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Accord and Satisfaction – General Nature and Essentials

An accord and satisfaction contemplates an agreement between parties to give and accept something different from that claimed by virtue of the original obligation.  Both the giving and acceptance constitutes the essential elements on an accord.  The validity of such an agreement is dependent upon the same basic factors and principles that govern contracts generally.  An accord and satisfaction results when the parties mutually intend to effect a settlement of an existing dispute by entering into a superseding agreement, and there is actual performance in accordance with the new agreement. Compliance with the new agreement discharges the prior obligations of the parties.[i]

The doctrine of accord and satisfaction is based on contract principles. [ii]An accord and satisfaction should have all the elements of a contract namely, offer, acceptance, and consideration.[iii] Thus, the burden of proving accord and satisfaction is simply the burden of proving a contract.[iv]

An accord and satisfaction is a contract and thus requires a meeting of the minds of the two parties before it is valid and binding.  Accord and satisfaction occurs where the parties, “by a subsequent agreement, have satisfied the former agreement, and the latter agreement has been executed.”[v] For instance, in Hinley, 169 Ga. App. 529, the debtor was married to the creditor’s daughter and he borrowed money from the creditor and executed promissory notes for the indebtedness.  The debtor subsequently divorced the creditor’s daughter.  During the divorce negotiations, the debtor accepted less than his share in the marital home based on his wife’s assurance that she would get her father to forgive the promissory notes.  However, the debtor and creditor never discussed the matter.  The creditor later demanded payment of the notes, but the debtor claimed accord and satisfaction.  The court held that accord and satisfaction required a meeting of the minds of the parties to the contract, but the creditor and debtor never spoke regarding the cancellation of the promissory notes.  The court concluded that there was not sufficient evidence to show that the wife acted as an agent for the creditor based only on her relationship with him and her employment as his secretary.

A valid accord and satisfaction requires four elements, which include (1) proper subject matter; (2) competent parties; (3) a meeting of the minds of the parties; and (4) consideration.[vi]

In fact, an accord and satisfaction is a new contract—a contract complete in itself.[vii] When the debtor tenders a draft in full payment of a debt, acceptance by the creditor creates a settlement contract binding on both parties.[viii] Absent an express reservation of rights, such a settlement constitutes a complete accord and satisfaction of all claims.[ix]

Courts have held that as long as the basic requirements to form a contract are present, there is no reason to treat such an accord differently from other contracts which are binding.  This is consistent with the public policy dictating that courts should “look with favor upon the compromise or settlement of law suits in the interest of efficient and economical administration of justice and the lessening of friction and acrimony.”[x]

[i] Martinez v. South Bayshore Tower, L.L.L.P., 979 So. 2d 1023 (Fla. Dist. Ct. App. 3d Dist. 2008)

[ii] In re MCI Telecommunications Complaint (Worldcom Network Services, Inc. v. Public Service Com’n), 255 Mich. App. 361 (2003)

[iii] Helms v. University of Missouri-Kansas City, 65 Ark. App. 155 (Ark. Ct. App. 1999)

[iv] Id. See also Wilson v. Builders Transport, Inc., 330 S.C. 287, 498 S.E.2d 674 (Ct. App. 1998) (the essential elements of “accord and satisfaction” are an agreement to settle a dispute and consideration which supports the agreement.)

[v] Hinely v. Barrow, 169 Ga. App. 529, 530 (Ga. Ct. App. 1984)

[vi] O’Connor v. United States, 308 F.3d 1233 (Fed. Cir. 2002)

[vii] Or. Mut. Ins. Co. v. Barton, 109 Wn. App. 405 (Wash. Ct. App. 2001)

[viii] Hynes v. Hynes, 28 Wn.2d 660 (Wash. 1947)

[ix] Or. Mut. Ins. Co., 109  Wn. App. 405.

[x] City Of Cincinnati ex rel. Ritter v. Cincinnati Reds, 150 Ohio App. 3d 728, 745-746 (Ohio Ct. App., Hamilton County 2002)

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