This is the first of two lessons about discharge from your contractual obligations. In this lesson, we're going to talk about discharge by mutual agreements and discharge through the occurrence of conditions that are identified in the contract. In a contractual setting, discharge means when you are relieved from any further liability under a contract. There's nothing left for you to do and all of your obligations are discharged. Now discharge in terminations of a contract or related concepts but not the same. So, sometimes when you're done or the other party breaches the contract or something like that, your duties could be discharged even though the contract is still in effect and there's more stuff to be done by other people or maybe you have to go to court and litigated. So, the contract hasn't been terminated but your duties are discharged. So, discharge is when you as an individual or one party to the contract has either fully performed or is no longer liable to perform any of your duties. Now, the best way to have your duties be discharged is just to perform them. I mean in an ideal world, all the parties to a contract would do what they're supposed to do and we'd all hold hands and sing Kumbaya and it would be terrific. People don't do that unfortunately. So, even though the best way to obtain discharge from a contract is to completely perform your duties, discharge can actually arise in a number of other ways. So, we're going to go through the four biggest ways in which you can be discharged from your contractual obligations without actual complete performance. So, in this lesson we're going to talk about what we call discharge by mutual agreement and then also conditions. Discharge by mutual agreement is pretty self-explanatory. The parties can agree in certain situations that well, maybe we didn't do everything we're supposed to do but we're just going to agree to discharge the remaining obligations. So, there are a few ways in which this can happen. The first is what's called rescission Rescission is when the parties to a contract both get together and just say, "This isn't working, let's just call it off." Rescission is just the termination of a contract. There still might be stuff left to do but the parties decide that we're going to relieve each other from liability for doing that. So, for instance, maybe I have a contract that calls for you to ship goods to a seller once a month for the next five years and two years into the contract, you both decide this is not working for us. Lets call it off. Rescind the rest of the contract. In which case, both parties will be discharged from any further obligations. A similar concept is what's called a substituted contract. So, maybe same example, maybe you have a contract that calls for you to ship goods to the customer every month for the next five years and two years into it you say, "This is not working." The price of raw materials has gone up or demand for the product has gone down on the customer side or something like that. You say, "We still want to do business but just not under these same terms." You can substitute in a new contract and that substituted contract will now control and you'll be discharged from your obligations under the old contract. Now at a previous lesson we talked about a concept called novation. Novation is when one party is swapped into a contract for another party. In that case, the party that is swapped out of the contract is discharged from any future obligations. So, they receive a discharge by mutual agreement. And then the last example under discharge by mutual agreement is what's called an accord and satisfaction. Now, in an accord and satisfaction, one party agrees to accept something less than what they were originally owed in a contract in order to move things along or have the other party do anything at all and usually, well, always when there's an accord and satisfaction, there is a dispute over what's owed. So, maybe you ship goods to somebody and they had originally agreed to pay you a million dollars for those goods and they get the goods and they say, "These goods don't work the way they're supposed to work. We only want to pay you $750,000 instead of the million dollars that the contract calls for." And maybe you have a dispute. You say, "The goods work." They say, "The goods didn't work." They say, "We don't think they work but we'll give you $750,000". And if you agree to accept it, that's an accorded satisfaction. It's less than what you originally owed but there's some dispute over the contract and you agree to accept it. They pay you, you're discharged. Both parties are discharged, even though there's still that $250,000 still out there that the contract had called to be paid. Let's move on to conditions. Conditions can actually cause new obligations to arise under contract but also can discharge obligations in a contract. So, there are three types of conditions that we see in contracts that are important to know. The first one is what's called a condition precedent. In a contract, if you have a condition precedent what that means is that the contract states that, "The occurrence of some event will give rise to a duty." So, for example, maybe you have a contract between an airline and a fuel supplier and in the contract maybe they have a long term ongoing contract and it says something like, "If the price of fuel falls below a certain amount, then the airline agrees to buy so many more gallons of fuel." This is a condition precedent. Once the price of fuel falls below amount, their duty to buy more arises. If the price never falls below that level, their duty never rises. That's condition precedent. Condition subsequent is the opposite of that. It's when the occurrence of some event relieves a party from a duty. So for example, the same example; you have airline and a fuel supplier. They have a contract. Maybe that contract now says, "If the price of oil rises above a certain amount, then the airline has no more duty to buy any fuel." So, if the condition is the price of oil rising above a certain amount, since it's a condition subsequent, if that occurs then they're relieved from a duty and they're actually discharged from their obligations under the contract. And then the third type of condition is what's called a concurrent condition. This means both parties have to fulfill their obligations at the same time. Now, you probably don't conceptualize it this way but every time you make a retail purchase, you're actually participating in a concurrent condition. If you take a pair of jeans to the counter at a department store, they don't say, "Here's your geans please pay us in 30 days." Or you don't say, "Here's my money, please ship my jeans to me at your convenience." No. You both go with the understanding that, I will pay money in exchange for jeans at the same time. So, a concurrent condition in a contract calls for obligations to be performed at the same time and then they will be discharged. Now, conditions can be either express or implied. So, an express condition is something that's in the contract that says, "Here's a condition precedent." If the price of oil falls below a certain amount then the airline agrees to buy so much more fuel. That's expressly stated in the contract or as an example of a retail sale, it can be implied. Nowhere do you ever agree in writing or otherwise with the gap or whoever you go, whatever store you buy your jeans at nowhere do you agree that yes this is a concurrent condition. I agree that we will both exchange our performance of duties at the same time. No. You just know it. It's implied. So, conditions can be expressed or implied. So, discharge by mutual agreement, discharge through conditions, those are the first two types of discharge. In the next lesson, we're going to look at a couple of other forms of discharge.
