Jim Whitney

Economics 357

Team 6

Case brief: template

Case name:	Peevyhouse v. Garland Coal and Mining Co.
Court:	Supreme Court of Oklahoma
Citation; Date:	1962

PROCEDURAL HISTORY
Trial court:		Appeal court (if relevant):
Plaintiff:	Peevyhouse	Appellant:	Peevyhouse
Defendant:	Garland Coal and Mining Co.	Respondent:	Garland Coal and Mining

Facts of the case:
Peevyhouse family owned a farm that contained coal deposits. In November 1954, they leased their property to the Garland Coal and Mining Co. for a five-year period. During this five-year period, Garland Coal was to be ‘strip mining’ for coal from pits on the surface of the ground. The defendants had agreed in their contract with the Peevyhouse to perform certain restorative and remedial work at the end of the lease period. After the end of the five-year contract, Garland refused to remove thousands of cubic yards of dirt. The Peevyhouse family sued the Garland Coal company for $25,000 for Breach of Contract, even though the actual cost of removing the dirt was estimated at $29,000.
Remedy sought:	$25,000 for the non-removal of dirt left by Garland Coal after strip mining on Peevyhouse property, which they had promised to remove, at the end of their lease.
Court opinion (including key issues and arguments):
One of the arguments presented by the court was that the remedial work was not the main purpose of the contract and the special clause about restorative work was only “incidental to the main object involved.” Court also considered the evidence presented that after the performance of the restoration the value of the property would only increase by $300, which is far less than the cost of performance of $29,000. Thus, the court concluded that “where the economic benefit which would result to lessor by full performance of the work is grossly disproportionate to the cost of performance, the a damages which lessor may recover are limited to the diminution in value resulting to the premises because of the non-performance.” However, the dissent argues that the contract was made in good faith and the Peevyhouse insisted upon the remedial work or they would not have signed the contract. Both parties must have known what benefit the contract will yield and Garland should not have been allowed to breach the contract.
Disposition of case:
In the trial court, the court ruled in favor of the plaintiffs for $5,000, much less than the ‘cost of performance,’ which was estimated at $29,000. Although they were not rewarded the full damages, they still receive much more than the total value of their property, even after the remedial work is done. When the case was appealed and brought to the Supreme Court the plaintiffs had their previous judgment modified and reduced to $300.

ECONOMIC ANALYSIS OF THE CASE

The plaintiff entered into a contract, which as an improvement could reduce his property value but he felt that the value that would arise from the contract would be more beneficial. Thus, the plaintiff must have concluded that the benefits would exceed the costs. This case also illustrates an efficient breach because Garland Coal Mining did not have to pay the cost of performance, which would have benefited the plaintiff excessively. The courts use the value rule instead of the cost of performance because if the remedial work had been completed it would not have increased the value of the property by an equal amount. This creates a positive incentive because parties will now enter contracts under the assumption that they will at least be compensated for any increase in value that they are entitled to if the contractor would follow through with remedial work.

However, as the dissent indicates, the plaintiff entered the contract because they specifically requested the clause with remedial work because they live on the farm and wish to retain the aesthetic value of the property. The court decision creates a negative incentive to enter into contracts because other parties could breach the contract in a way, which does not benefit the contractee.

Another important consideration is that perhaps the court should have considered specific performance. This means the court should have made Garland perform the work and thus award Peevyhouse with the right to make Garland perform the remedial work. However, this does not necessarily mean that Garland has to do the work, which would cost $29,000 and be inefficient. A more likely outcome would be that the two parties could now bargain and find a more efficient solution where Peevyhouse would accept an appropriate payment and Garland would not have to perform the work. This creates a positive incentive because parties will now be more inclined to enter contracts because courts are likely to award specific performance and thus all parties will know what type of contract they are entering and whether it is of benefit to them. In addition, the advantage of specific performance is that market will determine damages and also parties will avoid litigation costs and errors. On the other hand, the disadvantage is the risk of inefficiency due to bilateral monopolies.