Peevyhouse v. Garland Coal
Supreme Court of OK - 1963
- P owned a farm containing mining deposits and leased the premises to D for mining purposes.
- D specifically agreed in the contract to perform certain restorative and remedial work at the end of the lease period. D never did this work.
- The cost of the work was $25k, the diminution in value of the P's property as a result of the breach was only $300.
- Lower court found for P, jury awarded $5k.
- OK Supreme Court affirmed decision, cut damages to $300.
- If in a breach the cost of specific performance greatly exceeds the benefit the promisee would receive, what kind of damages is the promisee allowed to receive?
- When the contract provision breached is merely incidental to the main purpose of the K, and where the economic benefit which would result by full performance is grossly disproportionate to the cost of performance, the damages which the promisee may recover are limited to the diminution in value resulting from the non-performance.
- Most courts seem to follow the "value" rule as opposed to the "cost of performance" rule.
- A property owner would not normally spend $25k for a $300 benefit on his property.
- Restatement 346 says that the cost of performance is the proper measure of damages if this is possible and does not involve unreasonable economic waste. Diminution in value caused by breach is the proper measure if completion in accordance with the contract would involve unreasonable economic waste.
- OK statute says that no person can recover a greater amount in damages for the breach of an obligation than we would have gained by the full performance thereof on both sides.
- D's breach was willful and not in good faith.
- D had knowledge that the cost of performance might be disproportionate to the value or benefits received by P for the performance.
- All conditions could have been reasonably anticipated when the contract was negotiated and executed.
- Prof says this is an outdated view of contracts and damages.
- This is a pre-environmental movement case and uses an outdated view of economics.