Key Takeaways

  • Accord and satisfaction allows parties to resolve disputes by substituting a new agreement and fulfilling it, thereby discharging the original obligation.
  • The accord is the new promise or performance agreed upon, while satisfaction occurs when that new obligation is fulfilled.
  • It’s often used to settle debts, contract breaches, or payment disputes without litigation.
  • For a valid accord and satisfaction, there must be a bona fide dispute, a clear agreement, and consideration for the new performance.
  • Accepting a payment marked “payment in full” can sometimes create an accord and satisfaction — even if the creditor disagrees — so care is needed.
  • Special caution is required with conditional checks, lien waivers, or partial payments, as these may inadvertently waive legal rights.

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.

Legal Requirements for a Valid Accord

For an accord to be enforceable, it must satisfy several fundamental legal requirements similar to those of any binding contract:

  • Bona Fide Dispute: There must be a genuine disagreement about the amount owed or the performance due. Without a real dispute, the accord may not be legally binding.
  • Offer and Acceptance: One party must offer new terms, and the other must clearly accept them. Ambiguous or implied agreements are unlikely to qualify.
  • Consideration: The new agreement must include consideration — typically, something of value that differs from the original obligation. This could be a partial payment, different goods, or a new service.
  • Intent to Settle: Both parties must intend for the new agreement to settle the original dispute and discharge prior obligations.

Courts closely examine these elements to ensure that both parties understood they were entering a new agreement and that it was meant to resolve the matter completely.

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.

Common Situations Where Satisfaction Occurs

Satisfaction typically occurs when the party performing under the accord fulfills the substituted obligation. Common real-world examples include:

  • Debt Settlement: A debtor unable to pay $10,000 offers $7,000 as full settlement. If the creditor accepts and the payment is made, the original debt is discharged.
  • Service Disputes: A contractor accused of incomplete work agrees to provide additional services instead of paying damages. Once the work is performed, the obligation is satisfied.
  • Goods Replacement: A supplier substitutes a different product for one that was defective. Delivering the replacement goods fulfills the satisfaction element.

It’s important to note that if the promisor fails to perform the new obligation, the other party may pursue remedies under either the original contract or the new accord.

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.

Risks and Pitfalls to Avoid

While accord and satisfaction is a powerful dispute-resolution tool, it carries significant risks if not handled carefully. Common pitfalls include:

  • Conditional Checks: Accepting a check marked “payment in full” can sometimes legally settle the entire claim — even if you deposit it under protest. Courts often view cashing such checks as acceptance of the accord.
  • Partial Payments Without Agreement: Simply accepting partial payment does not constitute accord and satisfaction unless both parties clearly intend it as a final settlement.
  • Lien Waivers: In construction or service contracts, signing a lien waiver with language indicating “final payment” may prevent you from seeking additional compensation later.
  • Ambiguous Communications: If the agreement to modify the contract terms isn’t explicitly documented, courts may refuse to enforce it.

Businesses and individuals should review all payment instruments and settlement documents carefully before accepting them. In many cases, consulting a contract attorney can prevent inadvertent waivers of significant rights.

Real-World Example of Accord and Satisfaction

Consider the following accord and satisfaction example in a business setting:

  • A contractor invoices a client $50,000 for renovation work. The client disputes the final quality and claims only $40,000 is owed.
  • After negotiations, the contractor agrees to accept a $42,000 payment marked as “payment in full.”
  • Once the payment is made and deposited, the contractor cannot pursue the remaining $8,000 — the dispute has been settled under the accord and satisfaction agreement.

This demonstrates how a new agreement and its fulfillment can legally extinguish the original contract — even when the terms differ from the original deal.

Frequently Asked Questions

  1. What is the difference between an accord and satisfaction and a settlement?
    A settlement is a broader term for resolving disputes, while accord and satisfaction is a specific type of settlement where a new agreement and its fulfillment discharge the original obligation.
  2. Can I reject a check marked “payment in full”?
    Yes. If you do not intend to accept the new terms, do not cash the check. Once you deposit it, a court may view it as acceptance of accord and satisfaction.
  3. What happens if the new obligation is not fulfilled?
    The injured party may choose to enforce either the original contract or the accord agreement, depending on the circumstances.
  4. Does accord and satisfaction require a written agreement?
    Not always. Oral agreements can be enforceable, but written documentation is strongly recommended to avoid disputes about intent and terms.
  5. Can accord and satisfaction apply to non-monetary disputes?
    Yes. It can resolve disputes involving services, goods, or performance obligations — not just monetary debts.

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