Accord and Satisfaction

Payment of money or other valuable consideration (usually less than the amount owed) in exchange for extinguishment of a debt. There must be an express or implied agreement that accepting the smaller sum discharges the obligation to pay the larger sum.

A method of discharging a claim whereby the parties agree to give and accept something in settlement of the claim and perform the agreement, the accord being the agreement and the satisfaction its execution or performance, and it is a new contract substituted for an old contract which is thereby discharged, or for an obligation or cause of action which is settled, and must have all of the elements of a valid contract.

To constitute an accord and satisfaction, there must have been a genuine dispute that is settled by a meeting of the minds with an intent to compromise. Where there is an actual controversy, an accord and satisfaction may be used to settle it. The controversy may be founded on contract or tort. It can arise from a collision of motor vehicles, a failure to deliver oranges ordered and paid for, or a refusal to finish constructing an office building, etc.

In former times, courts recognized an accord and satisfaction only when the amount of the controversy was not in dispute. Otherwise, the resolution had to be by compromise and settlement. The technical distinction is no longer made, however, and a compromise of amount can properly be part of an accord and satisfaction. The amount, whether disputed or not, is usually monetary, as when a pedestrian claims $10,000 in damages from the driver who struck him. The amount can be a variety of other things, however, as when a homeowner claims that she ordered a swimming pool thirty-six feet long rather than thirty-five feet or when an employee insists that he is entitled to eleven rather than ten days of vacation during the rest of the calendar year.

An accord and satisfaction can be made only by persons who have the legal capacity to enter into a contract. A settlement is not binding on an insane person, for example; and an infant may have the right to disaffirm the contract. Therefore, a person, such as a guardian, acting on behalf of a person incapable of contracting for himself or herself may make an accord and satisfaction for the person committed to his or her charge, but the law may require that the guardian's actions be supervised by a court. An executor or administrator may bind an estate; a trustee can accept an accord and satisfaction for a trust; and an officer can negotiate a settlement for a corporation.

A third person may give something in satisfaction of a party's debt. In such a case, an accord and satisfaction is effected if the creditor accepts the offer and the debtor authorizes, participates in, or later agrees to, the transaction.

For example, a widower has an automobile accident but is mentally unable to cope with a lawsuit because his wife has just died. He gratefully accepts the offer of a close family friend to talk to the other driver, who has been threatening a lawsuit. The friend convinces the other driver that both drivers are at fault to some extent. The friend offers to pay the other driver $500 in damages in exchange for a written statement that she will not make any claim against the widower for damages resulting from the accident. The family friend and the other driver each sign a copy of the statement for the other, and when the payment is made, the accord and satisfaction is complete. If the other driver then sues the widower for more money on account of the accident, the widower could show that he agreed to let his friend negotiate an accord and satisfaction, and the court would deny relief.

An accord and satisfaction is a contract, and all the essential elements of a contract must be present. The agreement must include a definite offer of settlement and an unconditional acceptance of the offer according to its terms. It must be final and definite, closing the matter it covers and leaving nothing unsettled or open to question. The agreement may call for full payment or some compromise and it need not be based on an earlier agreement of the parties. It does not necessarily have to be in writing unless it comes within the statute of frauds.

Unless there are matters intentionally left outside the accord and satisfaction, it settles the entire controversy between the parties. It extinguishes all the obligations arising out of the underlying contract or tort. Where only one of two or more parties on one side settles, this ordinarily operates to discharge all of them. The reason for this is the rule that there should be only one satisfaction for a single injury or wrong. This rule does not apply where the satisfaction is neither given nor accepted with the intention that it settle the entire matter.

An accord without satisfaction generally means nothing. With a full satisfaction, the accord can be used to defeat any further claims by either party unless it was reached by fraud, duress, or mutual mistake.

An accord and satisfaction can be distinguished from other forms of resolving legal disputes. A payment or performance means that the original obligations were met. A release is a formal relinquishment of the right to enforce the original obligations and not necessarily a compromise, as in accord and satisfaction. An arbitration is a settlement of the dispute by some outside person whose determination of an award is voluntarily accepted by the parties. A composition with creditors is very much like an accord but has elements not required for an accord and satisfaction. It is used only for disputes between a debtor and a certain number of his or her creditors, while an accord and satisfaction can be used to settle any kind of controversy — whether arising from contract or tort — and ordinarily involves only two parties. Although distinctions have occasionally been drawn between an accord and satisfaction and a compromise and settlement, the two terms are often used interchangeably. A novation is a kind of accord in which the promise alone, rather than full performance, is satisfaction, and is accepted as a binding resolution of the dispute.

The noun has one meaning:

Meaning #1: the settlement of a debt by paying less than the amount demanded in exchange for extinguishing the debt

Contract Law
Part of the common law series
Contract
Contract formation
Offer and acceptance  · Mailbox rule
Mirror image rule  · Invitation to treat
Firm offer  · Consideration
Defenses against formation
Lack of capacity to contract
Duress  · Undue influence
Illusory promise  · Statute of frauds
Non est factum
Contract interpretation
Parol evidence rule
Contract of adhesion
Integration clause
Contra proferentem
Excuses for non-performance
Mistake  · Misrepresentation
Frustration of purpose  · Impossibility
Impracticability  · Illegality
Unclean hands  · Unconscionability
Accord and satisfaction
Rights of third parties
Privity of contract
Assignment  · Delegation
Novation  · Third party beneficiary
Breach of contract
Anticipatory repudiation  · Cover
Exclusion clause  · Efficient breach
Fundamental breach
Remedies
Specific performance
Liquidated damages
Penal damages  · Rescission
Quasi-contractual obligations
Promissory estoppel
Quantum meruit
Subsets: Conflict of law Commercial law
Other areas of the common law
Tort law  · Property law
Wills and trusts
Criminal law  · Evidence

In contract law, accord and satisfaction is the purchase of the release from a debt obligation. The payment is typically less than what is owed and is not paid by the actual performance of the original obligation. The accord is the agreement to discharge the obligation and the satisfaction is the legal "consideration" which binds the parties to the agreement.

If a person is sued over an alleged debt they bear the burden of proving the affirmative defense of accord and satisfaction.

Accord and satisfaction is a settlement of an unliquidated debt. For example, a builder is contracted to build a homeowner a garage for $35,000. The contract called for $17,500 prior to starting construction, to disburse $10,000 during various stages of construction, and to make a final payment of $7,500 at completion. At completion, the homeowner complained about inferior work quality and refused to make the final payment. After a mutual settlement agreement, the builder accepted $4,000 as full payment. Thereby, new contract was formed by offer, acceptance, and consideration. The consideration is that for a $3,500 savings, the homeowner gives up that which he is entitled, a well-constructed garage. The builder gives up his right to full price to avoid suit for inferior performance. When accord and settlement has occurred, the homeowner and builder have given up his right to sue for more money under this settlement agreement.

See also

• Foakes v. Beer - an old leading case on the exception of accord and satisfaction
• Part performance - related legal concept

Accord and satisfaction is best described as the settlement of a claim. It is therefore often used as a special defense in responding to a complaint. Let's say a lender agrees to loan $100,000 at 5.0% interest for 30 years, and at the closing the loan documents are all drawn up for a loan with a 6.0% interest rate. If the lender agrees to reduce the closing costs by an extra $1000 and the borrowers agree, then there has been an accord and satisfaction. If the borrowers later sue for breach of contract, the settlement (offer and acceptance of the $1000) constitutes an accord and satisfaction and is a valid defense to the borrowers law suit.

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