Fundamental breach is a breach of a condition or breach of another term or terms which is so serious that it goes to the root of the contract, and thus deprives the other party of substantially the whole benefit of the contract. Fundamental breach entitles the innocent party to rescind the contract and sue for damages for loss of the bargain. Fundamental breach is otherwise referred to as a breach of condition or a breach of an essential term.
The courts will determine whether breach is a fundamental breach by considering whether the breach demonstrates evinces an intention no longer to be bound or that performance of the contract had become commercially impossible as a result of the breach. Under these principles it is possible by express provision in the contract to make a term a condition or essential term, even if it would not be so in the absence of such a provision, not only in order to support a power to terminate the contract but also to support a power to recover loss of bargain damages.
When parties to a contract agree that a term is essential it usually amounts to an agreement that the term goes to the root of the contract so that if it is breached, the innocent party may regard it as a fundamental breach and terminate the contract without notice. There is a view that that “there is a distinction between fundamental breaches of contract (which entitle the other party to terminate), and repudiation of a contract (which entitles the other party to terminate by acceptance of the repudiation).”[6] It is said that repudiation and breach of essential term are not mutually exclusive, that repudiation can occur without breach of an essential term and, conversely, that a breach of an essential term can occur without repudiation.