• In the case of Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1914] UKHL 1, the Lords ruled on the scope of the doctrine of consideration in the law of contract.
  • This contract case concerned liquidated damages, privity of contract and sale of goods.

Facts of the Case

  • C and D contracted for tyres. D sold C’s tyres at a lower price than promised by the legally binding contractual obligations.
  • C contended that the price per tyre suggested by D did not cover the full extent of the loss.

Issues

  • What does consideration mean?
  • Is there consideration?

Held by House of Lords

  • Appeal allowed – C and D had a valid contract so the terms were enforceable.

Lord Dunedin

Consideration

  • “My Lords, I confess that this case is to my mind apt to nip any budding affection which one might have had for the doctrine of consideration. For the effect of that doctrine in the present case is to make it possible for a person to snap his fingers at a bargain deliberately made, a bargain not in itself unfair, and which the person seeking to enforce it has a legitimate interest to enforce.”
  • The judge ruled that consideration can be defined by a promise for a promise to establish a legally binding contract.
  • “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… But though damage as a whole from such a practice would be certain, yet damage from any one sale would be impossible to forecast. It is just, therefore, one of those cases where it seems quite reasonable for parties to contract that they should estimate that damage at a certain figure, and provided that figure is not extravagant there would seem no reason to suspect that it is not truly a bargain to assess damages, but rather a penalty to be held in terrorem.”

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