What does Accord And Satisfaction mean?
How does it legally work?
What are some examples?
In this article, I will break down the notion of Accord And Satisfaction so you know all there is to know about it!
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Table of Contents
What Is Accord And Satisfaction
The term “accord and satisfaction” refers to when parties agree to discharge one another from legal liability, a contract, or a claim further to the performance of an alternate duty.
In other words, two contracting parties can mutually agree to discharge their contractual obligations under a contract by entering into a new subsequent agreement and where the alternate performance occurs.
In more technical terms, the “accord” means that the parties agree to switch or alternate a duty or obligation for another and “satisfaction” means that the party will be discharged from its duty when it “satisfies” or performs its obligation.
When the parties have an accord and satisfaction to perform new obligations, once the new obligation are performed they will no longer be able to enforce the previous agreement.
However, they will have the ability to enforce the terms of their new accord in the event of a default.
The term “accord” refers to an “agreement” between two parties.
For example, when the parties reach an agreement to discharge one obligation the moment another obligation is performed, that’s what you call an accord.
According to the Merriam-Webster dictionary, the term accord means:
To arrive at an agreement
In essence, to have an accord is to have an agreement.
The term “satisfaction” refers to the discharge of a duty or legal obligation
For example, when a party performs a contractual obligation to the satisfaction of the terms of the contract, it means that the person’s duty has been successfully completed and therefore legally discharged.
According to the Merriam-Webster dictionary, the term satisfaction means:
The discharge of a legal obligation or claim
To satisfy the performance of an obligation means to satisfy the legal obligation.
Accord And Satisfaction Definition
According to the Cornell University’s Legal Information Institute, an accord and satisfaction is defined as:
An agreement (accord) between two contracting parties to accept alternate performance to discharge a preexisting duty between them and the subsequent performance (satisfaction) of that agreement.
As you can see from this definition, satisfaction and accord relates to when parties “alternate” performance to discharge a preexisting duty.
Why Is Accord And Satisfaction Important
The concept of accord and satisfaction is beneficial allowing contracting parties or parties having a legal duty to one another to reach a compromise.
Essentially, when the parties to a contract are unable to perform their duties for whatever reason, they can agree to alternate their obligations as a compromise allowing them to complete the performance of their obligation.
You may have heard of a accord and satisfaction check or full accord and satisfaction.
Imagine that a party is contractually required to render a specific type of service to another.
For various reasons, the service provider is unable to render the last 10% of the services.
In that case, the service provider agrees to provide a 20% discount on the service fees and the client agrees to stop the project at the 90% mark.
The accord and satisfaction agreement allows the service provider to be discharged from the contract although 10% remains to be done and the client is able to get a nice discount on the total price and will accept the project although not fully completed.
Accord And Satisfaction Elements
The concept “accord and satisfaction” is a matter of state law or can stem from an express or implied contract.
A legally enforceable accord and satisfaction must have the following elements:
- There must be proper subject matter
- The parties must have legal capacity
- There must be the meeting of the minds
- There must be an adequate consideration
It should be noted that the accord and satisfaction can result from an express agreement the parties but it can also be implied based on the circumstances.
If the agreement is express, the evidence will be easier to make in court.
However, if the agreement is implied, then a party raising accord and satisfaction as an argument that his or her duty was discharged or satisfied must present an affirmative defense and present evidence to that effect.
Under the Uniform Commercial Code, Section 3-311 titled “Accord and Satisfaction by Use of Instrument” allows a person to be discharged of an obligation when:
- A person tenders an instrument as full satisfaction of a claim
- The amount of the claim was unliquidated or subject to a bona fide dispute
- And the other party paid for the instrument
Essentially, when a party tenders an instrument with an accord and satisfaction letter where the instrument is tendered in full satisfaction of the claim, the requirements are satisfied under UCC for the tendeirng party to be discharged.
Accord And Satisfaction Affirmative Defense
Can accord and satisfaction be used as an affirmative defense?
In short, yes.
If a party has reached an agreement with a party to suspend certain obligations by performing other obligations, then an affirmative defense can be presented if a party attemps to enforce the previously suspended obligation.
In other words, what’s enforceable is the legal duty stemming from the accord and satisfaction and not the legal duty that was “switched” or “alternated”.
The party raising the argument that an obligation has been alternated and satisfied or that there’s been full satisfaction and accord bears the burden of proof in court.
Accord And Satisfaction Example
Let’s look at a few examples of how you may reach an accord and satisfaction agreement in real-life.
Example 1: Loan Agreement
Imagine that John lends money to Mary for the sum of $10,000 that is payable in two installments of $5,000 over the next two months.
Mary makes the first payment of $5,000 to John.
For the second payment, Mary asks for John for a revised payment schedule and John agrees that she can split the remaining payment of debt into five $1,000 installments to be paid over the next five months.
In this example, there’s accord and satisfaction whereby Mary’s obligation to pay $5,000 next month is substituted for the payment of $1,000 over the next five months.
Example 2: Construction Agreement
Another scenario where it may be more common to see an accord and satisfaction is with regards to renovation and construction agreements.
Imagine that Jack and Helen reach an agreement whereby Jack will renovate Helen’s basement for $20,000.
Helen must pay $10,000 for Jack to start the work, $5,000 when half the work is done and $5,000 when all the work is done.
However, Jack is not able to deliver the basement according to the contract to satisfy Helen’s expectations.
Jack agrees to have Helen make a payment in full accord and satisfaction of $2,500 instead of $5,000 to satisfy the last payment.
This is an example of accord and satisfaction where Helen gets a discount of $2,500 to compensate for the gaps in the work and Jack gets $2,500 less but is fully discharged from the contract.
Doctrine of Accord And Satisfaction Takeaways
So there you have it folks!
What is an accord and satisfaction?
Accord and satisfaction is a matter of state law or contract law where parties agree to release one another from a contractual obligation by performing an obligation of a different type.
There could be an accord and satisfaction in many situations such as in the context of loan, delivery of goods, contractual obligations, real estate, or any other debt obligations.
An accord agreement is generally based on a new agreement that is based on the essential terms and conditions of an original agreement.
Then, the satisfaction of the obligation will relate the to new obligations defined in the accord agreement and no longer the original obligation that was suspended in the original agreement.
For example, the creditor is owed $100,000 and the borrower has some financial difficulties.
To be able to collect something, the creditor agrees that if the borrower pays half of the loan today, it will grant an extra two years for the borrower to pay the remainder at a lower interest rate.
I hope that you now have a better understanding of what accord and satisfaction means, how it works, and why it’s important.
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Accord And Satisfaction Meaning
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Dismissed with prejudice
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Meeting of the minds
Release and discharge
Subject to contract
Termination for cause
Termination for convenience
Termination with prejudice
Related to Contractual Obligations And Law
Breach of contract
Cease and desist
Contract of adhesion
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Double jeopardy clause
Force majeure clause
Mirror image rule
Motion to compel
Motion to dismiss
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UCC Article 2
Without prior notice