Accord and satisfaction

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Accord and satisfaction is a contract law concept about the purchase of the release from a debt obligation. It is one of the methods by which parties to a contract may terminate their agreement. The release is completed by the transfer of valuable consideration that must not be the actual performance of the obligation itself.^[1] The accord is the agreement to discharge the obligation and the satisfaction is the legal "consideration" which binds the parties to the agreement. A valid accord does not discharge the prior contract; instead it suspends the right to enforce it in accordance with the terms of the accord contract, in which satisfaction, or performance of the contract will discharge both contracts (the original and the accord). If the creditor breaches the accord, then the debtor will be able to bring up the existence of the accord in order to enjoin any action against him.

If a person is sued over an alleged debt, that person bears the burden of proving the affirmative defense of accord and satisfaction.

Contract law
Formation
Capacity Offer and acceptance Meeting of the minds2 Abstraction principle4,5 Posting rule1 Mirror image rule Invitation to treat Firm offer Consideration1,4 Implication-in-fact Collateral contract
Defences
Misrepresentation Mistake Threats and unequal bargaining power Illegality and public policy Unconscionability Culpa in contrahendo2 Force majeure Frustration of purpose Impossibility Impracticability Hardship Set-off Illusory promise1 Statute of frauds1 Non est factum1 Unclean hands1 Accord and satisfaction1 Exculpatory clause
Interpretation
Parol evidence3 Contract of adhesion Integration clause Contra proferentem UNIDROIT Principles
Dispute resolution
Choice of law clause Forum selection clause Hague Choice of Court Convention Arbitration New York Convention UNCITRAL Model Law Mediation Singapore Mediation Convention Enforcement of foreign judgments Hague Judgments Convention
Rights of third parties
Privity of contract1 Assignment Delegation Novation Third-party beneficiary
Breach of contract
Anticipatory repudiation Cover Exclusion clause Efficient breach Deviation Fundamental breach
Remedies
Specific performance3 Money damages Liquidated, stipulated, or penal damages3 Rescission
Quasi-contractual obligations
Promissory estoppel1 Quantum meruit1 Unjust enrichment Restitution Negotiorum gestio2
Duties of parties
Duty of honest contractual performance (or doctrine of abuse of rights)6 Duty of good faith (also implied covenant of good faith and fair dealing or duty to negotiate in good faith)7 Contract A and Contract B in Canadian contract law6
Related areas of law
Conflict of laws Commercial law
By jurisdiction
Australia Canada China (mainland) Ireland India Saudi Arabia United Kingdom England and Wales Scotland United States
Other law areas
Tort law Property law Wills, trusts, and estates Criminal law Evidence
Notes
1 Specific to common law jurisdictions 2 Specific to civil and mixed law jurisdictions 3 Historically restricted in common law jurisdictions but generally accepted elsewhere; availability varies between contemporary common law jurisdictions 4 Specific to the German Bürgerliches Gesetzbuch and other civil codes based on the pandectist tradition 5 Explicitly rejected by the UNIDROIT Principles of International Commercial Contracts 6 Specific to Canadian contract law both in Québec and in the country's common law provinces 7 Specific to civil law jurisdictions, the American Uniform Commercial Code, and Canadian jurisprudence in both Québec and the common law provinces pertaining to contractual and pre-contractual negotiation
v t e

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, a 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 satisfaction has occurred, the homeowner has given up his right to sue for inferior performance, and the builder has given up his right to sue for the full $7,500 due under the original contract.

Another example would be where a lender agrees to lend $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 borrower's lawsuit.

The accord agreement must be transacted on a new agreement. It must therefore have the essential terms of a contract, (parties, subject matter, time for performance, and consideration). If there is a breach of the accord there will be no "satisfaction" which will give rise to a breach of accord. In this instance the non-offending party has the right to sue under either the original contract or the accord agreement.

In an accord contract it is typical (though not legally necessary) that the consideration supplied is less than bargained for in the original contract. Some accord contracts also substitute payment in cash for payment in kind (e.g. rather than paying a cash sum, the debtor gives the creditor something of value, such as a car, boat, real estate, stocks, etc.)

• Foakes v Beer - an old leading case on the exception of accord and satisfaction where the debt was not in dispute
• D & C Builders Ltd v Rees - where the creditor accepted the offer under duress
• Pinnel's Case - where the payment of a lesser amount was to be paid before the debt fell due
• Hirachand Punumchand v Temple - where the offeree was a 3rd party (the debtor's father)
• Part performance - related legal concept
• Jacob & Young, Inc. v. Kent, 230 N.Y. 239, (N.Y. App. 1921).
• HBF Dalgety Ltd v Morton, an unsuccessful attempt to invoke accord and satisfaction