract action against the Board of Education alleging that it failed to pay money which it owed under the contract. McKee, 626 F.2d at 561.

The trial court granted judgment in favor of the plaintiff and ordered the Board of Education to pay prejudgment interest. McKee, 626 F.2d at 561, 566-67.

The reviewing court in McKee reversed award of prejudgment interest, stating:

"Illinois law provides that public bodies such as the Board of Education, in the absence of an express agreement or authorizing statute, shall not be liable for such interest unless the relevant funds have been wrongfully obtained and illegally withheld.

There is no showing in the record that the Board wrongfully obtained or illegally withheld the monies owed.

What we view here is a legitimate dispute over funds allegedly owed under a contract that unfortunately resulted in a judicial action when private settlement efforts failed.

The Court did not see a reason to penalize the Board for protecting the public resources and we find no justification in the record for the award of prejudgment interest." McKee, 626 F.2d at 566-67.