Peevyhouse v. Garland Coal & Mining Co.

382 P.2d 109 (Okla. 1962)

Supreme Court of Oklahoma · 1962

Rule

When a breach of contract involves a defective or incomplete performance and the cost of completing the performance is disproportionate to the resulting increase in the value of the property, damages are measured by the diminution in value rather than the cost of completion. The proportionality principle limits cost-of-completion damages.

Learning outcomes

By the end of working with this case, you can:

Facts

The Peevyhouses leased a portion of their farm to Garland Coal for strip mining. The lease required Garland, at the end of operations, to perform substantial remedial work on the surface of the land. Garland strip-mined the property and then refused to perform the restoration, which the trial court found would cost roughly twenty-nine thousand dollars. The increase in the farm’s market value from completing the work would have been approximately three hundred dollars. The jury awarded five thousand dollars in damages. Both sides appealed.

Holding

The Oklahoma Supreme Court limited damages to the diminution in market value, an amount well below the cost of completion. The cost of remedial work was so disproportionate to the value the work would create that requiring it would amount to economic waste.

Reasoning

The court treated the restoration covenant as a part of the bargain rather than as its principal purpose; the bargain’s principal subject was the right to mine. Where the breach goes to an incidental part of the performance and the cost of completion would vastly exceed the value of completing it, the law refuses to require the wasteful course. Damages are then measured by the diminution in the property’s value. The court acknowledged the contrary view in Groves v. John Wunder, which awarded full cost of completion on similar facts, but adopted the proportionality rule instead.

Why it matters

Peevyhouse is the leading American statement of the economic-waste limit on cost-of-completion damages, and it is one of the most contested decisions in the contracts canon. Critics argue that the case under-protected the homeowners’ subjective valuation of restored land and rewarded a coal company that bargained for restoration as part of the bargain price. The case is taught alongside Jacob & Youngs v. Kent and Groves v. John Wunder to expose the line between proportionality limits and full enforcement of bargained-for performance, and to surface the broader question of what contract damages are for.

The trap

Conclusion offered as rule. Students say 'twenty-nine thousand dollars is too much, so they get diminution.' That collapses the doctrinal test into the result. R2d § 348(2)(b) makes cost to complete the default; diminution applies only when the cost is clearly disproportionate to the loss in value to the injured party. The student must name the doctrinal frame (default plus exception) and identify the load-bearing fact (the ratio and the character of the breach), not just announce that the number is large.

The operational intuition the case is designed to break. Naming the trap is what the Socratic exchange is for.

Socratic ladder

The professor's scaffold for the in-class exchange. Each rung is a stage; the questions are scripted prompts, not the punchline.

Surfacing · 60 sec

Q. You sign a five-year coal lease on your family farm. The company promises to restore the surface when mining ends. The company refuses. Restoration would cost twenty-nine thousand dollars. The land would be worth three hundred dollars more if restored. What do you recover?

Look for: The operational answer: 'twenty-nine thousand dollars; that is what they promised.' Pacta sunt servanda. The benefit of the bargain is the restored land. That is the bait.

Holding · 60 sec

Q. What did the Oklahoma Supreme Court hold?

Look for: Three hundred dollars in diminution-in-value damages, not twenty-nine thousand. The court refused to award cost of completion.

Reasoning · 120 sec

Q. The lease promised restoration. The farmers paid for restoration in the bargain price. Why does the court refuse to enforce the promise as written?

Trap: Conclusion offered as rule. The student says 'twenty-nine thousand is too much.' Press: by what test does 'too much' become a legal limit on a freely bargained promise? Or the student says 'economic waste' without naming the rule that operationalizes the concept. The doctrinal frame is R2d § 348(2)(b): cost to complete is the default; diminution applies when the cost is clearly disproportionate to the loss in value to the injured party.

Board: Default: cost to complete. Exception: clearly disproportionate cost vs. loss in value to the injured party (R2d § 348(2)(b)).

Push back: What is the default measure for defective performance? When does the default give way? Read the rule in your own words.

Push to: R2d § 348(2)(b): the injured party may recover damages based on the diminution in market price caused by the breach, rather than the cost of completion, if that cost is clearly disproportionate to the probable loss in value. Default is cost to complete; Peevyhouse is the exception. The court treated the restoration covenant as incidental to the principal bargain (the right to strip-mine) and applied the proportionality cap.

Hypothetical · 90 sec

Vary. One fact changes. The Peevyhouses live on the farm. Their grandparents are buried on the restored acres. They want the land restored for personal reasons that have nothing to do with market price. Same result?

Point: Subjective value to the owner is the pivotal fact. R2d § 348 cmt. b acknowledges that personal, aesthetic, or sentimental interests may shift the calculus. The diminution-in-market-value figure understates the harm when the promised performance had value to the owner that the market does not price. Compare *Jacob & Youngs v. Kent*, where the substitution of one brand of pipe for another with equal utility produced no subjective loss and diminution applied. The hypothetical surfaces the *Groves v. John Wunder* counter-line.

Integration · 90 sec

Q. Have you ever paid for a service and received something that worked but was not what you ordered? The law does not always force the provider to redo it. When should it?

Land: R2d § 348(2)(b) with *Jacob & Youngs* on one side and *Groves v. John Wunder* on the other. Default is cost to complete; the disproportionality test is the safety valve; the willful-breach exception and the personal-interest exception are the counter-pressure. Path-dependence cue: ask whether this is a *chok* (a rule that sits on disproportionality regardless of purpose) or a *mishpat* (a rule with a policy rationale visible on its face), and note that the Oklahoma legislature later required restoration by statute. The common law and the legislature reached different conclusions on the same problem. Doctrine is contingent.

Peevyhouse v. Garland Coal & Mining Co., 382 P.2d 109 (Okla. 1962).