to the different covenants but equally to all, you must hold that the sum cannot be damages assessed by parties as in the case of a particular covenant with respect to which the damages are incapable of being ascertained and are by law fixed in a different way, but you must look upon it as a mere penalty, and ascertain where the breach occurs, what is the damage sustained in respect of the particular breach.”. ( On Appeal From The Court Of Appeal In England.) The appellants produce price lists of these goods of theirs varying from time to time. There may be a greater risk of infringing the principle against extortion, or against the substitution of a larger for a smaller payment, in applying the same figure to a number of different breaches of varying importance, more especially if some occasion serious and others but trifling damage, than when it is applied to one breach; but if these tests are complied with the parties may reasonably be allowed to make their own agreement. In my opinion this appeal should be allowed with costs. 1 page) Ask a question Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 Toggle Table of Contents Table of Contents. The words of Tindal C.J. Citation. Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 Practical Law Case Page D-000-5173 (Approx. No abstract rule can be laid down without reference to the special facts of the particular case, but when competent parties by free contract are purporting to agree a sum as liquidated damages there is no reason for refusing a wide limit of discretion. Important Paras. If this statement of the law is accurate without limitation, the agreed sum of £5 in the present case would be prima facie in the nature of a penalty, since that sum is fixed irrespective of the varying degrees of importance of the stipulations. Get 1 point on adding a valid citation to this judgment. Undoubtedly the authorities do say this, that when a stipulation applies to a breach of a number of covenants, and one of those is a covenant for the payment of a sum of money where the damage for the breach of it is according to English law capable of being actually defined, then where a sum is said to be liquidated damages the stipulation applies, not distributively to the different covenants but equally to all, and you must hold that the sum cannot be damages assessed by the parties as in the case of a particular covenant with respect to which the damages are incapable of being ascertained and are by law fixed in a different way; but, you must look upon it as a mere penalty, and ascertain when the breach occurs what is the damage sustained in respect of the particular breach.". In their proper sense the words appear to refer to a case where no rule or measure. The case was tried and the breach in fact held proved. In the case of a single stipulation, which, if broken at all, can be broken once only, and in one way only, such as a covenant not to reveal a trade secret to a rival trader, there can be no inference or presumption that the sum payable on breach is not in the nature of agreed damages, and if the parties have referred to it as agreed or liquidated damages, no reason why the Court should not treat it as such. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of, upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the. RESPONDENTS: The House took time for consideration. The appellants, like the respondents, are most probably good business men. The present case is an illustration in point. For instance, if one should contract with a builder to build a house of the best materials and with the most skilled workmanship, and to hand over possession of the same completed on a certain day for 1000 l. , 500 l. to be paid if the agreement was not performed; every fire grate set which on completion would be found to be of bad material, every door which would be found to have been defectively hung, every cubic foot of masonry which would be found to have been badly and improperly built, would involve a breach of the agreement, but it would be quite illegitimate to thus disintegrate the obligation to do what the parties regarded as a single whole into a number of obligations to do a number of things of varying importance, and treat the 500 l. as prima facie a penalty, because these individual breaches of the agreement did not cause, in many instances, any injury commensurate with that sum. There are, however, certain general considerations which have to be borne in mind in determining the question. Creating your profile on CaseMine allows you to build your network with fellow lawyers and prospective clients. If the words prima facie imply that the sum will be regarded as a penalty unless there are some special circumstances which could justify an opposite conclusion, the statement appears to be expressed in too general terms. So long as they got their price from the respondents for each article sold, it could not matter to them directly what the respondents did with it. Facts. No Acts. Since the damage for the breach of