So when Daemon Blackfyre comes into play: "Targ Characters you control gain a War crest".

Add Mercenary Contract: " War Crest Characters only. If you have at least 1 gold in your gold pool, attached character does not kneel to attack or defend in military challenges."

So here is where it becomes confusing to me: Say I have Daemon Blackfyre in play and I attach Mercenary Contract to him. My opponent then plays Nightmares on me. Do I lose the War Crest ? Would other Targ characters lose their crest? Since it's a gain, it's not a part of the printed text, but I have lost the ability to give Targ characters the crest, which is printed text. So do I then lose the Mercenary Contract because he does not fufill the War Crest requirement?

So confused!

My apologies if this has been asked before. My searches came up with nothing.

Daemon loses its text so he doesn't give War crests to your characters anymore (until the effect of Nightmares ends). The Mercenary Contract's requirements are not met so it's discarded.

the mercenary contract is discarded. your character no longer meets the passive limitation of "War character only."