An accord and satisfaction example is when a contract is fulfilled using different terms than what was originally agreed upon, but the agreement is still considered settled.

What Is Accord?

Accord takes place when the party in a contract that promised to provide a certain service, perform an obligation, or provide a product promises to fulfill the agreement in a different way than what was originally agreed to, and the receiving party agrees to the new offer. This means that the other party agrees to accept a new provision or performance than what they were originally entitled to by the active contract.

For instance, say Bob owes Sally $600 under contract. Bob offers to give Sally an old car of his in place of the $600. If Sally accepts the vehicle as a settlement for the money that was originally owed, she forgoes her right to the cash and now has a right to the vehicle Bob promised. The legal term "accord" refers to the new agreement between Bob and Sally.

In this instance, the obligation of Bob to pay Sally $600 was legally discharged. This type of discharge of the contracted terms is called an accord agreement.

Because an accord agreement is essentially taking the place of a legitimate contract, it also has to have the basics of a legitimate contract, including:

  • At least two parties involved
  • Legal subject matter
  • Offer and acceptance
  • Performance and consideration

Breach of an accord agreement works similarly to a breach of contract in that there is no satisfaction of the terms, and the injured party can take legal action against the offending party. The offended party could sue based on the original contract or under the new accord agreement.

Just because an accord agreement is formed, the original contract is not thrown out. The original contract still holds, but it is suspended with the understanding that the accord contract will fulfill its terms. When the accord agreement is satisfied, both that agreement and the original contract are considered fulfilled.

What Is Satisfaction?

Satisfaction refers to the fulfillment of an accord agreement by the promisor of the original contract. If the obligation or service that was agreed upon in the accord is rendered, then the agreement is considered satisfied.

In the case previously mentioned, if Bob does, in fact, give Sally the vehicle in place of the $600 he owed her, he has satisfied the accord. This action also fulfills the consideration of the contract.

What Is Accord and Satisfaction?

Accord and satisfaction is a term in contract law that refers to the acceptance of some new form of compensation in place of the original obligation that was created by a contract. Essentially, accord and satisfaction is a contract within a contract. Instead of throwing out the contract altogether, the two parties involved can decide to create an accord agreement and satisfy that agreement, which will, therefore, fulfill the overall contract.

Contract disputes are often settled with accord and satisfaction. If a contract is not fulfilled by one of the parties involved and the other takes legal action in order to force compensation for what was promised, they can agree on an accord to remedy the dispute without taking it to court. This legal agreement can discharge the contract, or simply fix the problem with the contract and is sometimes called a "settlement."

If the debt owed under contract cannot be paid or fulfilled, an accord can be agreed to in order to satisfy that debt in a new way.

A common way that accord and satisfaction is used is to satisfy a debt that a debtor cannot afford with a smaller payment. Sometimes a creditor will agree to accept a percentage of a debt in order to have the original contract fulfilled and the dispute handled. This lesser amount agreed upon to satisfy the debt is called the accord. Once that amount is paid by the debtor, it is called satisfaction.

If an accord and satisfaction takes place in a contract dispute, the contract is considered fulfilled, so the debtor cannot be held to any other terms in the contract. The contract has served its purpose even though the terms were changed under the accord and satisfaction.

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