On Fundamental Breach

The system of fundamental breach can be traced back to British contract law. It is called"material breach"in American law. In civil law countries, although there is no definite concept of"fundamental breach", it has relevant systems with fundamental breach, such as the system of rescinding contract. The concept and system of fundamental breach has been acknowledged by international law, including the 1980 United Nations Convention on Contracts for the International Sale of Goods (infra CISG), the UNIDROIT Principles of International Commercial Contracts in 1994 and 2004, as well as the 1998 Principles of European Contract Law. However, neither domestic law nor international law has specified a uniform concept of fundamental breach. Rather, they focus on the constitution and legal effect of fundamental breach.This paper tries to discuss the system of fundamental breach in five aspects.Part One discusses the origin and nature of fundamental breach. Fundamental breach originates from the 19-century common law theory, which focuses on the"terms"of the contract. The present prevailing rule is the objectivism theory, which focuses on the"results"of the breach. As to the nature of fundamental breach, it is not a new form of breach, but a kind of description of the degree of breach.Part Two discusses the criteria of the constitution of fundamental breach. The criteria in domestic law and international law are inconsistent. Besides the discussion of the general criteria in the civil law system, common law system and CISG, this paper also discusses the constitution of fundamental breach in concrete forms of contract breach.Part Three analyzes the legal effects produced by fundamental breach, which include production, restriction of the right to rescind the contract, and hindering the application of exemption clauses.Part Four discusses the underlying values of fundamental breach, including the legal values of contractual freedom, equity, security and efficiency.Lastly, this paper makes a short commentary on the influence of the fundamental breach theory on the PRC Contract Law.