R2d § 348
Alternatives to Loss in Value of Performance
(1) If a breach delays the use of property and the loss in value to the injured party is not proved with reasonable certainty, he may recover damages based on the rental value of the property or on interest on the value of the property. (2) If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he may recover damages based on (a) the diminution in the market price of the property caused by the breach, or (b) the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him. (3) If a breach is of a promise conditioned on a fortuitous event and it is uncertain whether the event would have occurred had there been no breach, the injured party may recover damages based on the value of the conditional right at the time of breach.
Professor's notes
Elements: (1) if breach delays use of property and the loss in value is not proved with reasonable certainty, plaintiff may recover damages based on rental value or interest on the value of the property; (2) if breach results in defective or unfinished construction and loss in value is not proved with reasonable certainty, plaintiff may recover damages based on (a) the diminution in market price caused by the breach, OR (b) the reasonable cost of completing performance or remedying the defects if that cost is not clearly disproportionate to the probable loss in value.
Peevyhouse v. Garland Coal operationalizes (2): cost to restore land ($29K) vs. diminution in value ($300). Court chose diminution; cost of performance was clearly disproportionate.
Common misunderstanding: students think the plaintiff chooses the measure. The court does, via the disproportionality test. The Peevyhouse rule has been criticized: when a party paid for a specific result and didn't get it, denying cost of performance arguably denies the bargain. Compare Groves v. John Wunder.
Cases that operationalize this rule
Text
R2d § 348. Alternatives to Loss in Value of Performance.
(1) If a breach delays the use of property and the loss in value to the injured party is not proved with reasonable certainty, he may recover damages based on the rental value of the property or on interest on the value of the property.
(2) If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he may recover damages based on
(a) the diminution in the market price of the property caused by the breach, or
(b) the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him.
(3) If a breach is of a promise conditioned on a fortuitous event and it is uncertain whether the event would have occurred had there been no breach, the injured party may recover damages based on the value of the conditional right at the time of breach.