Accord and Satisfaction

Definition

Accord and satisfaction is a legal concept wherein a debtor agrees to pay a creditor an agreed-upon amount of money, which may be less than the total amount originally owed, as full settlement of the debt. This agreement (accord) and the subsequent payment (satisfaction) resolve the debt and discharge the debtor from further obligation.

Purpose

The purpose of accord and satisfaction is to provide a mutually agreed-upon resolution to a disputed or uncertain debt, thereby avoiding litigation or prolonged disputes. It allows the creditor to receive payment and the debtor to settle the debt, often for a lesser amount, bringing finality to the financial obligation.

Examples of Use

1. Settlement of Disputed Debt: A business disputes an invoice for services rendered, believing the amount charged is too high. The business and the service provider agree to a reduced payment, which the business pays, thus settling the debt.
2. Loan Repayment: A borrower who is unable to repay the full amount of a loan negotiates with the lender to pay a portion of the outstanding balance as full settlement. Once the payment is made, the lender agrees to discharge the remaining debt.
3. Credit Card Debt: A credit card holder negotiates with the credit card company to pay a lump sum that is less than the total outstanding balance, which the company accepts as full payment of the debt.
4. Medical Bills: A patient disputes a high medical bill and negotiates with the hospital to pay a lower amount. The payment is made, and the hospital considers the debt settled.
5. Contract Dispute: Two parties in a contractual disagreement reach an accord where one party agrees to accept a lesser amount to settle the contract, avoiding further legal action.

Related Terms

1. Settlement Agreement: A formal agreement between parties to resolve a dispute and release each other from further claims, often involving payment of an agreed amount.
2. Compromise: An agreement where each party makes concessions to reach a mutually acceptable resolution.
3. Release of Liability: A document indicating that one party waives their right to make further claims against another party, typically after a settlement.
4. Debt Forgiveness: When a creditor decides to cancel a portion or all of a debt owed by a debtor.
5. Consideration: Something of value exchanged between parties in a contract, necessary for an accord and satisfaction to be legally binding.

Notes

1. Accord and satisfaction must involve a bona fide dispute over the amount owed; otherwise, it may not be legally binding.
2. The agreement must be clearly communicated and accepted by both parties to be effective.
3. The payment agreed upon in the accord must be completed to satisfy the obligation and discharge the debtor.
4. Legal advice is often recommended to ensure that the terms of the accord and satisfaction are clear and enforceable.
5. Accord and satisfaction is a common resolution mechanism in both personal and business financial disputes.