Editing Breach of contract (section)

==Fundamental breach==
{{Main article | Fundamental breach}}
''[[Fundamental breach]]'' of contract is no longer the test for a serious breach of contract to justify termination. The test is that set out for repudiatory breach, above. The concept of fundamental breach as a free standing legal concept no longer has any legal force<ref>Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, per Lord Wilberforce at p. 843; Lord Reid in Suisse Atlantique [1967] 1 AC 361 at 406</ref> but is now simply another possible term of a contract that needs to be construed like any other term of a contract.

A ''fundamental breach'' is usually read as a reference to a repudiatory breach.<ref>Suisse Atlantique, Ibid</ref>

A term may be a condition in [[Australian law]] if it satisfies one test known as the test of essentiality.<ref>{{cite AustLII|NSWStRp|37|1938|litigants=Tramways Advertising Pty Ltd v Luna Park |parallelcite=(1938) 38 [[State Reports New South Wales|SR (NSW)]] 632 |courtname=auto}}.</ref> The test of essentiality requires that the promise (term) was of such importance to the promisee that he or she would not have entered into the contract without the assurance of strict or substantial performance of the promise, and that ought to have been apparent to the promisor. This is an objective test of the parties' intention at the time of formation of the contract.

If the contractor in the above example had been instructed to use copper pipes but instead used iron pipes that would not last as long as the copper pipes would have lasted, the homeowner can recover the cost of actually correcting the breach by taking out the iron pipes and replacing them with copper pipes.

There are exceptions. Legal scholars and courts have been known to find that the owner of a house whose pipes are not the specified grade or quality (a typical hypothetical example) cannot recover the cost of replacing the pipes for the following reasons:

# '''Economic waste'''. The law does not favor tearing down or destroying something that is valuable (almost anything with value is "valuable"). In this case, significant destruction of the house would be required to completely replace the pipes and so the law is hesitant to enforce damages of that nature. See ''[[Peevyhouse v. Garland Coal & Mining Co.]]''.
# '''Pricing in'''. In most cases of breach, a party to the contract simply fails to perform one or more terms. In those cases, the breaching party should have already considered the cost to perform those terms and thus "keeps" that cost when it does not perform. That party should not be entitled to keep those savings. However, in the pipe example, the contractor never considered the cost of tearing down a house to fix the pipes and so to expect it to pay damages of that nature is unreasonable.{{Citation needed|date=May 2010}}

Most homeowners would be unable to collect damages that compensate them for replacing the pipes but would be awarded damages that compensate them for the ''loss of value'' in the house. For example, if the house is worth $125,000 with copper and $120,000 with iron pipes, the homeowner would be able to collect the $5,000 difference and nothing more.

In the United States, the [[Restatement (Second) of Contracts]] lists the following criteria to determine whether a specific failure constitutes a material breach:<ref>[[American Law Institute]], Restatement (Second) of Contracts § 241 (1981)</ref>

{{quote|In determining whether a failure to render or to offer performance is material, the following circumstances are significant:

:(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;
:(b) the extent to which the injured party can be adequately [[payment|compensated]] for the part of that benefit of which he will be deprived;
:(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
:(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;
:(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.}}