## Facts

- Willie and Lucille Peevyhouse leased their Oklahoma farm to Garland Coal & Mining Co. for a five-year strip-mining operation.
- The lease included a clause requiring Garland to perform specified restorative and remedial work at the end of mining operations.
- Garland completed all other lease obligations but did not perform the restoration work.
- The estimated cost to perform the restoration was about $29,000.
- Evidence showed the land’s market value would increase by only about $300 if the restoration were performed.
- The Peevyhouses sued for damages based on Garland’s failure to complete the agreed restoration.

## Issues

1. What is the proper measure of damages for breach of a contractual promise to restore land: the reasonable cost of performance or the diminution in the property’s market value?
2. Does the measure change when the restoration clause is incidental to the contract’s main purpose and the cost of performance is grossly disproportionate to the economic benefit?

## Decision

- The Oklahoma Supreme Court held that, although the usual measure is the reasonable cost of performing the promised work, an exception applies when the breached term is incidental and completion costs are grossly disproportionate to the resulting economic benefit.
- Under that exception, damages are limited to the diminution in market value caused by nonperformance.
- The trial court should have confined the jury’s damages determination to diminution in value.
- The court modified the $5,000 jury award to $300 (the proven diminution in value) and affirmed the judgment as modified.

## Legal Principles

- Contract damages ordinarily award the reasonable cost of performance for a breached promise to perform remedial work on property.
- When (1) the breached provision is incidental to the contract’s main purpose, and (2) the economic benefit from full performance is grossly disproportionate to the cost of performance, damages are limited to diminution in value rather than cost of completion.
- The limitation reflects a concern that cost-of-completion damages can yield a windfall and require expenditures out of proportion to objective economic gain.

## Conclusion

The court limited the lessors’ recovery to diminution in value because the restoration covenant was treated as incidental to the mining lease’s main purpose and the cost to complete restoration was grossly disproportionate to the small increase in market value, reducing damages to $300.


Peevyhouse v. Garland Coal & Mining Co., 382 P.2d 109 (Okla. 1962)