This chapter studies the remedial problem that arises when performance is rendered, but rendered defectively. The Coronation gives a practical Middle-earth setting for comparing the cost of repair with the loss in value caused by imperfect work.
Doctrinal map
Two competing measures: cost of completion (what it would take to fix the defect) and diminution in value (the difference between performance as promised and performance as rendered). The default is cost of completion; the override is Peevyhouse v. Garland Coal — where cost is grossly disproportionate to diminution and the defect is incidental, diminution governs. R2d § 348 codifies the move. The student leaves able to identify which measure applies and why.
Key Sources
Key Rules
- Cost of completion vs. diminution in value
- R2d § 348: Special measures in defective performance cases
Cases
- Peevyhouse v. Garland Coal & Mining Co. 382 P.2d 109 (Okla. 1962) 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.
- Lake River Corp. v. Carborundum Co. 769 F.2d 1284 (7th Cir. 1985) A liquidated-damages clause is enforceable only if the harm to be caused by the breach was difficult to estimate at the time of contracting and the amount fixed is a reasonable forecast of just compensation. A clause that operates as a penalty: designed to deter breach rather than compensate the non-breaching party: is unenforceable, even between sophisticated commercial parties.