Peevyhouse v. Garland

• In 1954, the Peevyhouse couple owned acres of land in Oklahoma containing rich coal deposits.
• Mr. & Mrs. Peevyhouse = "Peevyhouse" = plaintiff
• Garland Coal Mining Co. = "Garland" = defendant
• Garland wanted to lease the Peevyhouse in order to mine the coal
• Plaintiff contracted with defendant coal mining company to allow them to use Peevyhouse’s land (60 acres) in excavating a coal vein. The contract was for 5 years.
• In the contract, Garland specifically agreed to perform certain restorative and remedial work at the end of the contract.
• The work would involve moving many thousands of yards of dirt, a cost estimated to be about $29,000, while the improvement to the land was estimated at only $300.
• Garland employed the strip mining technique. At the end of the 5 years, Garland refused to restore the land to its original condition.

• Peevyhouse sued Garland for breach of contract.
• Garland's expert testified that it restoration cost would be $29,000 while increasing the land value by only $300.
• Verdict for plaintiffs in the amount of $5,000, only a fraction of the cost of performance.
• The $5,000 the jury awarded Peevyhouse exceeded the cost of the farm in 1962.

• Must the breaching party (Garland) pay the full cost of performance ($29,000), if that cost greatly exceeds the total economic value of full performance ($300)?
• Whether the damages should be limited to
  • the difference in the value of the land or
  • to the cost of the remedial work defendant agreed to do.

Garland argued that the court should limit damages to $300.

In a 5 to 4 decision: If the cost of performance is grossly dis-proportionate to the economic benefit, the defendant should only pay the economic benefit.

for Peevyhouse for $300

• The cost of performance is the proper measure of damages if it does not involve unreasonable economic waste.
• Where the defect in material or construction is incidental to the main purpose of the contract & one that cannot be remedied without an expenditure for re-construction disproportionate to the end to be attained, the value rule should be followed.
• Sometimes, the full cost of performance is an economic waste!

Justice Jackson: The proper way to calculate damages is by looking at the relative economic benefit.

• Dissent of Justice Irwin: The measure of damages should be the cost of performance because that is what the contract calls for and there is freedom of contract.
• Contracts_Farnsworth/Outline#Chapter_7:_Remedies_for_Breach