Starting from Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd, this paper will address breach of contract and the role penalty clauses can have ex-ante to ensure performance as well as to signal commitment to performance. Somewhat surprisingly, penalty clauses have met with skepticism or been rejected in (most of) the Common law world. The arguments advanced against contractual penalties under English law and in the US are different, and civilian systems offer yet another range of explanations on why and how penalties are to be limited (or subjected to judicial review ex-post). Many of these explanations seem to have been developed after the rule(s) and they are, mostly, unconvincing or in some instances contradictory. Restrictions in ‘contract design’ and contractual arrangements governing the event of breach should therefore be reconsidered.  

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