is greater or less than the sum fixed in the clause. Again, the Common law approach may be said to pay more regard to the express terms of the promise as made by the promisor, the German approach to the fairness of the outcome at the time of the breach.

(d)  Model law

Under the DCFR, liquidated damages clauses are to be given effect to, the creditor being entitled to the sum stipulated in the clause regardless of the actual loss suffered.248 However, as in many of the national systems discussed above, such clauses are subject to moderation in order to prevent the use of excessive penalties. If the amount stipulated is grossly excessive in relation to the loss suffered, then the amount recoverable may be reduced to a reasonable amount.249 This solution is symbolic of the DCFR’s general attitude towards the autonomy of parties: respect tempered by moderation to curb perceived abuse.

The DCFR approach of judicial moderation, rather than (as in the Common law) the blunt instrument of striking down clauses, represents what appears to be an emerging preference of legal systems (it may, for instance become the Scottish approach in the near future).250 It is, however, an approach which raises one serious objection, that being as to why judicial moderation requires to operate in commercial contracts. The case for protecting consumers against oppressive business practices may be reasonably well established, but that for interfering in the decision of commercial parties to include excessively penal clauses is far less robust. Arguably, it proposes an approach which goes too far in subjecting the promises of parties to the standards of commutative justice.

8.  Termination of contract for non-performance

As a prologue to this topic, it should be noted that there is a confusing array of terminology that is employed in the English language to describe the act of justified ex nunc (that is, prospective) termination of a contractual relationship. Such terms include cancellation, abrogation, annulment, rescission, repudiation, avoidance, withdrawal and resilement. Some of these can have specific meanings in individual legal systems, so their use to describe a general right to terminate future contractual relations

248 Art. III.-3.712(1). 249 Art. III.-3:712(2). 250 See discussion above at n. 242.

avoided if the contract clearly stipulates which breaches will give rise to the right to terminate, and which not, but contracts do not always do so, and where they do not there ought to be a clear default rule. Most systems have serendipitously resolved the matter by holding that a material breach must go ‘to the root of the contract’, suggesting that it is the overall effect upon the parties’ relationship which counts (so that an important breach of a minor term would not amount to material breach of the contract). A further potentially difficult issue is whether, in cases of remediable breach of contract, good faith requires that the party in breach should be given an opportunity to attempt to remedy the breach before the other party terminates the contract, a matter discussed further below.

(a)  Historical origins of the right to terminate

Even in classical Roman law, there was an acceptance that not every pledged contractual performance had to be rendered: for instance, a tenant could terminate a lease if the landlord did not comply with his duties, and a landlord could terminate if the tenant did not pay his rent;252 a purchaser under a contract of sale could terminate the purchase in the event of a defect which triggered the actio redhibitoria; and, in later Imperial law, the rule of laesio enormis allowed sales of land for less than half their real worth to be cancelled by the seller.253

Later, the canon law rule of frangenti fidem fides non est servanda

(‘to him who breaches fidelity, fidelity is no longer owed’) was extended into the general law to provide a principle of wide application allowing termination for breach. This tradition of a wide termination right has been continued into a number of, though not all, modern legal systems.

(b)  English law

As noted earlier in the discussion on perfect or substantial performance, in English law the right to terminate a contract for breach of contract depends upon whether the term breached is classified as a condition or a warranty: breach of the former class of term (along with some breaches of so-called ‘innominate terms’) gives a right to terminate, breach of the latter type does not.254 As in other systems, termination for breach has an

252 Zimmermann, Law of Obligations, p. 356. 253 C. 4.44.2. 254  See earlier discussion at p. 363.

adopted in other systems. Whatever its nature, in South African law (as in Scots law) the right to terminate for breach of contract is a remedy which does not require the intervention of the courts (even if it is sanctioned by law, in a general sense).

