Part B The law of obligations 6: Breach of contract and remedies 97Pilkington v Wood 1953
The facts: The claimant bought a house in Hampshire, having been advised by his solicitor that title was
good. The following year, he decided to sell it. A purchaser was found but it was discovered that the house
was not saleable at the agreed price, as the title was not good. The defendant was negligent in his
investigation of title and was liable to pay damages of £2,000, being the difference between the market
value of the house with good title and its market value with defective title. The defendant argued that the
claimant should have mitigated his loss by taking action against the previous vendor for conveying a
defective title.
Decision: This would have involved complicated litigation and it was not clear that he would have
succeeded. The claimant was under no duty to embark on such a hazardous venture 'to protect his
solicitor from the consequences of his own carelessness'.An article on damages for breach of contract appeared in the January 2010 edition of Student Accountant.6 Liquidated damages and penalty clauses
To avoid later complicated calculations of loss, or disputes over damages payable, the parties may include
up-front in their contract a formula (liquidated damages) for determining the damages payable for
breach.Liquidated damages can be defined as 'a fixed or ascertainable sum agreed by the parties at the time of
contracting, payable in the event of a breach, for example, an amount payable per day for failure to
complete a building. If they are a genuine attempt to pre-estimate the likely loss the court will enforce
payment.'Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd 1915
The facts: The contract (for the sale of tyres to a garage) imposed a minimum retail price. The contract
provided that £5 per tyre should be paid by the buyer if he resold at less than the prescribed retail price or
in four other possible cases of breach of contract. He did sell at a lower price and argued that £5 per tyre
was a 'penalty' and not a genuine pre-estimate of loss.
Decision: As a general rule when a fixed amount is to be paid as damages for breaches of different kinds,
some more serious in their consequences than others, that is not a genuine pre-estimate of loss and so it
is void as a 'penalty'. In this case the formula was an honest attempt to agree on liquidated damages and
would be upheld.Ford Motor Co (England) Ltd v Armstrong 1915
The facts: The defendant had undertaken not to sell the claimant's cars below list price, not to sell Ford
cars to other dealers and not to exhibit any Ford cars without permission. A £250 penalty was payable for
each breach as being the agreed damage which the claimant would sustain.
Decision: Since the same sum was payable for different kinds of loss it was not a genuine pre-estimate of
loss and was in the nature of a penalty. Unlike the Dunlop case the figure set was held to be excessive.The following, more recent case, indicates that courts are flexible when considering onerous liquidated
damages clauses which may in the past have been considered penalty clauses.Key term
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