DEFINITION of 'Accord And Satisfaction'

An accord and satisfaction is a legal contract whereby two parties agree to discharge a tort claim, contract or other liability for an amount or based on terms that differ from the original amount of the contract or claim. Accord and satisfaction is also used to settle legal claims prior to bringing them to court.

BREAKING DOWN 'Accord And Satisfaction'

The accord is the agreement on the new terms of the contract, and the satisfaction is the performance of those terms according to the agreement. When there is an accord and satisfaction, and the performance (or satisfaction) has been executed, all prior claims relating to the matter are extinguished.

In the Discharge of Debt Obligations

Accord and satisfaction is a concept from contract law that usually applies to the purchase of a release from debt obligation. An accord and satisfaction may occur in debt negotiations whereby the original credit agreement between, for example, the bank and Company A is revised, and Company A delivers on the new terms. The new terms might allow Company A to make more, smaller payments; to repay the debt at a lower interest rate; to repay an amount less than the original obligation; or some other arrangement.

If, for some reason, Company A does not deliver on the new terms, it may be liable for the original contract, because it did not satisfy the terms of the accord. An accord and agreement does not replace the original contract; rather, it suspends that contract’s ability to be enforced, provided that the terms of the accord are satisfied as agreed.

Benefits of Accord and Satisfaction

Accord and satisfaction can be used as a form of compromise that benefits both parties when the original terms of a contract cannot be upheld for whatever reason. When an accord and satisfaction is reached to discharge a debt, the creditor still receives some payment of the debt, while the debtor benefits from not being held to the full obligation.

For example, a homeowner hires a contractor to renovate his or her kitchen for $30,000. The contract requires a $12,000 down payment, $10,000 paid during the renovation process, and the remaining $8,000 to be paid upon completion of the kitchen. However, when the kitchen is complete, the homeowner finds the work shoddy and refuses to pay. An accord and satisfaction can be reached whereby the homeowner agrees to pay $3,000; he or she is getting a discount on the price of the kitchen in return for having a shoddily-constructed kitchen, and gives up his right to sue. The contractor is paying $5,000 in order to avoid being sued by the homeowner, and gives his right to sue for the full $8,000.

RELATED TERMS
  1. Satisfaction of Mortgage

    A satisfaction of mortgage is a document that confirms a mortgage ...
  2. Satisfaction and Release

    When a debt that is due under a court judgement has been paid ...
  3. American Customer Satisfaction ...

    The American Customer Satisfaction Index (ACSI) provides information ...
  4. Assignable Contract

    An assignable contract has a provision permitting the holder ...
  5. Debt Discharge

    Debt discharge is the cancellation of a debt due to a bankruptcy.
  6. Breach of Contract

    A breach of contract is the violation of terms agreed upon by ...
Related Articles
  1. Personal Finance

    10 Jobs That Make People Happy

    These careers hold the highest levels of well-being and job satisfaction.
  2. Small Business

    Qualitative Analysis: What Makes A Company Great?

    To understand the qualities that make a great company, investors must dig deep into "soft" metrics.
  3. Financial Advisor

    Where and Why Advisors Are the Happiest (or Not)

    Advisors are less satisfied with their employers this year compared to last, a new study reveals. Here's why and what makes them happy.
  4. Investing

    New Customer Satisfaction Fund Launches (ACSI)

    A new ETF aims to give investors a way to bet on companies that have the highest customer satisfaction ratings. How does it work?
  5. Insights

    Vanguard Takes Top Spot in ACSI Finance and Insurance Report Ahead of Schwab, Edward Jones

    Vanguard took the top spot for customer satisfaction in the American Customer Satisfaction Index Finance and Insurance report.
  6. Retirement

    Advanced Planning for a Quality Retirement

    Having a plan for retirement, including where you want to live, will help ensure a high quality of life when the time comes.
  7. Investing

    Charles Schwab Tops J.D. Power Full Service Investor Satisfaction Ranking

    Charles Schwab scored the highest in the J.D. Power Full Service Investor Satisfaction ranking for the third year in a row.
  8. Investing

    Tips For Maximizing The Value Of A Kitchen Touchup

    At a fraction of the cost of a remodel, a homeowner can make strategic updates to his or her kitchen that could transform this part of the home.
  9. Trading

    The Difference Between Forwards and Futures

    Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price.
  10. Financial Advisor

    Divorce and Annuities: What Clients Need to Know

    Divorce can be the most financially devastating event in a person’s life. Here’s what your clients need to know about handling annuities in a divorce case.
RELATED FAQS
  1. What debt cannot be discharged when filing for bankruptcy?

    See what kinds of debts cannot be discharged through a bankruptcy and which debts are very difficult to discharge unless ... Read Answer >>
  2. What is a forward contract against an export?

    Understand forward exchange contracts in exporting, and learn the purpose of using a forward contract and its advantages ... Read Answer >>
  3. How does a merger affect the customer?

    Learn how a merger may affect customers of the industry. The effects of mergers may be positive or negative, but there's ... Read Answer >>
  4. Can personal loans be included in bankruptcy?

    Read about debts that are dischargeable when filing for bankruptcy. Learn about how personal loans are treated when filing ... Read Answer >>
Trading Center