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Distinction from Novation or Substituted Contract

The essential difference between an accord and a novation rests on the intention of the contracting parties.[i]  An accord and satisfaction is a substitute contract for settlement of a debt by some alternative other than full payment. The consideration for an accord is the resolution of a disputed claim.[ii]  While in a novation, the new promise itself satisfies the preexisting claims, in an accord it is the performance of the new promise that satisfies the preexisting duty. The distinctive feature of an accord and satisfaction is that the obligee does not intend to discharge the existing claim merely upon the making of the accord.  S/he can do so only upon performance or satisfaction. If the satisfaction is not tendered, the obligee may sue under the original claim or for breach of the accord.   On the other hand, novation bars revival of the preexisting duty.  Burden of proving the extinguishment of preexisting duty is upon the party asserting a novation.[iii]

If the parties may intend that a new agreement, though executory, will immediately discharge the existing obligation, such an agreement is called a substituted agreement.[iv]

In situations where “the full performance of the revised contract terms is necessary to extinguish or discharge claims arising under an old contract, the revised contract is called an executory accord and performance is called a satisfaction, while in cases where mutual promises in a revised contract are held by themselves to discharge all claims arising under the earlier contract, the revised contract is called a substituted contract.[v]

[i] Paramount Aviation Corp. v. Agusta, 178 F.3d 132 (3d Cir. N.J. 1999)

[ii] Id. At 147-148

[iii] Id. At 148

[iv] Chappelow v. Savastano, 195 Misc. 2d 346 (N.Y. Sup. Ct. 2003)

[v] Community Builders v. Indian Motocycle Assocs., 44 Mass. App. Ct. 537 (Mass. App. Ct. 1998)

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