 Hello, this is Waylon Chow. Welcome to Discharge and Remedies for Breach of Contract, Module 3C Part B. In this part of this module, we will look at Discharge by Agreement, Discharge by Breach of Condition, and Discharge by Frustration. Contractual obligations can be discharged by agreement, where the parties involved have mutually agreed to either change or cancel what they are obligated to do under the contract. So this can be done in a number of specific different ways. The parties may have agreed to put a termination clause in their contract that allows one or both parties to terminate the contract. The way the termination clause is written may include some conditions that may need to be satisfied in order to allow a party to terminate the contract. A simple example is stated here where the clause says either party may terminate the contract by providing written notice of at least 30 days. Another way to discharge by agreement is called novation. This is where the parties have agreed to cancel one contract and replace it with another contract. Novation can happen in one of two ways. One way is to have a brand new contract that has the same parties as originally, but the obligations in the contract are different from the original contract. Another type of novation is to have a new contract with the exact same obligations but different parties, or at least one of the parties can be different. Discharge by agreement can occur in situations where one party has not performed what they are supposed to do under the contract while the other party has done what they have promised to do. Under accord and satisfaction, the performing party gives up the right to enforce the contract in exchange for some kind of new benefit being provided by the non-performing party. So under this kind of discharge by agreement, with an accord and satisfaction, there is an exchange of consideration, so this is a binding contract to discharge the non-performing party. Another type of discharge by agreement where one party has not performed what they are supposed to is called a release. This involves a performing party agreeing in writing under seal to release the non-performing party from its obligations. So this is similar to a accord and satisfaction, but instead of having an exchange of consideration, there is a seal. A seal is being used in place of the exchange of consideration in order to have an enforceable agreement to release the non-performing party from their obligations under the agreement. The last type of discharge by agreement in situations where one party has not performed is called a waiver. This waiver occurs where the performing party abandons its right to insist on contractual performance. Because there is no exchange of consideration here, a waiver may not be enforceable because it is only a gratuitous promise with nothing given in return. Courts, however, have said that in some situations a waiver may be effective if the other party has detrimentally relied on the waiver. Let's try to understand a accord and satisfaction and release in the context of our scenario with Drew and Justin. So Justin has finished his performance at Drew's party, however Drew's dad had recently lost much of his fortune on the stock market. Drew cannot pay Justin the $100,000 required by the contract. Justin feels sorry for Drew and wants to give up his right to receive his $100,000 fee. Justin agrees to give up his right to receive the $100,000 fee in exchange for Drew agreeing to become the president of Justin's fan club. So that's an example of an accord and satisfaction. There is an accord in that both the parties, Justin and Drew, are agreeing to discharge the contract. And there is satisfaction being given by Drew in exchange for Justin giving up the $100,000 fee. So what Drew is agreeing to do is to become the president of his fan club. So there is an exchange of consideration. The second type of example is Justin agrees in writing and under seal to give up his right to receive the $100,000 fee. So that's just simply something in writing with the magic sticker and that magic sticker solves the issue of consideration. So that's called a release. The next type of discharge is a discharge by a breach of conditions. So what this involves is one party, the innocent party being relieved of their obligations under the contract because the other party has committed a breach of contract. So there are two types of terms in a contract that may be breached. The first type is a condition and the second type is a warranty. A condition is one where if it is breached it would substantially deprive the innocent party of an expected benefit of contract. Or more simply put, a condition is a major term of the contract, an important term of the contract. A warranty is in contrast a minor or less important term of the contract where a breach of a warranty would not substantially deprive the innocent party of an expected benefit. If there is a breach of condition the innocent party has an option to discharge the contract and claim damages. Or the second option is to continue with the contract and sue for claim damages. So there is that option to be discharged from the contract. With a breach of warranty however the innocent party has no option. It must continue with the contract but it may still make a claim and sue for damages. One thing to keep in mind is that a contract or especially a contract that is professionally drafted may contain a clause which specifies which terms of the contract are considered to be conditions and which terms are considered to be warranty. So in that type of situation when the contract is drafted that way we don't have to try to decide which is an important or major term versus what's a minor term of the contract. Let's now try to understand the difference between a breach of warranty versus a breach of condition in the context of Drew and Justin. So we have two different breaches of contract. The first breach involves the contract specifying that Justin must wear a blue cap but instead when he is performing he actually wears a cowboy hat. Is that a breach of warranty or a breach of condition? So that's very likely to be a breach of warranty. It's not really a very important term of the contract. Because he wears a cowboy hat instead of a blue cap it doesn't substantially deprive Drew of the essential benefits of the contract with Justin. The second breach Justin performs at the party but sings only one song. The contract specifies that he performed ten songs. So I would say that's clearly a breach of condition. Performing ten songs is an important term of the contract. It goes to the main benefit of the contract that Drew would be receiving which is hearing Justin sing on stage, sing on stage precisely ten songs. So only one out of ten is nowhere near substantial performance so that would be a breach of condition. You can be relieved of performing your obligations under a contract where something called frustration has occurred. A contract is frustrated when an event beyond both parties control makes performance of that contract impossible or radically undermines its purpose. Neither party can have been responsible for the frustrating event and that frustration cannot be self-induced by either of the parties. If we take the example, the recent example of the COVID-19 pandemic where we had government-required lockdowns, many contracts could be said to have been frustrated because of the lockdowns. For example, if there was a contract to have a company cater a wedding and the government lockdown prohibited any kind of gatherings of groups, then that makes it impossible for the catering company to perform its obligations under the contract. It would be illegal to have that kind of gathering due to the government imposed lockdowns. So that would be an example of frustration. There are other situations that arose from the pandemic where performing a contract may have been made just more difficult or expensive in that it was difficult to get enough staff to get work done. Or there may have been just more obstacles in obtaining things because of supply chain difficulties that made it difficult and expensive to obtain the supplies needed to perform a contract. In those kinds of situations where performance has just become more difficult or expensive, that is not considered to be frustration. Now, usually in most contracts, written contracts, they will have a standard boilerplate clause called a force majeure clause that specifically deals with situations involving frustration, situations where something beyond the control of parties makes it impossible to perform the contract. And those force majeure clauses will spell out who bears the loss from that frustration. If there is no force majeure clause to tell us who bears the loss or what are the obligations arising from the frustration, there is a piece of legislation in most provinces including Ontario called the Frustrated Contracts Act. The details of that act are set out in the textbook. Let's look at an example of a force majeure clause. So this is the Bell Mobility Terms of Service which we looked at last week in our quiz. So in that terms of service, in that standard formed contract, there is a section 52 which is the force majeure clause. They don't actually use that name here, probably because the contract is written in a plain English fashion and a normal person would not know what force majeure means. But what the contract says, and I've highlighted a part here, says that Bell will not be responsible for failing to meet obligations due to causes beyond its control, which is the definition of frustration. So the clause goes on further to give various examples of things that could happen beyond its control like work stoppage, a pandemic, war, terrorism, civil insurrection, a failure of the public power grid. So it gives examples of things that could happen that could cause a disruption in the cell phone network and cause Bell not be able to provide the services that it's obligated to do under the contract. Let's illustrate a simple example of frustration using Drew and Justin. Justin has been infected with a serious virus. On the morning of Drew's birthday Justin has lost his voice and has to be hospitalized. So Justin is discharged from the contract by frustration. He's unable to perform at the party. He can't sing because he's lost his voice. And it's been caused by something that is beyond his control. That's what makes it frustration.