An accord is a contract between a creditor and a debtor for the settlement of a claim by some performance other than that which is due. Satisfaction takes place when the accord is executed. An accord, however, is an agreement, and an agreement will not be considered binding by the courts unless it is supported by consideration.
After a real estate closing, the sellers paid part of the brokers' commission in cash and gave the brokers an assignment of a promissory note of a third party for payment of the remaining commission. The broker signed a written receipt indicating that the commission had been "paid in full." The broker collected interest on the note for several years, but filed an action against the sellers for the balance of the commission after the third party defaulted on the note. The court found that the sellers had established the defense of accord and satisfaction because the assignment of the note to the brokers extinguished the sellers' debt for the commission. The assignment of the note constituted new and valid consideration because the brokers were receiving an amount greater than the commission due because of the interest and were content with the arrangement until the third party defaulted. There was an accord and satisfaction when the brokers signed the receipt "paid in full." The brokers could not subsequently recover against the sellers just because their bargain turned out to be bad. Neither party intended that the original debt would continue after assignment of the note. The court entered a judgment in favor of the sellers.
Does the acceptance of the note constitute an extinguishment of the original indebtedness? Does the acceptance also constitute a good accord and satisfaction thereof, regardless of whether the note is for the full amount of the debt or for a lesser sum?
Yes and yes.
The question in this case was a factual one: whether the parties agreed that the settlement agreement itself constituted satisfaction of the original cause of action or instead agreed that the performance of the agreement was to be the satisfaction depended entirely upon the intention of the parties. Here, the broker did not accept a mere promise to pay a much smaller sum in discharge of the larger amount. The note that he accepted, had it been fully paid, would have given him a larger sum at the end. In any event, there was no credible evidence that either party intended that the original debt of was to continue after the assignment of the note. There was, in contrast, credible evidence that both parties intended that the original debt was to be extinguished by the assignment. By any measure, the assignment of the note constituted a new and valid consideration. When the broker signed his receipt "commission paid in full," there was accord and satisfaction. Because of this the broker could not recover against the defendants no matter how bad his bargain has turned out to be; therefore, the court entered judgment in favor of the sellers.