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What is Accord and Satisfaction?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 08 November 2016
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An accord and satisfaction is a legal agreement which is designed to settle a debt or claim. In this type of agreement, the debtor or claimant agrees to receive less than the full amount owed and to consider the matter settled. This type of agreement is one among several options which can be used to settle claims and debts. People should be aware that reaching a point of accord and satisfaction does not mean that it is impossible to face legal consequences, as will be discussed further in this article.

In a simple example, someone might agree to pay $500 United States Dollars (USD) to settle a $750 USD debt. From the point of view of the creditor, receiving the bulk payment may be advantageous, even though it is less than the amount owed, to get the debt off the books. It can also be more cost effective, as the creditor may recognize that it could spend more than $250 USD taking the situation to court and attempting to recover the full amount. Essentially, the creditor cuts the losses, and in exchange, the debtor can rest assured that the debt is fully settled.

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The accord and satisfaction effectively establishes a new contract which overwrites the old one. If the creditor later attempts to recover the remainder of the debt, the debtor can show that accord and satisfaction was reached, and the court will reject the case. Under the agreement, the obligation is considered discharged, even when the debtor did not meet the terms of the original agreement.

To borrow from the example above again, if the debtor only rendered $300 USD in payment to the creditor, this could be considered a breach of contract. The accord and satisfaction in the agreement specified that $500 USD would discharge the original debt; since the debtor is not rendering the full amount, the creditor can take steps to recover the rest of the funds. Accord and satisfaction, in other words, only insulates people from legal penalties when they fulfill the terms of the contract.

It is possible to reach such an agreement on behalf of someone else. Most commonly, this is seen in situations where people lack the capacity to consent and negotiate legal agreements, and the person negotiating the contract may be supervised to confirm that the agreement is in the best interests of the person being represented. People can also reach accord and satisfaction on behalf of someone else more informally; for example, a parent may help an adult child settle a debt to a landlord, acting on behalf of the child to resolve the matter.

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