[T]he measure of damages . . . is ordinarily the reasonable cost of performance of the work; however, where the contract provision breached was merely incidental to the main purpose in view, and where the economic benefit . . . is grossly disproportionate to the cost of performance, the damages . . . are limited to the diminution in value resulting to the premises because of the non-performance.
Peevyhouse v. Garland Coal & Mining Co.
Plaintiffs leased their farm to defendant to stripmine coal from it for five years. It was agreed that remedial work would be done to the land afterwards, involving moving thousands of tons of dirt, at a cost of ~$29,000. This was not done, and plaintiffs sued for $25,000.
Trial court gave judgment for plaintiffs for $5,000 at a jury's determination, considering the cost of the work and the diminution in value of plaintiffs' land.
Should damages be based upon the cost to perform when exceeding the value to be gained?
Damages should be based on the cost to obtain performance of the work that defendant did not do and therefore increased.
Damages should be limited to the difference in market value obtained through the work. As $5,000 is more than the farm would be worth even after the work was completed and much higher than the $300 it devalues plaintiffs' land, the damages should actually be reduced.
While other jurisdictions have adopted seemingly conflicted rules, the cases for diminution in value rule have all been construction cases. Other cases have used the value rule where the relative economic benefit is grossly disproportionate. The Restatement uses the value rule if there is unreasonable economic waste.
The relative economic benefit consideration should be the consideration in this case, as the remedial work was not a principal purpose of the contract. $29,000 is grossly disproportionate to the $300 it would actually benefit plaintiffs.
Page 1069, Paragraph 4
Judgment reduced to $300.
: Evidence suggests that defendant's breach was willful and not in good faith. Plaintiffs' specifically insisted that remedial work be required in the contract for them to sign. Defendant still agreed, knowing that it could cost more than the improvement was worth, assumedly because this was still in their economic benefit. This value to defendant should also be considered in determining damages.
The measure of damages should be the cost of performance. Anything else would be denying plaintiffs' the benefit of their including this express provision, while rewarding defendant for willfully violating the provision.
Supplemental Opinion on Rehearing:
Defendants provided the valuations of plaintiffs' land, which plaintiffs' did not reply to, urging that it was irrelevant and that the cost of performance was the sole measure of damages. Plaintiffs claim that the diminution in value would also affect their surrounding land, but it is too late for them to change the theory of their case. Plaintiffs' earlier fears of introducing evidence on the diminution waiving their objection were unfounded. Petition for rehearing denied.