Dunlop entered into a contract with New Garage under which they supplied them with car tyres and tubes. By this contract New Garage bound themselves not to sell to any customer at prices less than the current price list issued by Dunlop. Clause 5 of the contract stated 'we agree to pay to the Dunlop the sum of £5 for each and every tyre or tube sold or offered in breach of this agreement, as and by way of liquidated damages and not as a penalty.'
Dunlop discovered that New Garage had sold tyres and tubes at under the current list price and sued New Garage for damages. New Garage admitted the breach.
Q Was the £5 fixed in the agreement a penalty clause or liquidated damages clause?
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