In Scots law, it was traditionally said that a material breach of contract gave an absolute right to terminate. Thus, in Municipal Council of Johannesburg v. D. Stewart & Co.,267 Lord Dunedin said:

If the stipulation which is broken goes to the root and essence of the contract,­ the other party is entitled to say – now you have so broken the contract that I am entitled to say that it is at an end through your fault. I shall not perform any more of my stipulations because you have precluded­ me …268

Expressing the innocent party’s entitlement in such a fashion leaves it somewhat unclear as to whether there is a need to offer the party in breach a second chance to adhere to its obligations. The inclusion of the idea that B’s material breach may ‘preclude’ A from performing its reciprocal undertakings might, however, be said to justify a distinction between those material breaches which are irremediable, and so by their nature prevent the parties from continuing the contractual relationship, and those which, though material, might be remedied and thus permit the relationship to continue in being. Just such a distinction was said to exist in Lindley Catering Investments Ltd v. Hibernian Football Club Ltd,269 a case in which the defender purported to terminate the contract between the parties on account of various alleged defects in the catering facilities offered by the pursuer at the defender’s football ground. It was decided that there had been no material breach of the pursuer’s duties, but the judge, Lord Thomson, gave his obiter view that, if a breach of contract

is such by degree or circumstances that it can be remedied so that the contract as a whole can thereafter be implemented the innocent party is not entitled to treat the contract as rescinded without giving to the other party an opportunity to remedy the breach.

Though these remarks were merely obiter, the position suggested by Lord Thomson is similar to that of German law’s Nachfrist, or ‘second chance’, discussed below. His specification of the ‘degree or circumstances’ that can warrant a second chance seems to have been intended to serve as a reminder that it is both material breaches short of a

267 1909 SC 860. 268 1909 SC at 877. 269 1975 SLT (Notes) 56.

repudiation (‘degree’) as well as the type of conduct constituting the breach (‘circumstances’) which are relevant in assessing whether the breach is remediable or not.

It is unfortunate that the view expressed in Lindley has not been authoritatively settled by the Appeal Court, but has merely been the subject of comment in later first instance judgments. In one such later judgment,

Charisma Properties v. Grayling (1994) Ltd,270 Lord Sutherland remarked that as a ‘general rule, if there is a material breach of contract, the innocent party is entitled to rescind the contract forthwith’; on the other hand, in Strathclyde Regional Council v. Border Engineering Contractors Ltd,271

Lady Cosgrove expressed a more favourable view of Lord Thomson’s approach, commenting that ‘it is a basic principle of the law of contract that if one party is in breach, the innocent party is not entitled to treat the contract as rescinded without giving the other party an opportunity to remedy the breach.’ The issue, which represents one of the many unsettled contractual issues typical in a small uncodified jurisdiction like Scotland, requires to be settled definitively. Until such time, it seems wise for parties to continue to specify contractually when a breach will or will not be material, either by listing certain breaches as such or by providing for a notification procedure by which any breach by B may be the subject of a notice by A requiring B to remedy the breach within a specified time, failure so to remedy triggering an entitlement on A’s part to rescind the contract forthwith. Such a notice procedure has the merits both of clarifying when the right to terminate arises as well as embodying the good faith which is inherent in a second chance process.

Finally, in Louisiana the right to terminate for breach (or to ‘dissolution of the contract’ for failure to perform, as the Code calls it) is the subject of the whole of chapter 9 of the Code. As partly discussed earlier in relation to substantial performance, if the debtor fails to perform, Article 2013 gives the creditor ‘a right to judicial dissolution of the contract or, according to the circumstances, to regard the contract as dissolved’. The remedy thus has both a judicial and a self-help form. The right to damages is, in either case, reserved. Rather than stipulate that the right to terminate is dependent upon the seriousness of the breach, the Code looks at things the other way round, from the level of performance tendered: dissolution is not available where the debtor has rendered substantial performance.272 As in the other mixed systems, the right to be remunerated for a partial