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Breach of Contract

Frustration and Fundamental Breach

Fundamental Term

Law and Sea.
The Treatment of Breach of Contract by Lord Devlin

Logically, if there is a fundamental breach, there must somewhere be a fundamental term. A breach must mean a breach of promise and there cannot be a fundamental breach of promise without a fundamental promise that is broken.

Fundamental Breach
Last updated: 04-Dec-2014

UGS Finance Ltd v National Mortgage Bank of Greece [1964] 1 Lloyd’s Rep. 446, at p. 453  per Lord Justice Pearson:

As to the question of "fundamental breach", I think there is a rule of construction that normally an exception or exclusion clause or similar provision in a contract should be construed as not applying to a situation created by a fundamental breach of the contract. This is not an independent rule of law imposed by the Court on the parties willy-nilly in disregard of their contractual intention. On the contrary it is a rule of construction based on the presumed intention of the contracting parties. It involves the implication of a term to give to the contract that business efficacy which the parties as reasonable men must have intended it to have. This rule of construction is not new in principle but it has become prominent in recent years in consequence of the tendency to have standard forms of contract containing exceptions clauses drawn in extravagantly wide terms, which would produce absurd results if applied literally… .

Suisse Atlantique Societe d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1966] 1 Lloyd’s Rep. 529 per Lord Reid, p.543:

General use of the term "fundamental breach" is of recent origin and I can find nothing to indicate that it means either more or less than the well-known type of breach which entitles the innocent party to treat it as repudiatory and to rescind the contract.

Lord Wilberforce, p.558:

Next for consideration is the argument based on "fundamental breach" or, which is presumably the same thing, a breach going "to the root of the contract." These expressions are used in the cases to denote two quite different things, namely, (i) a performance totally different from that which the contract contemplates, (ii) a breach of contract more serious than one which would entitle the other party merely to damages and which (at least) would entitle him to refuse performance or further performance under the contract. …

The importance of the difference between these meanings lies in this, that they relate to two separate questions which may arise in relation to any contract. These are (as to (i)) whether an "exceptions" clause contained in the contract applies as regards a particular breach and (as to (ii)) whether one party is entitled to elect to refuse further performance.

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