Business, Legal & Accounting Glossary
Accord and Satisfactions refer to the discharge of an obligation arising under Tort law.
An agreement to settle a contract dispute by accepting less than what’s due.
A settlement by which one party, having complied with its own terms in an agreement, allows the other party to discharge its existing debt by means other than those set forth in the original contract.
n. an agreement to accept less than is legally due in order to wrap up the matter. 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 “a bird in the hand is worth two in the bush” practicality.
This is a device enables one party in a contract to avoid an obligation that arises under said contract; provided that the other concerned parties agree.
The accord is the agreement by which a contractual obligation is discharged, and the satisfaction is the consideration of making the agreement legally sound.
Such an agreement only discharges the contractual obligation if it is accompanied by consideration. This procedure is often used by creditors who want to cut their losses by collecting as much money as they can from debtors who cannot pay the full amount.
For example; under a contract of sale the seller of goods may discharge the contractual obligation by delivering goods of different quality to that specified in the contract (in the form of a substitution), provided that there is an agreement from the buyer (the accord) and that a reduction in the contracted price (the satisfaction) is offered and accepted.
The seller has, therefore “purchased” release from said obligation.
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.
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This glossary post was last updated: 8th October, 2021 | 19 Views.