What is the ratio in Dunlop v New Garage?

Penalty clauses are unenforceable, but liquidated damages clauses are valid if they represent a genuine pre-estimate of loss rather than a deterrent against breach.

What did the court decide in Dunlop v New Garage?

The House of Lords held that the £5 payment clause was enforceable liquidated damages as it was a genuine pre-estimate of Dunlop's losses from price-cutting.

Why is Dunlop v New Garage important for contract law?

It established the classic tests for distinguishing unenforceable penalties from valid liquidated damages, providing the framework used by courts for nearly a century.

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