 This is Wayne Lanchao. Welcome to Discharge and Remedies for Breach of Contract, Module 3C Part A. Let's first try to understand some of the terminology that we'll be using in this module. We'll be talking about discharge and also breach. What we mean by discharge is that there is some proper legal reason that you no longer have to do what you have to do under the contract. In other words, you're relieved or discharged from your obligations under a contract due to some proper legally recognized reason. When we use the word breach, what we mean is that without any kind of proper excuse, you have failed to do what you had to do under the contract. You didn't live up to the contract and there is no proper legal excuse for that. We will examine various types of discharge in this module. I won't go over them in detail now. There is discharge by performance, by agreement, by breach of condition and discharge by frustration. Another term that we'll be using is remedies. When we do have a breach of contract, then the innocent party, the person who did not breach the contract, can sue for breach of contract and seek a remedy from the court. This is some kind of redress that the court will give to the innocent party. The types of remedies that we will examine are a breach arising from a breach of condition and the most common type is damages. Then there is also specific performance and injunction. In this part of the module, we will look at discharge by performance. We will be illustrating many of the concepts in this module using a new scenario called Drew and Justin. So there's Drew and there is Justin. So Drew's 19th birthday is coming up in a few months on July the 1st. Her favorite singer is Justin. So she calls him up and he kindly agrees to sing at her birthday party for $100,000. So they enter into a Britain agreement for him to sing at her party for $100,000. And Drew is very much looking forward to having Justin sing her favorite song. The first type of discharge that we'll look at is discharge by performance. So what that is, you actually do what you are required to do under the contract. So once you've done your contractual obligations, you are discharged from the contract. You don't have to do anything more. Which sounds very simple if everything goes properly and everything is done right. But there could be some issues where performance is unclear, whether or not someone's actually considered to have performed what they're required to do under the contract. So the issues relate to where the performance is done late or where there's only partial performance. We're not 100% of what is in the contract has been performed. So Justin and Drew have a signed written contract which requires Justin to perform at Drew's birthday party on July the 1st at 9pm. However, on that day Justin arrived late to the party and was not able to go on stage until one of three different times. So we have three different scenarios here. The first one is he arrives at 9.30. So although Drew is a bit upset by Justin's lateness, there's still plenty of time for Justin to perform before the party is over. The second scenario is where he arrives at 10.30. And Drew has to pay extra to the venue operator to extend the time of the party in order to give Justin enough time for him to perform. And the last possible scenario is Justin arrives really late at midnight. So by that time most of Drew's guests have already left the party. So for each situation I want you to think about what are Drew's legal rights. To help us answer those questions arising from the scenario, let's look at the concept of is time of the essence, which I'm sure you've heard of that phrase before, but there is a legal meaning of time is of the essence. The general rule under a contract is that time is not of the essence. And what that means is that a party is entitled to perform the contract late even if the contract specifies a specific date or time. So the consequence of that is that if one party is late in performing, the other party does not have a right to cancel the contract. However, the late party can be held liable for the damages caused by that delay. The exception is where if time is of the essence, the other party can refuse the late performance and sue the late party for breach of contract. So in other words, the other party can cancel the contract and sue for that breach of contract. So when is time considered to be of the essence? The first situation is where there's an actual express term in the contract that stipulates that time is of the essence. So what that means is that literally it's written into the contract that time is of the essence. The other situation where time is of the essence is where the other party gives reasonable notice that performance must occur by a specific date or time. And the last instance where time is of the essence is that there is an implied term that performance must occur within a reasonable time considering the circumstances including the subject matter of the contract. Let's look at the different situations here. And by the way, let's assume that the contract between Drew and Justin does not specifically state that time is of the essence. So in the first situation, Justin arrives at 9.30 p.m. So although Justin is technically late, he's half an hour late, he is still performing within a reasonable time after 9 p.m. since there is still enough time for him to fully perform all of his songs before the end of the party and all the guests are still there. In the second situation where he arrives at 10.30 p.m. So Justin's lateness has caused Drew to incur extra costs for the venue. So Drew cannot cancel the contract because 10.30 p.m. could still be set to be within a reasonable time after the 9 p.m. start date. But she can sue Justin for those extra costs that she has incurred because of his lateness. If he arrives at midnight, so three hours after the specified time, Justin's arrival is, I think, clearly beyond a reasonable period of time after 9 p.m. since the party is almost over. There's probably not enough time left for Justin to fully perform all the songs that he's promised to perform. So that means Drew can cancel the contract. In other words, stop Justin from performing and sue him for damages. Let's say the contract specifies that Justin will perform 10 songs of his choosing, but one of those songs has to be Drew's favorite song, Baby. At the party, however, Justin performed only eight songs, but he did sing Baby before he left the stage. So Drew is very disappointed and refuses to pay Justin any of the $100,000 that is promised under the contract. Is Justin entitled to be paid? And if so, how much? And what if Justin performed only five songs instead of eight? And none of those songs was Drew's favorite Baby. What constitutes acceptable performance of goods and services under a contract? The general rule is that contractual obligations must be exactly performed as per the contract. There is a significant exception here where substantial performance may satisfy the contract if the performance is defective or incomplete in some minor way. So even if that exception applies, where substantial performance is enough, the innocent party is not required to pay for the unperformed work. And the substantial performance also does not apply where the contract contains an entire contract clause which explicitly says that no part of the price is payable unless all of the work is done. So in our scenario with Drew and Justin, let's assume that the written contract does not contain an entire contract clause. So the first question is Justin entitled to be paid and if so, how much is he entitled to pay a part of the $100,000 or the full $100,000 under the contract? Performing 80% of the agreed songs including Drew's favorite song, Baby, I would think is probably considered to be substantial performance. However, Drew may be entitled to pay him a bit less than the full $100,000, perhaps 10% or 20% less for missing two out of the 10 songs required by the contract. The second question, what if Justin performed only five songs and none of those songs was Baby? In that situation Justin, I would say, probably did not substantially perform the contract since he sang only 50% of the agreed upon number of songs and none of those songs was Baby. So therefore Drew may refuse to pay him anything, not a single dime.