Prejudgment Interest Rules in Texas

At a glance

Requirements one by one

Governing law

Finance Code Chapter 304 governs "Judgment Interest" generally. Its Subchapter B (§§ 304.101-304.107) is the ONLY part of Texas law that directly creates a right to prejudgment interest, and by its own terms it "applies only to a wrongful death, personal injury, or property damage case" (§ 304.101). For a breach-of-contract claim, there's no comparable prejudgment-interest statute — the right instead comes from the Texas Supreme Court's common-law decision in Johnson & Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507 (Tex. 1998), which borrows Chapter 304's own rate mechanism for a contract claim rather than creating a separate one.

Interest rate

Both tracks end up at the same number. Under § 304.103, "the prejudgment interest rate is equal to the postjudgment interest rate applicable at the time of judgment." That postjudgment rate itself has two paths: if the judgment is on a contract that itself provides for interest, the rate is the lesser of the contract's own rate or 18% a year (§ 304.002); if not, the rate floats with the Federal Reserve's prime rate, published monthly by the state's consumer credit commissioner, with a floor of 5% a year and a ceiling of 15% a year (§ 304.003). Johnson & Higgins held that a breach- of-contract claim's prejudgment interest “accrues at the rate for postjudgment interest” and “shall be computed as simple interest,” so a contract plaintiff ends up subject to the identical rate rule as a personal- injury plaintiff, just by a different legal route.

When interest starts running

For a wrongful death, personal injury, or property damage claim, § 304.104 starts the clock "on the earlier of the 180th day after the date the defendant receives written notice of a claim or the date the suit is filed," running through "the day preceding the date judgment is rendered." For a breach-of-contract claim, Johnson & Higgins adopted the same trigger: the earlier of 180 days after the defendant receives written notice of the claim or the date suit is filed. The opinion rejected the older breach-date approach when it aligned common-law interest with the Legislature's method.

Contract vs. tort claims

The two tracks use the same rate mechanism, simple interest, and notice-or-filing start, but they come from different sources of law. Subchapter B is an actual statute, and it applies ONLY to wrongful death, personal injury, and property damage. A breach-of-contract claim gets prejudgment interest only because the Texas Supreme Court chose, as a matter of judge-made common law, to import the statute's rate mechanism by analogy. That distinction matters at the margins — a claim that's neither a covered tort nor a contract claim (for example, some equitable claims) may not fit cleanly into either track, and courts resolve that gap case by case under "general principles of equity."

Mandatory or discretionary

Both tracks are mandatory. Section 304.102 says plainly that "a judgment in a wrongful death, personal injury, or property damage case earns prejudgment interest" — not that a court may award it. Texas courts describe prejudgment interest generally, including on the common-law contract side, as available to a prevailing party "as a matter of course," not something left to a jury's or judge's discretion the way some other states treat it.

Simple or compound

Both tracks are simple interest, with no compounding, and this was a deliberate legislative and judicial choice. Section 304.104 says prejudgment interest "is computed as simple interest and does not compound." On the contract side, this was actually a change: the older common-law rule from Cavnar v. Quality Control Parking, Inc., 696 S.W.2d 549 (Tex. 1985) had allowed prejudgment interest to compound daily, but Johnson & Higgins discarded that approach and matched the statute's simple-interest rule instead.

Claims against the government

Texas has a separate, dedicated prejudgment-interest rule for a contract claim against a state agency that goes through the Government Code Chapter 2260 dispute-resolution process (the required pre-suit negotiation and administrative-hearing track for state contract disputes). Section 2260.106 says that "Chapter 304, Finance Code, applies to a judgment awarded to a claimant under this chapter, except that the applicable rate of interest may not exceed six percent" — the same rate mechanism as everyone else, but with a hard 6%-a-year ceiling that doesn't apply to a private defendant.

Other exceptions

Section 304.1045 flatly bars prejudgment interest "on an award of future damages" — only past losses earn it. Sections 304.105-304.107 give a defendant a real incentive to make an early written settlement offer: if the eventual judgment doesn't beat the offer, prejudgment interest simply stops accruing on the judgment (or on the offer amount, if the judgment does exceed it) for as long as the offer remained open to accept.

What trips people up

The single biggest trap is assuming Chapter 304's prejudgment-interest statute covers a contract dispute. It doesn't — read § 304.101 literally and it only reaches "a wrongful death, personal injury, or property damage case." A contract plaintiff who cites Subchapter B directly is citing the wrong authority; the actual basis is the common-law rule from Johnson & Higgins, which happens to borrow the same numbers.

The rate itself is a moving target, not a fixed number like several other states use. Because it floats with the Federal Reserve's prime rate every month (subject to the 5%/15% floor and ceiling), the "current" rate on the day suit is filed may not be the rate that actually applies — § 304.103 locks in whatever the postjudgment rate is "at the time of judgment," which could be years later and a different rate entirely.