covenant is in such cases by English law capable of exact definition, the substitution of a larger sum as liquidated damages is regarded not as a pre-estimate of damage but as a penalty in the nature of a penal sum. Click here to remove this judgment from your profile. Mr. Baisley, in his evidence (Appendix, pp. Dunlop Pneumatic Tyre Company v New Garage and Motor Company [1915] AC 79. in Wallis v. Smith(5) - is probably more interesting than material. Paragraph 2 contains an undertaking by the respondents that they "will not sell or offer any Dunlop motor tyres, covers, or tubes to any private customers or to any co-operative society at prices below those mentioned in the price list current at the time of sale, nor give to any such customer or society any cash or other discounts, or advantages reducing the same, and will not sell or offer any Dunlop motor tyres, covers, or tubes to any other person, firm, or company at prices less than those mentioned in the said price list." On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties ( Clydebank Case, Lord Halsbury(1); Webster v. Bosanquet, Lord Mersey(2)). The agreed sum, though described in the contract as liquidated damages, is held to be a penalty if it is extravagant or unconscionable in relation to any possible amount of damages that could have been within the contemplation of the parties at the time when the contract was made. it is practically impossible to make an accurate pre-estimate of damage, and there is no question of extortion or of substituting a larger for a smaller sum. Such are: ( a ) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. I agree with him that on the face of it, on this point of liquidated damages, it contains nothing unreasonable, unconscionable, or extravagant. In the present case the agreement of the parties, in effect, though possibly not in form, did little, if anything, more than impose a single obligation, namely, to sell and endeavour to sell the goods of the appellants at the prices named in their lists. There may be a greater risk of infringing the principle against extortion, or against the substitution of a larger for a smaller payment, in applying the same figure to a number of different breaches of varying importance, more especially if some occasion serious and others but trifling damage, than when it is applied to one breach; but if these tests are complied with the parties may reasonably be allowed to make their own agreement. In the event that they were in breach the contract specified that 5/. contains alphabet), Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd. University of Strathclyde. What is prohibited by the second clause is "the sale or offering for sale of motor tyres, covers, or tubes at prices less than those in the price list." In many cases such an agreement gives that which is almost impossible to be accurately ascertained, and in all cases it saves the expense and difficulty of bringing witnesses to that point.”. CITATION CODES. These agreements are styled price maintenance agreements, and their main purpose, obviously, is to prevent the sale to the public, the users, either directly or indirectly, of the goods the appellants manufacture at prices less than those named in their price lists. In this respect I think that a distinction should be drawn between cases in which the damage likely to accrue from each stipulation is the same in kind, and cases in which the damage likely to accrue varies in kind with each stipulation. Supposing it were recited in the agreement that the parties had estimated the probable damage from a breach of one stipulation at from 5 l. to 15 l. , and the probable damage from a breach of another stipulation at from 2 l. to 12 l. , and had agreed on a sum of 8 l. as a reasonable sum to be paid on the breach of either stipulation, I cannot think that the Court would refuse to give effect to the bargain between the parties. Dunlop Pneumatic Tyre Co Ltd v New Garage Motor Co Ltd. If, for example, the sum agreed to be paid is in excess of any actual damage which can possibly, or even probably, arise from the breach, the possibility of the parties having made a bona fide pre-estimate of damage has always been held to be excluded, and it is the same if they have stipulated for the payment of a larger sum in the event of breach of an agreement for the payment of a smaller sum. House of Lords The facts are stated in the judgement of Lord Dunedin. my lords, the appellants, through an agent, entered into a contract with the respondents under which they supplied them with their goods, which consisted mainly of motor-tyre covers and tubes. