Dunlop Pneumatic Tyre Co v New Garage and Motor Co [1915]

Where a fair sum is agreed for the payment of liquidated damages after several different breaches of a contract, that sum will not be classed as penal.

In deciding whether a clause is penal, ask if a clause:

  • Requires an extravagant and unconscionable payment in comparison with the maximum loss which could conceivably be proved
  • Requires a greater sum of money to be paid as a secondary obligation over the primary obligation which is replaces

Clauses may or may not be classed as penal depending on how the contract was breached and if the parties relied upon the clause for certainty.

RELATED CASE  Maritime National Fish Ltd v Ocean Trawlers Ltd [1935]

Posted in Contract Law Revision Notes.

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