Fundamental Breach

Fundamental breach is an important legal concept in international trade contracts, originating from Article 25 of the United Nations Convention on Contracts for the International Sale of Goods (CISG). It refers to a breach by one party whose consequences are so severe as to substantially deprive the other party of what it is entitled to expect under the contract, unless the breaching party did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such consequences. The determination of a fundamental breach requires: the breach causes substantial detriment, the aggrieved party cannot achieve the main purpose of the contract, and the breaching party foresaw the consequences. Its legal consequence is that the aggrieved party may declare the contract avoided (terminate the contract) and claim damages. Compared with an ordinary breach, a fundamental breach emphasizes more the severity of the breach and the destruction of the purpose of the contract. Usage scenarios: when the goods delivered by the seller seriously do not conform to the contract (e.g., completely different products), or the buyer unreasonably refuses to pay a large amount of the price, etc. Notes: Claiming a fundamental breach requires sufficient evidence and timely notice to the other party; different jurisdictions may have different standards for determining a fundamental breach, so it is advisable to specify it clearly in the contract. Distinction: A fundamental breach is opposed to a minor breach; the former allows termination of the contract, while the latter only allows a claim for damages.