CHARLES FRIED: I'm sad to tell you that at the time
things may not have turned out as you'd had hoped.
In the gravel case, the owner of the land
got the full $60,000, the $1 million in today's dollars,
the cost to fix up the land, which was certainly more than the land was worth.
However, he did not spend it on fixing his land up and making it look good.
It was, after all, so-so industrial land.
He just sold it to someone else and moved on.
But the Peevyhouses never got the money to fix up their land.
The court awarded them just a bit more than $300--
certainly not enough to fix up their farm.
And they continued to live there for a long time afterwards.
It was their family home.
In fact, it was their farm, but it looked awful, or at least parts of it
looked awful.
So here are the two cases.
They came out quite differently.
And I want you to see that courts don't always get things right.
If your sense is that in the gravel case, the owner of the industrial land
shouldn't have gotten anything more than the difference
between the value of the land as fixed up
and the value of it as it had been left, while in the Peevyhouse's case,
they should have been able to fix up their land
and have their farm looking good again, then you would feel, like I do,
that the two courts got it exactly wrong, both of them.
Well, that happens.
So knowing that this happens and supposing you
were the farm owner-- it was your farm-- and you've
read about your neighbors, the poor Peevyhouses, and what happened to them.
And the coal company comes around to you.
And they want to strip mine your farm.
You're only willing to do it if at the end of the operation
they're willing to make your land look good again,
make it look habitable again, so that you are happy to live there.
How are you going to do that?
What can you do?
If what you want is your farm back in its original condition,
the way you love it, maybe there's no way to do it,
because it looks like every time the court's going to say,
well, you may want to do that, but this is a deal.
And a deal is a deal.
And all you're entitled to is the value difference.
And it turns out the value of this farm is not that much.
You may want to live there, but commercially it isn't worth fixing up.
So here you've got a real problem.
And what we are seeing is another dead weight loss,
because the court will not force the coal company to fix up your land.
And you're not going to let them mine the coal.
But you would both be better off going in
if the coal company could mine its coal, selling at a profit,
but still was required to spend the money to fix up your land.
And you would get the price that they promised for the coal
and end up with your farm looking pretty decent.
But because the court won't do that, there
doesn't seem to be any way to make that deal.
That's too bad.
Well, let's consider some possible solutions.
What if you put a clause in the contract?
You add this line, "At the end of the mining lease, you, the coal company,
are either going to fix up the land for me or you're going to pay me $29,000."
So there's the $29,000 right in the contract.
Will that work?
Probably not.
The court is not in the business of awarding penalties.
They only award damages.
And the Peevyhouse court said, the damage was $300 thereabouts.
With or without that clause, all you would get
is the commercial loss that you've suffered.
And that's still $300.
Too bad that your form is virtually uninhabitable.
Get yourself another one.
Now, maybe that might not happen to you.
Change the facts a little bit.
Having heard what happened to your neighbors,
you're not going to let that happen.
You make two contracts, the first with the coal company
and the second with the landscape company.
You pay the landscaper $29,000 up front.
And they agree to fix up your land when the coal
company is through strip mining it.
But comes the day, the landscaper pulls the same stunt.
It says, we're not going to landscape your farm.
It isn't worth it.
Can you sue them to get your $29,000 back?
Well, they say, we don't owe you $29,000.
We know, everybody knows that it would be a terrific waste of money
to spend it on fixing up your land.
We do all this work.
It will cost us $29,000 to do it.
And it would only increase the value of your land by $300.
Let's forget about it.
We keep your money, OK.
Well, maybe we'll give you $300.
And everybody is just where they should've been.
Well, I assure you the court would make the landscaper at least pay
the money you paid him in advance.
He can't keep the money and not do anything.
But you still have not got your farm back in shape.
But isn't that just what the coal company did?
Except with the coal company, if the fix-up costs
were factored to reduce what they paid me for the coal,
it's as if the landscape company had kept my money and hadn't done the work.
Can you see why?
So seeing what had happened to the Peevyhouses,
other farmers are not going to let the coal company on their land,
even though the farmers need the money for the coal,
and the coal company wants the coal and is ready to pay up for it.
That's another dead weight loss.
You want to have your farm fixed up.
You don't seem to be able to get that done,
because what you want done is going to cost more than it's worth.
This illustrates that the simple principle that what you're entitled to
is a value of your bargain is not so simple,
because we're trying to figure out what that value is.
And that sometimes is very complicated.
The value on the market might be a lot less than the value to me.
The change in value on the market of the Peevyhouse's farm was $300.
But to the Peevyhouses it was worth a great deal more than that.
Does that mean that they have no way of getting it?
Well, I don't think so.
There has to be a way.
One way to get it is to make that second contract with a landscaper,
but not pay him in advance-- withhold the payment to the landscaper.
You could try to put a clause in the contract
that the coal company has got to fix up your land.
And if they don't, they're going to pay $1,000 for every day
that they don't do it past a certain day.
How would the court not enforce that?
It's a penalty.
Maybe another way is to negotiate a higher price for the coal
so that you have the money for the landscaping.
You have the money from the coal.
And that money includes whatever it's going to cost to landscape.
Not knowing how much coal they'll take, you
could even charge $29,000 up front for the first ton and then the
agreed upon rate for the rest.
Then you'd be sure to have the money to fix the farm up.
This is all quite complicated.
And wouldn't it have been simpler just to make
the coal company do what they said they would do?