Sunday, June 10, 2012

Accord and Satisfaction

Assume the following scenario:

X hires Y to paint his home. X and Y enter into a valid contract whereby X agrees to pay Y $2,500 for the job. All is going well until about half of the home is painted. At that point, Y approaches X and explains to him that the job is much more difficult than he had anticipated. He'll continue to do the agreed upon work, but only if, once the work is complete, X will pay Y $3,000 rather than $2,500. X agrees to this, and Y completes the job. Y bills X for $3,000 and X submits to Y a payment of $2,500. Y sues X for the remaining balance of $500.

In the above scenario, Y is out of luck. In the original contract between X and Y, there was consideration on both sides. Y's promise to paint X's home was supported by X's promise to pay Y $2,500. And X's promise to pay Y $2,500 was supported by Y's promise to paint X's home. But the later agreement is problematic. X promised to pay Y $3,000, but that promise was supported only by a promise that Y had already made to X, to paint X's home. In other words, the promise made by X to Y to pay Y $3,000 was not supported by any new consideration, and therefore Y can not hold X to that new promise. X owes to Y the amount agreed upon in their original agreement; namely, $2,500.

But now let's change the facts a bit. Let's assume that the same original agreement has been entered into whereby X will pay Y $2,500 to paint X's home. After completion of the job, X erroneously, but in good faith, believes that Y's job was defective. As a result of what X believes to have been a defective job, X offers to pay Y a $1,000 fee in full settlement of the claim, and Y accepts, despite the fact that the reasonable value of his services is, in fact, $2,500. X submits payment of $!,000, Y accepts that payment, and Y then sues X for the remaining $1,500.

At first glance, it may seem that Y should win. When X made the second promise to pay $1,000, it seems much like our first example, because that promise was not supported by any new consideration by Y. Y was merely obligated to paint X's home, and that obligation arose in the original agreement. But the difference here is based on the concept of accord and satisfaction.

An accord is an agreement under which a party to a contract agrees to accept, as complete satisfaction of the contract, some performance different from that originally due under the contract. Satisfaction is performance of the accord, and once satisfaction takes place, both the accord and the original contractual duty are discharged.

The important distinction in the second scenario is that there was a good faith dispute as to whether Y had performed a defective job. The accord was X's offer to pay Y $1,000 for the settlement of the claim arising from that dispute. Satisfaction of that accord occurred when Y accepted that payment. At that moment, the original obligations under the contract (the obligation that X had to pay Y $2,500) was discharged, and X, therefore, does not owe Y an additional $1,500.

No comments:

Post a Comment