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage (Clydebank Engineering and Shipbuilding Co. v. Don Jose Ramos Yzquierdo y Castaneda(1)). I further agree with the opinion expressed by the Lord Justice that within this limitation clause 5 of the contract does apply to more than one contingency, and that the case must be considered on this basis. It is also clear that the object of the parties when they executed the deed was to secure to the plaintiff the option of buying the entire crops of both estates, and that when they fixed this sum of 500 l. they were thinking of the loss the plaintiff might sustain by the loss of that option. In the sense of direct and immediate loss the appellants lose nothing by such a sale. They had an obvious interest in preventing this undercutting, and on the evidence it would appear to me impossible to say that their interest was incommensurate with the sum which it was agreed to pay. Dunlop was a tire manufacturer who agreed with their dealer to not sell the tires below a recommended retail price (RRP). It is quite true that, as mentioned by Swinfen Eady, L.J., Lord Esher in, In this last-mentioned case, as in the present, the contract provided that the amount specified should be paid as “liquidated damages and not as a penalty.” The covenant upon which the matter in controversy turned was contained in a deed made on the dissolution of a partnership between two partners, the plaintiff and defendant, and it provided that the defendant should not during a certain period be at liberty to sell the whole or part of the tea crops of two estates named to any person other than the plaintiff without first offering to him the option of buying the same, and further provided that on breach of this covenant by the defendant he should pay to the petitioner the sum of £500 as “liquidated damages and not as a penalty.”. In the case of Wallis v. Smith(1), tried before Fry J., and taken to the Court of Appeal, it was necessary to decide whether when a contract contained a condition for payment of a sum of money as liquidated damages for the breach of stipulations of varied importance, none of which is for payment of an ascertained sum of money, the sum named should be treated as liquidated damages or as a penalty. The covenant upon which the matter in controversy turned was contained in a deed made on the dissolution of a partnership between two partners, the plaintiff and defendant, and it provided that the defendant should not during a certain period be at liberty to sell the whole or part of the tea crops of two estates named to any person other than the plaintiff without first offering to him the option of buying the same, and further provided that on breach of this covenant by the defendant he should pay to the petitioner the sum of 500 l. as "liquidated damages and not as a penalty. or factors of their goods at prices less than those named in these lists. Dunlop Pneumatic Tyre Co Ltd (‘Dunlop’) entered into a contract to sell tyres and other accessories to New Garage Motor Co Ltd (‘New’) on terms design to ensure that the tyres were not sold below the manufacturers listed price. Dunlop had agreed to supply tyres to New Garage Motor provided that the garage agreed not to sell those tyres at prices below those contained in Dunlop’s catalogue. The cases linked on your profile facilitate Casemine's artificial intelligence engine in recommending you to potential clients who might be interested in availing your services for similar matters. contains alphabet). Get 2 points on providing a valid reason for the above The question to be determined is the construction of this agreement. It is quite true that, as mentioned by Swinfen Eady L.J., Lord Esher, in Willson v. Love(1), said that he thought this passage meant the same thing as if it ran "some of which may occasion serious and others less serious damage." This is the very ground, or one of the rounds, upon which Lord Herschell rests his judgment in, In the present case the agreement of the parties, in effect though possibly not in form, did little if anything more than impose, a single obligation, namely, to sell or endeavour to sell the goods of the appellants at the prices named in their lists, though of course as they sold different kinds of goods this single obligation might be violated in many ways. ", My Lords, the point on which the majority of the Court of Appeal decided this case against the appellants is that, where a contract contains varying stipulations, and the evidence shows that these stipulations are of varying degrees of importance, the Court exercises a wider power of interference, and a single sum made payable by the occurrence of the breach of one or more, or all of such stipulations, is prima facie a penalty and not liquidated damages. Paragraph 2 contains an undertaking by the respondents that they “will not sell or offer any Dunlop motor tyres, covers, or tubes to any private customers or to any co-operative society at prices below those mentioned in the price list current at the time of sale, nor give to any such customer or society any cash or other discounts or advantages reducing the same, and will not sell or offer any Dunlop motor tyres, covers, or tubes to any other person, firm, or company at prices less than those mentioned in the said price list.” I agree with the opinion of Kennedy, L. J., that under the terms of the contract the sum of £5 is only payable in respect of a breach of the undertaking in paragraph 2 of the contract and does not extend to other breaches. Creating a unique profile web page containing interviews, posts, articles, as well as the cases you have appeared in, greatly enhances your digital presence on search engines such Google and Bing, resulting in increased client interest. My Lords, there is no question as to the competency of parties to agree beforehand the amount of damages, uncertain in their nature, payable on the breach of a contract. 