The 180-day deferral is easy to miss on both tracks. Prejudgment interest does not start on the injury or breach date. It is measured from written notice of the claim or the filing of suit, whichever produces the earlier start, so delaying a demand can delay accrual.

Common questions

Does a Texas breach-of-contract judgment get prejudgment interest? Yes, but not under the Chapter 304 prejudgment-interest statute itself, which only covers wrongful death, personal injury, and property damage. A contract claim gets prejudgment interest under a separate common-law rule that uses the same rate.

What rate applies if my contract doesn't say anything about interest? A floating rate tied to the Federal Reserve's prime rate, with a floor of 5% a year and a ceiling of 15% a year, published monthly by the Texas Office of Consumer Credit Commissioner.

Can I get prejudgment interest on damages I haven't incurred yet? No. Section 304.1045 bars prejudgment interest on an award of future damages entirely.

Does prejudgment interest compound in Texas? No. It's simple interest on both the statutory (tort) track and the common-law (contract) track.

Statutes and sources

• Tex. Fin. Code § 304.101 — "This subchapter applies only to a wrongful death, personal injury, or property damage case of a court of this state." Accessed 2026-08-11: https://tcss.legis.texas.gov/resources/FI/htm/FI.304.htm
• Tex. Fin. Code § 304.102 — "A judgment in a wrongful death, personal injury, or property damage case earns prejudgment interest." Accessed 2026-08-11: https://tcss.legis.texas.gov/resources/FI/htm/FI.304.htm
• Tex. Fin. Code § 304.103 — "The prejudgment interest rate is equal to the postjudgment interest rate applicable at the time of judgment." Accessed 2026-08-11: https://tcss.legis.texas.gov/resources/FI/htm/FI.304.htm
• Tex. Fin. Code § 304.104 — "Except as provided by Section 304.105 or 304.108, prejudgment interest accrues on the amount of a judgment during the period beginning on the earlier of the 180th day after the date the defendant receives written notice of a claim or the date the suit is filed and ending on the day preceding the date judgment is rendered. Prejudgment interest is computed as simple interest and does not compound." Accessed 2026-08-11: https://tcss.legis.texas.gov/resources/FI/htm/FI.304.htm
• Tex. Fin. Code § 304.1045 — "Prejudgment interest may not be assessed or recovered on an award of future damages." Accessed 2026-08-11: https://tcss.legis.texas.gov/resources/FI/htm/FI.304.htm
• Tex. Fin. Code § 304.105 — "(a) If judgment for a claimant is equal to or less than the amount of a settlement offer of the defendant, prejudgment interest does not accrue on the amount of the judgment during the period that the offer may be accepted. (b) If judgment for a claimant is more than the amount of a settlement offer of the defendant, prejudgment interest does not accrue on the amount of the settlement offer during the period that the offer may be accepted." Accessed 2026-08-11: https://tcss.legis.texas.gov/resources/FI/htm/FI.304.htm
• Tex. Fin. Code § 304.002 — "A money judgment of a court of this state on a contract that provides for interest or time price differential earns postjudgment interest at a rate equal to the lesser of: (1) the rate specified in the contract, which may be a variable rate; or (2) 18 percent a year." Accessed 2026-08-11: https://tcss.legis.texas.gov/resources/FI/htm/FI.304.htm
• Tex. Fin. Code § 304.003 — "(a) A money judgment of a court of this state to which Section 304.002 does not apply, including court costs awarded in the judgment and prejudgment interest, if any, earns postjudgment interest at the rate determined under this section. (b) On the 15th day of each month, the consumer credit commissioner shall determine the postjudgment interest rate to be applied to a money judgment rendered during the succeeding calendar month. (c) The postjudgment interest rate is: (1) the prime rate as published by the Board of Governors of the Federal Reserve System on the date of computation; (2) five percent a year if the prime rate ... is less than five percent; or (3) 15 percent a year if the prime rate ... is more than 15 percent." Accessed 2026-08-11: https://tcss.legis.texas.gov/resources/FI/htm/FI.304.htm
• Tex. Gov't Code § 2260.106 — "Chapter 304, Finance Code, applies to a judgment awarded to a claimant under this chapter, except that the applicable rate of interest may not exceed six percent." Accessed 2026-08-11: https://tcss.legis.texas.gov/resources/GV/htm/GV.2260.htm
• Johnson & Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 531-33 (Tex. 1998) — common-law interest begins on the earlier of 180 days after written claim notice or suit filing and uses the postjudgment rate with simple interest. https://www.courtlistener.com/opinion/1774526/ (accessed 2026-08-11).