Dissent in Peevyhouse v. Garland Coal & Mining Co.
382 P.2d 109 (Okla. 1962) (1962) · Supreme Court of Oklahoma
Peevyhouse v. Garland Coal is a controversial and widely debated case on the measure of contract damages, holding that diminution in value rather than cost of performance is the proper measure when the cost of remedying the defect is grossly disproportionate to the resulting increase in property value. The case raises fundamental questions about whether contract law should protect the promisee's subjective expectations or limit recovery to objective economic loss. It is frequently paired with Jacob & Youngs v. Kent in casebook discussions of damages.
What was the dissent in Peevyhouse v. Garland Coal & Mining Co.?
Justice Irwin dissented vigorously, arguing that the restoration promise was not incidental but was a central part of the bargain and a significant inducement for the Peevyhouses to lease their land. The dissent maintained that the mining company had received the full benefit of the lease and should not be permitted to escape its explicit obligations. Justice Irwin argued that applying the diminution-in-value measure effectively allowed the mining company to breach with impunity and denied the landowners the benefit of their bargain.
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Case Overview
Facts
The Peevyhouses leased their farm to Garland Coal & Mining Co. for strip mining operations. As part of the lease, the mining company specifically promised to restore the land to its original condition after mining was completed by performing certain remedial work including backfilling and grading. The mining company completed its operations but failed to perform the restoration work. The cost of performing the promised restoration was approximately $29,000, but the restoration would only increase the market value of the property by about $300.
Majority Holding
The court held that when the cost of performance is grossly disproportionate to the resulting increase in market value, the diminution in value is the proper measure of damages. The court awarded only $300 in damages, reasoning that the cost-of-performance measure would result in economic waste and provide the plaintiffs with an unjustified windfall.
Majority Reasoning
The majority applied the rule from the Restatement of Contracts that cost of remedying a defect is the appropriate measure unless it is clearly disproportionate to the probable loss in value. Finding the 100-to-1 ratio between cost of performance and diminution in value to be grossly disproportionate, the court concluded that the diminution-in-value measure was appropriate. The court analogized to construction cases like Jacob & Youngs v. Kent where the cost of correction would result in economic waste. The majority viewed the restoration promise as incidental to the main purpose of the mining lease.
The Dissenting Opinion
Justice Irwin dissented vigorously, arguing that the restoration promise was not incidental but was a central part of the bargain and a significant inducement for the Peevyhouses to lease their land. The dissent maintained that the mining company had received the full benefit of the lease and should not be permitted to escape its explicit obligations. Justice Irwin argued that applying the diminution-in-value measure effectively allowed the mining company to breach with impunity and denied the landowners the benefit of their bargain.
Key Quotes
“Where the contract provision breached was merely incidental to the main purpose in view, and where the economic benefit which would result to the lessor by full performance of the work is grossly disproportionate to the cost of performance, the damages which the lessor may recover are limited to the diminution in value resulting to the premises because of the non-performance.”
“It would be unconscionable to allow the plaintiffs to recover the full cost of performance... when the resulting benefit to the plaintiffs would be only $300.”
“[Dissent:] Although the3 3 3contract provision... was incidental to the main object of the lease, it is, nevertheless, a part of the consideration and was a binding promise which the defendant was obligated to perform.”
Impact and Legacy
Peevyhouse remains one of the most controversial cases in contract law and has generated extensive academic debate. Many scholars and subsequent courts have criticized the decision for failing to protect the promisee's expectation interest and for allowing a party who received full performance to escape its contractual obligations at minimal cost. Several jurisdictions have rejected the Peevyhouse approach by statute or judicial decision. The case powerfully illustrates the tension between economic efficiency and promissory obligation in contract law.
Exam Relevance
Peevyhouse is a classic exam question on the cost-of-performance versus diminution-in-value debate. Professors test whether students can identify the factors that determine which measure applies and whether they can critique the decision. Students should be prepared to argue both sides and to discuss whether the breaching party's promise was central or incidental to the contract. Policy arguments about efficient breach and promissory obligation are commonly tested.
Study Tips
- Compare this case directly with Jacob & Youngs v. Kent: in both cases the court used diminution in value, but the equities are very different because in Peevyhouse the breach was deliberate while in Jacob & Youngs it was inadvertent.
- Be prepared to argue both sides: the majority's economic waste rationale versus the dissent's argument that the restoration promise was central to the bargain and the mining company received full performance.
- Know the criticism: many scholars argue Peevyhouse effectively rewards deliberate breach and ignores the subjective value the landowners placed on restoration.
- Connect this case to the efficient breach theory: some economists defend the result as preventing wasteful expenditure, while others argue it undermines the sanctity of contract.
Read the Full Case Analysis
View the complete brief for Peevyhouse v. Garland Coal & Mining Co. including full reasoning, doctrine, and study resources.
More Contracts Dissents
Jacob & Youngs, Inc. v. Kent
230 N.Y. 239, 129 N.E. 889 (1921) (1921)
Justice McLaughlin dissented, arguing that the builder contracted to use Reading pipe and failed to do so. He maintained that the express terms of the contract should be enforced as written, and the builder should not be excused from full performance simply because the deviation was unintentional. The dissent viewed the majority's approach as undermining the certainty of contractual obligations.
Williams v. Walker-Thomas Furniture Co.
350 F.2d 445 (D.C. Cir. 1965) (1965)
Judge Danaher dissented, arguing that the court should not remake contracts for the parties and that the legislature, not the judiciary, was the proper body to address concerns about oppressive consumer contracts. He expressed concern that the majority's approach would create uncertainty in commercial transactions and undermine freedom of contract.
Sherwood v. Walker
66 Mich. 568, 33 N.W. 919 (1887) (1887)
Justice Sherwood (no relation to the plaintiff) dissented, arguing that the parties contracted for a specific, identified cow and that the mistake about her breeding capacity was a mistake about quality or value, not substance. The dissent maintained that the cow was the same animal regardless of whether she was pregnant, and that allowing rescission based on the seller's buyer's remorse after discovering the cow was more valuable than expected would undermine the certainty of contracts.
Lenawee County Board of Health v. Messerly
417 Mich. 17, 331 N.W.2d 203 (1982) (1982)
Justice Fitzgerald dissented, arguing that the 'as is' clause should not be read to cover a defect as fundamental as an illegally installed sewage system that rendered the entire property uninhabitable. He contended that the 'as is' clause was intended to cover minor defects visible upon inspection, not hidden violations that destroyed the essential purpose of the purchase.