Accord and Satisfaction

In one minute

Accord and satisfaction is a way to end a claim by taking something different from what was promised. The accord is the agreement to accept the substitute. The satisfaction is the giving and accepting of that substitute. When both are complete, the original claim is discharged.

The idea sits inside section 63, which lets a promisee accept any satisfaction he thinks fit. In exams it is a short-note topic. In real life it is what a settlement in full and final satisfaction of a claim does.

Legal provision

• Section 63: every promisee may accept instead of the promised performance any satisfaction which he thinks fit. The Act does not use the words "accord and satisfaction". The idea comes from the words "any satisfaction which he thinks fit".
• Illustration (b): A owes B Rs 5,000. A pays, and B accepts, Rs 2,000 in satisfaction of the whole debt, at the time and place at which the Rs 5,000 were payable. The whole debt is discharged.
• Illustration (c): A owes B Rs 5,000. C pays B Rs 1,000, and B accepts it in satisfaction of his claim on A. The whole claim is discharged.
• Illustration (d): A owes B a sum whose amount has not been worked out. A, without working it out, gives B, and B in satisfaction accepts, Rs 2,000. The whole debt is discharged, whatever its amount.

Meaning and definition

Accord and satisfaction means the discharge of a claim by the performance of a substituted obligation that the claimant agreed to accept. The accord is the agreement. The satisfaction is its performance.

The law allows it because a promisee owns his claim and may settle it on any terms he chooses. It also gives people a reason to settle disputes. The timeline shows the stages.

1. The original claimA owes B a promised performance, for example a table worth Rs 80,000.
2. The accordB agrees to accept something different instead, for example a ready-made table.
3. The satisfactionA gives the substitute and B accepts it.
4. DischargeThe original claim ends (section 63).

Detailed explanation

Step 1: an existing claim

There must be something owed, or a dispute about what is owed. The claim may be for money, for goods or for work. It may be certain or uncertain. Illustration (d) shows that the amount need not be worked out.

Step 2: the accord

The accord is the agreement that the promisee will accept something different. It may be a smaller sum, goods in place of money, or a payment by a stranger. The promisee must agree with free consent. He may agree to anything he thinks fit.

Step 3: the satisfaction

The substitute must actually be given and accepted. The discharge takes place when the promisee accepts the satisfaction. An agreement to accept something later does not end the old duty, unless the parties agree that the new promise itself replaces it. That would be a novation.

Step 4: discharge vouchers and full and final settlements

Businesses often settle claims by a discharge voucher. The claimant signs a paper saying the payment is in full and final settlement, and takes the money. If the settlement was voluntary, the claim is discharged. The claimant cannot then bring the dispute to arbitration.

A claimant can undo the settlement only by proving that it was not voluntary. He must show fraud, coercion or undue influence. Financial difficulty or commercial pressure alone is not enough. The Supreme Court has also disapproved of the practice of withholding admitted dues until a claimant signs a discharge voucher.

Step 5: what accord and satisfaction is not

It is not a new contract that replaces the old one at once. In accord and satisfaction, the old claim lasts until the substitute is given. It is also not a simple remission, where the promisee gives something up and receives no substitute.

The stages at a glance

Stage	What happens	The original claim
Before the accord	The claim is owed or disputed	Stands
Accord	The promisee agrees to accept a substitute	Stands, unless the parties agree that the new promise replaces it (novation)
Satisfaction	The substitute is given and accepted	Discharged (section 63)

Don't confuse: accord and satisfaction and novation

Both end the old claim by agreement. The difference is when the old claim ends and whether a new contract takes its place.

Point	Accord and satisfaction	Novation
What replaces the old claim	A substitute performance, once given	A new contract
When the old claim ends	When the substitute is given and accepted	When the new contract is made
Section	63	62

Common mistakes

• Saying the old claim ends as soon as the accord is made. It ends when the satisfaction is given and accepted.
• Treating every settlement as binding. A settlement obtained by fraud, coercion or undue influence can be challenged.
• Treating financial difficulty alone as coercion. It is not enough.
• Confusing accord and satisfaction with novation. Novation replaces the contract at once with a new one.

Apply it

Leading case laws

• National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd. (2009)

  Facts. The Supreme Court, (2009) 1 SCC 267, dealt with claimants who signed discharge vouchers in full and final settlement, took payment, and later asked for arbitration of the balance.

  Principle. Accord and satisfaction is a discharge by performance of substituted obligations. A voluntary settlement ends the claim. It can be challenged only on proof of fraud, coercion, undue influence or a similar defect. Financial difficulty alone is not enough.

  Why it matters. It is the main Indian authority on discharge vouchers.

• Union of India v. Kishorilal Gupta and Bros (1959)

  Facts. The Supreme Court, AIR 1959 SC 1362, considered army supply contracts with arbitration clauses that the parties later settled by agreement.

  Principle. The majority treated the final settlement as a novation that ended the original contracts and their arbitration clauses. Sarkar J., dissenting, said accord and satisfaction discharges obligations but not the contract, so the arbitration clause survives unless revoked.

  Why it matters. It shows how accord and satisfaction and novation differ in their effect on the contract.

• Pinnel's Case (1602)

  Facts. The English court, (1602) 5 Co Rep 117a, heard a creditor's action on a bond for £8 10s. The debtor pleaded that he had paid a smaller sum and that the creditor accepted it in full satisfaction.

  Principle. Under the common law, payment of a smaller sum on the due day cannot satisfy a larger debt. A different thing, such as goods, accepted in its place can satisfy it.

  Why it matters. It is the origin of the accord and satisfaction idea. Section 63 goes further and lets a promisee accept a smaller sum in satisfaction.

How to write this answer in the exam

Key points to remember

• The accord is the agreement to accept a substitute. The satisfaction is its performance.
• The original claim is discharged when the substitute is given and accepted (section 63).
• The promisee may accept any satisfaction he thinks fit.
• A voluntary full and final settlement ends the claim and the right to arbitrate it.
• A settlement can be challenged only for fraud, coercion, undue influence or a similar defect.
• Novation replaces the contract at once. Accord and satisfaction ends the claim when the substitute is given.

Quick self-test

Related topics

• Discharge by Novation
• Remission
• Discharge of Contracts