5 of the agreement applies to the first part of clause 3, the supplying of these goods to persons on the appellants' black list, as it was styled. In view of that fact, and of the number of the authorities available, I do not think it advisable to attempt any detailed review of the various cases, but I shall content myself with stating succinctly the various propositions which I think are deducible from the decisions which rank as authoritative:-. * Enter a valid Journal (must Turning now to the facts of the case, it is evident that the damage apprehended by the appellants owing to the breaking of the agreement was an indirect and not a direct damage. In cases, however, of the latter class I am inclined to think that the prima facie presumption or inference is against the parties having pre-estimated the damage, even though the sum payable is referred to as agreed or liquidated damages. Therefore although it may be true, as laid down by Lord Watson, that a presumption is raised in favour of a penalty where a single lump sum is to be paid by way of compensation in respect of many different events, some occasioning serious and some trifling damage, it seems to me that this presumption is rebutted by the very fact that the damage caused by each and every one of those events, however varying in importance, may be of such an uncertain nature that it cannot be accurately ascertained. Dunlop Pneumatic Tyre Co. v. New Garage and Motor Co. United Kingdom House of Lords (1 Jul, 1914) 1 Jul, 1914; Subsequent References; Similar Judgments; Dunlop Pneumatic Tyre Co. v. New Garage and Motor Co. 52 SLR 861 [1914] UKHL 861. The really difficult cases are those in which the Court has to consider what presumptions or inferences arise from the number or nature of the stipulations on breach of which the sum in question is agreed to be paid. It was laid down that in determining whether a sum contracted to be paid is liquidated damages or a penalty, one is to consider whether the contract, whatever its language, would, at the time it was entered into, have been unconscionable and extravagant, and one which no Court ought to allow to be enforced if this sum were to be treated as liquidated damages, having regard to any possible amount of damage likely to have been in the contemplation of the parties when they made the contract. Dew sold the tyres to Selfridge at the listed price and made Selfridge agree not to sell at a lower price either and that they would pay £5 in damages if they violated this agreement. The question whether a sum stipulated is … Vak. DUNLOP PNEUMATIC TYRE COMPANY, LIMITED. I confess that seems to me a very, very doubtful construction. of construction, I could settle in my own mind that the indirect damage from selling a cover would differ in magnitude from the indirect damage from selling a tube; or that the indirect damage from a cutting-price sale would differ from the indirect damage from supply at a full price to a hostile, because prohibited, agent. The plaintiff (Dunlop) sought to establish and enforce a resale price maintenance (RPM) scheme. No doubt if the agreed sum is not applied distributively, but equally to stipulations of varying importance, and in reference to any of the stipulations it. Dunlop Pneumatic Tyre Company, Limited v. New Garage and Motor Company, Limited. 5 of the agreement applies to the first part of clause 3, the supplying of these goods to persons on the appellants' black list, as it was styled. Whether the parties have so agreed or whether the sum agreed to be paid on the breach is really a penalty must depend on the circumstances of each particular case. There are two instances in which the Court has interfered when the agreed sum is referable to the breach of a single stipulation. If one takes, for example, the case of a plumber, the carrying on of the trade of a plumber may mean anything from mending gas-pipes for a few pence apiece up to doing all the plumbing work of a big hotel. (1) In that case there was a covenant by the lessees of a farm not to sell hay or straw off the premises during the last twelve months of the term, and a provision that an additional rent of 3 l. per ton should be payable by way of penalty for every ton of hay or straw so sold. 2017/2018. The amount of tea sold by the defendant in breach of the covenant was considerable—nearly 54,000 Ib. The appellants, like the respondents, are most probably good business men. 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