An accord and satisfaction is generally an agreement between parties to a contract to settle a claim under that contract, often at a lesser amount, pursuant to which a new agreement is substituted for, and in satisfaction of, the preexisting contract between the same parties. In doing so, the original agreement is thereby extinguished.
The general purpose of an accord and satisfaction is to settle a claim at a lesser amount.
An executed accord and satisfaction is a bar to any action against the debtor on the original obligation, which is completely extinguished by the execution of the accord. The completed accord and satisfaction constitutes a release of any liability on the debtor’s part, and the creditor may not thereafter recover any further balance. The executed accord and satisfaction is a complete substitute for the former contract. Thus, the creditor’s acceptance of the amount offered in full satisfaction of the claim constitutes a waiver of the right to claim any further amount. The creditor is estopped to deny the effect of the deliberate act of obtaining and using the remittance. The creditor, in accepting the remittance, is bound by the settlement in full, and the fact that the creditor makes further demands on the debtor some time afterward does not make the transaction a part performance.
Accord and satisfaction is often asserted as an affirmative defense by the defendants to breach of contract cases. A defendant asserting the affirmative defense of accord and satisfaction must establish the following:
- That there was a bona fide dispute between the parties;
- That the defendant made it clear that acceptance of what it tendered was subject to the condition that it was to be in full satisfaction of the plaintiff’s unliquidated claim; and
- That the plaintiff clearly understood when accepting what was tendered that the defendant intended such remittance to constitute payment in full of the particular claim in issue.
California Civil Code § 1523:
Acceptance, by the creditor, of the consideration of an accord extinguishes the obligation, and is called satisfaction.
Teledyne Mid-America Corp. v. HOH Corp., 486 F.2d 987 (9th Cir. 1973):
When a creditor accepts a check tendered as full satisfaction of a larger debt, the law under certain circumstances recognizes an accord and satisfaction which discharges the original obligation. However, in order for this principle to apply, there must first be a “bona fide dispute” between the parties regarding the amount owed.
A second prerequisite of an effective accord and satisfaction is a tender by the debtor which gives the creditor adequate notice that a compromise is being proposed. The debtor must make it clear that acceptance of what he tenders is subject to the condition that it shall be in full satisfaction. This requirement is particularly stringent where past practices between the debtor and creditor have involved installment payments on the debt. In this situation the debtor bears the greater burden of demonstrating that the creditor received adequate notice that a given payment was tendered conditionally as final and not partial payment. Where this burden has not been met, the courts have refused to find an effective accord and satisfaction.
Because an accord and satisfaction is governed by general contract principles, there must be an effective acceptance of the compromise offer in order to discharge the original obligation. A subjective “meeting of the minds” is not required, as the creditor’s acceptance of the check may be evidenced “actually or by implication.” Further, it is almost universally held that the cashing of the check or its certification is sufficient an act of dominion to constitute such acceptance.
Cooper v. Baton Rouge Cargo Service, Inc., 304 So.3d 86 (La. App. 2020):
Accord and satisfaction is present when a debtor tenders a check with a written notation indicating it is in full settlement of all claims and the claimant accepts the tender. For a compromise to exist, there must be a disputed claim, a tender of a certain amount in settlement of that claim, and an acceptance. By requiring a meeting of the minds between the parties as to exactly what they intend and requiring that the creditor understands that the payment is tendered in full settlement, the doctrine of accord and satisfaction is identical to its more formal cousin, the doctrine of compromise.
Del Serrone Contracting Corp. v. Avon Tp., 77 Mich. App. 82 (1977):
Since defendant did not establish a meeting of the minds between the parties in the instant case with respect to the disputed, unliquidated claims of plaintiff against defendant, the trial court erred in granting defendant’s motion for accelerated judgment. Therefore, the instant case is reversed and remanded to the trial court for further proceedings.