Written by attorneys · grounded in primary & secondary sources — see below
A contractual stipulation that must be included for a contract to exist or that specifies an essential purpose of the contract so that its breach through inadequate performance makes the performance not only defective but essentially different from what had been promised.
Sources & Authorities
How it applies
Common Examples
6
Mental Condition Clause in Defense Contract
Francisco Frost contracted with Frontier Capital to supply components for a defense project. The agreement listed a clause requiring that no party suffer from a mental disease or defect that would produce criminal conduct under the Durham rule. When Frost developed such a condition that directly caused a production failure, Frontier Capital treated the clause as fundamental and refused further performance. The court held the breach went to the root of the deal because the condition was essential to the project's legality.
Voting Rights Provision in Corporate Deal
Farid Farahani agreed to sell shares in Fusion Power to Flora Ford. The contract contained a clause guaranteeing that no state action would abridge voting rights on account of race. When a state law threatened exactly that outcome, Ford refused to close. The court found the clause fundamental because it defined the essential purpose of the share transfer.
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Cases
Statutes
Federal Rules
Uniform Acts
Model Codes
Common Law
Restatements
Expert Opinion Restriction in Settlement
Floyd Franklin settled a criminal matter with Freeman Engineering. The agreement barred any expert from opining on Franklin's mental state that formed an element of the charged offense. When Freeman attempted to introduce such testimony, Franklin treated the bar as fundamental and rescinded. The court upheld rescission because the restriction was central to the settlement's purpose.
Attorney Capacity Clause in Retainer
Fatou Fall retained Forrest Falconer under an agreement that required the lawyer's physical or mental condition not to impair representation. When Falconer's condition materially impaired his ability, Fall declared the clause fundamental and terminated. The court agreed the term went to the essence of the retainer.
Intoxication Capacity Term in Sale
Frostline Textiles sold equipment to Frontier Capital. The contract stated that no party could be intoxicated to the point of being unable to act reasonably in the transaction. When Frontier Capital's representative was in that condition and the other side knew it, the buyer treated the clause as fundamental and avoided the deal.
Rent Application Clause in Lease
Fusion Power leased space from Freeman Engineering. The lease required that rent be applied to eliminate any unsuitable condition in the premises. When the landlord refused to apply rent that way after a sudden defect arose, the tenant treated the clause as fundamental and withheld further payments.
Common questions
Frequently Asked
4
What happens when a party breaches a fundamental term?+
The breach makes performance essentially different from what was promised and allows the innocent party to treat the contract as discharged.
How does a fundamental term differ from an ordinary warranty?+
A fundamental term goes to the existence or essential purpose of the contract while a warranty is a collateral promise whose breach gives rise only to damages.
Must a fundamental term be in writing to satisfy the statute of frauds?+
No. Whether a term is fundamental concerns its importance to the contract. The statute of frauds separately requires certain contracts to be evidenced by a signed writing.
Can parties agree that a term is fundamental even if it seems minor?+
Courts look to whether the term specifies an essential purpose of the contract rather than the parties' label alone.
410 U.S. 113 (1973)Constitutional Law
…joined in the action as plaintiffs. The Does alleged that they were a childless married couple, that the wife had a medical condition making pregnancy dangerous, and that they had been unable to find a doctor willing to perform an abortion on the wife. The action was brought against the District Attorney of the county in…