Accord and Satisfaction

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.

Further readings

Dolson, Andrew J. 1995. "Accord and Satisfaction under Article 3A of the UCC: A Trap for the
Unwary." Virginia Bar Association Journal 21 (winter): 9–12.

Floyd, Michael D. 1994. "How Much Satisfaction Should You Expect from an Accord? The
U.C.C. Section 3-311 Approach." Loyola University of Chicago Law Journal 26 (fall): 1–27.

Veltri, Stephen C., et al. 2000. "Payments." Business Lawyer 55 (August): 1981.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All
rights reserved.

accord and satisfaction

n. an agreement to accept less than is legally due in order to wrap up the matters. Once the
accord and satisfaction is made and the amount paid (even though it is less than owed) the debt is
wiped out since the new agreement (accord) and payment (the satisfaction) replaces the original
obligation. It is often used by creditors as "bird in the hand is worth two in the bush" practicality.
(See: novation)

Accord and Satisfaction - The Basics

Accord and satisfaction is normally a matter of state law and is usually defined as an agreement
to discharge a claim in which the parties agree to give and accept different performance which is
usually less than what is required or owed. Any claim based on an express or implied contract
may be the subject matter of an accord and satisfaction. See our article on Contracts. Since an
accord agreement is considered a new agreement substituting the old one, accord and satisfaction
must have all essential elements of a contract.

Under most state law, a valid accord and satisfaction requires four elements as a minimum,
usually, (1) proper subject matter, (2) competent parties, (3) meeting of the minds of the parties
and (4) adequate consideration. See our contracts article for the usual additional requirements
for a binding agreement in California. An accord can be either an express agreement or may be
implied, based on the circumstances surrounding the transaction. In litigation, since accord and
satisfaction is an affirmative defense, the party raising accord and satisfaction must specifically
plead it and prove it to the satisfaction of the Trier of Fact.

The Basics:

Usually, accord and satisfaction deals with a debtor’s offer of payment and a creditor’s
acceptance of a lesser amount than the creditor originally claimed to be owed. It is a method of
discharging a claim by settlement of the claim and performing the new agreement. The accord is
the agreement and the satisfaction its execution or performance. A new contract is substituted for
an old contract thereby discharging an obligation or cause of action, which is settled, and must
have all of the elements of a valid contract.

In an accord contract it is typical that the consideration supplied is less than bargained for in the
original contract. Consideration is the value given in return for a promise. It has two elements:
(1) there must be a bargained-for exchange between the parties (2) what is bargained for must
have legal value.

Something legally sufficient must be given in exchange for a promise. It may be a return
promise, such as not to file bankruptcy and/or provide security for the new obligation. If it is
performance, that performance may be an act or forbearance. Whatever it is, it must be either
legally detrimental to the promise or legally beneficial to the promisor. Legally detrimental is not
always economically detrimental. A person can incur legal detriment by doing or promising to
do something that he or she had no prior legal duty to do or refraining from or promising to
refrain from doing something that he or she had no prior legal duty to refrain from doing.
 

Accord and Satisfaction Versus Novation, Release and Payment

The essential difference between an accord and a novation rests on the intention of the
contracting parties. See Paramount Aviation Corp. v. Agusta, 178 F.3d 132 (3d Cir. N.J. 1999).
An accord and satisfaction is a substitute contract for settlement of a debt by some alternative
other than full payment. The consideration for an accord is often the resolution of a disputed
claim. While in a novation, the new promise itself satisfies the preexisting claims, in an accord
it is the performance of the new promise that satisfies the preexisting duty. The distinctive
feature of an accord and satisfaction is that the obligee does not intend to discharge the existing
claim merely upon the making of the accord. She or he can do so only upon performance or
satisfaction. If the satisfaction is not tendered, the obligee may sue under the original claim or
for breach of the accord. On the other hand, novation bars revival of the preexisting duty.
Burden of proving the extinguishment of preexisting duty is upon the party asserting a novation.

If the parties may intend that a new agreement, though only executory, will immediately
discharge the existing obligation, such an agreement is called a substituted agreement. In
situations where, “…the full performance of the revised contract terms is necessary to extinguish
or discharge claims arising under an old contract, the revised contract is called an executory
accord and performance is called a satisfaction, while in cases where mutual promises in a
revised contract are held by themselves to discharge all claims arising under the earlier contract,
the revised contract is called a substituted contract. Community Builders v. Indian Motorcycle
Assocs., 44 Mass. App. Ct. 537 (Mass. App. Ct. 1998).

Payment is the discharge of a pecuniary obligation by the debtor by delivering a specific sum of
money or the equivalent of a specific sum. The delivery can be actual or constructive and is
made for the purpose of extinguishing an obligation. Payment requires delivery by the debtor and
acceptance by the creditor, both with common purpose. Parnell v. Sherman, 899 S.W.2d 900
(Mo. Ct. App. S.D. 1995)

In opposition to payment or novation, an accord and satisfaction is generally defined as an

agreement to discharge a debt or claim by some performance other than that which was
originally due. Accord and satisfaction is contractual in nature, and hence the joint intent of the
parties is necessary. Thus, a transaction will constitute an accord and satisfaction of a claim only
where both parties both intend it. Absent such intent, a claim for a specific sum of money cannot
be satisfied by partial payment. When a payment of less than what is claimed is offered and
accepted, it will not constitute an accord and satisfaction of the entire claim unless it can be
demonstrated that the creditor intended to accept it as full satisfaction.

According to California Civil Code § 1521, an accord is an agreement to accept, in extinction of

an obligation, something different from or less than that to which the person agreeing to accept is
entitled. Cal Civ Code § 1522 states that since the parties to an accord are bound to actually
execute it, it does not extinguish the obligation until it is fully executed.
California Civil Code § 1523 defines satisfaction as acceptance, by the creditor, of the
consideration of an accord. Satisfaction extinguishes the obligation. Moreover, Cal Civ Code §
1524 explains that part performance of an obligation extinguishes the obligation, if performed
either before or after a breach thereof, but only where expressly accepted by the creditor in
writing, in satisfaction, or rendered in pursuance of an agreement in writing, though without any
new consideration.

“Payment in Full” on the check:

According to Cal Civ Code § 1526, where a claim is disputed or unliquidated and a check or
draft is tendered by the debtor in settlement thereof in full discharge of the claim, and the words
“payment in full” or similar words are notated on the check or draft, the acceptance of the check
or draft does not constitute an accord and satisfaction if the creditor protests against accepting
the tender in full payment by striking out or deleting that notation, or if the acceptance of the
check or draft was inadvertent or without knowledge of the notation.

However, the acceptance of a check or draft constitutes an accord and satisfaction, if a check or
draft is tendered pursuant to a composition or extension agreement between a debtor and its
creditors, all creditors of the same class are accorded similar treatment, and the creditor receives
the check or draft with knowledge of the restriction.

In the absence of such intent, the partial payment will operate as a discharge of only the amount
paid, and the creditor will be entitled to maintain an action to recover the balance of his claim.
To determine the intent of the parties, it is necessary to examine the language of the order of
satisfaction and release in light of the circumstances existing at the time of the transaction.

Release versus Accord and Satisfaction:

An accord and satisfaction is distinguishable from release. A release is a abandonment of a right,

which may be given gratuitously (for free) or for inadequate consideration, while an accord and
satisfaction is the discharge of a debt or claim by the acceptance of some payment which is
agreed to constitute full satisfaction Holman v. Simborg, 152 Ill. App. 3d 453, 456 (Ill. App. Ct.
1st Dist. 1987). Thus, consideration is not a required element for a release but is for accord and
satisfaction.

An accord and satisfaction has the same effect as that of a release in its impact on third persons.
Since there can be but a single satisfaction for an injury or wrong, an accord and satisfaction
made by one of two or more joint tort feasors will operate to discharge the others. However,
where a payment made by one joint tort feasor is not intended to constitute satisfaction in full, it
will not result in a discharge of the others, although it will operate as a partial satisfaction to be
credited to any recovery against the remaining tort feasors.

Off Sets and Counterclaims

Controversy can arise as to settlement of claim on the basis of accord and satisfaction where a
counterclaim or set-off is claimed as a part payment of the liquidated and undisputed debt. An
initially liquidated claim becomes unliquidated when, by reason of a counterclaim or setoff, the
actual amount due on the balance has been put in doubt between the parties. Under such
circumstances, an accord and satisfaction may result from the payment of a lesser sum than the
creditor’s claim, even a sum not in excess of the balance concededly due. Thus, a liquidated
claim due a creditor is rendered unliquidated, “…when the debtor in good faith asserts a disputed
counter-claim or set-off, and in such a case an accord and satisfaction may result from the
payment by the debtor of an amount less than the creditor’s claim and no greater than the amount
which the debtor concedes to be due. In H.L. “Brownie” Choate, Inc. v. Southland Drilling Co.,
Inc., 441 S.W.2d 672 (Tex. Civ. App. San Antonio 1969), plaintiff creditor, who was the service
provider to the defendant debtor caused damage to defendant’s drilling rig. In accordance with
their past practice, defendant recovered the damage amount by deducting it from the amount it
owed to plaintiff for services rendered. Plaintiff filed suit to recover the deducted amount. The
court held that, “…when the amount due was in dispute, and the debtor tendered a check for less
than the amount claimed by the creditor while expressing his intention that the check was offered
in full settlement, the retention and cashing of the check by the creditor was regarded as an
acceptance of the offer, and such action on the part of the creditor operated as a full satisfaction.”
The court found that plaintiff’s acceptance of a lesser amount constituted an accord and
satisfaction of the debt. A majority of jurisdictions follow this view although there is authority to
the contrary. See B. Mifflin Hood Co. v. Lichter, 106 F. Supp. 220, 231 (D. Tenn. 1950). (A
counter or additional claim in dispute does not render the principal obligation unliquidated where
such principal obligation is itself not in dispute. An accord and satisfaction in such cases would
not be applicable.) The law of your own particular state will have to be reviewed by competent
counsel to determine what would apply.