Accord and Satisfaction is a contract of compromise where a plaintiff agrees to accept (the accord) something (the satisfaction) in place of his or her cause of action. Until satisfaction is given, the accord remains executory and cannot bar the claim: McDermott v Black (1940) 63 CLR 161. Dixon J described the concept of "accord and satisfaction" in the High Court of Australia case of McDermott v Black (1940) 63 CLR 161. He described it in the following terms.
- The essence of accord and satisfaction is the acceptance by the plaintiff of something in place of his cause of action. What he takes is a matter depending on his own consent or agreement. It may be a promise or contract or it may be the act or thing promised. But, whatever it is, until it is provided and accepted the cause of action remains alive and unimpaired. The accord is the agreement or consent to accept satisfaction. Until the satisfaction is given the accord remains executory and cannot bar the claim. The distinction between an accord executory and an accord and satisfaction remains as valid and as important as ever. An accord executory neither extinguishes the old cause of action nor affords a new one.
Pinnel's Case
The concept of accord and satisfaction had arisen in substance in 1602, in Pinnel’s Case 5 Co. Rep. 117a; 77 ER 237, as follows.
- And it was resolved by the whole Court, that payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole, because it appears to the judges that by no possibility, a lesser sum can be a satisfaction to the plaintiff for a greater sum: but the gift of a horse, hawk, or robe etc., in satisfaction is good. For it shall be intended that a horse, hawk, or robe, etc., might be more beneficial to the plaintiff than the money, in respect of some circumstance, or otherwise the plaintiff would not have accepted of it in satisfaction. But when the whole sum is due, by no intendment the acceptance of a parcel can be a satisfaction to the plaintiff: but in the case at Bar it was resolved, that the payment and acceptance of parcel before the day in satisfaction of the whole, would be a good satisfaction in regard of circumstance of time; for peradventure parcel of it before the day would be more beneficial to him than the whole at the day, and the value of the satisfaction is not material . . . .
Foakes v Beer
The Court’s decision in Pinnel’s Case was said to have been followed in the 1884 case of Foakes v Beer 1884 9 App. Cas. 605. It was also followed in the 1966 case of D & C Builders Ltd v Rees [1966] 2 WLR 288 CA; [1966] 2 QB 617.
The holdings of the Court in Foakes v Beer were stated in the following terms.
- An agreement between judgment debtor and creditor, that in consideration of the debtor paying down part of the judgment debt and costs and on condition of his paying to the creditor or his nominee the residue by instalments the creditor will not take any proceedings on the judgment, is nudum pactum, being without consideration, and does not prevent the creditor after payment of the whole debt and costs from proceeding to enforce payment of the interest upon the judgment.
Lord Fitzgerald stated his agreement that the resolution in Pinnel’s Case was not necessary for the decision of that case, and that the principle on which it seemed to rest did not appear to have been made the foundation of any subsequent decision of the Court. He stated further that for 282 years the rule in Pinnel’s Case had been adopted by the judges and had been taken as part of the law that the payment of a part of a debt then due and payable cannot alone be the foundation of a parol satisfaction and discharge of the residue, as it brings no advantage to the creditor, and there is no consideration moving from the debtor, who has done no more than partially to perform his obligation.
D & C Builders v Rees
In D. & C. Builders Ltd. v Rees [1966] 2 QBD 617, the Court applied the Rule in Pinnel’s Case.
- Lord Denning MR held that where there is a true accord, under which the creditor voluntarily agrees to accept a lesser sum in satisfaction, and the debtor acts upon that accord by paying the lesser sum and the creditor accepts it, then it is inequitable for the creditor afterwards to insist on the balance. But he is not bound unless there has been truly an accord between them.
Lord Denning, in his detailed judgment, held that if payment is made by cheque, then it is no different to payment by cash, because a cheque when given is conditional payment. When honoured, it is actual payment. It is then the same as cash. Thus, Lord Denning stated that the harsh principle in Pinnel’s Case had been relieved in equity, in the 1887 case of Hughes v Metropolitan Railway (1877) 2 App. Cases 439, 448.
The principle in Hughes v Metropolitan Railway was stated by Lord Cairns as follows.
- It is the first principle upon which all courts of equity proceed, that if parties, who have entered into definite and distinct terms involving certain legal results, afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them when it would be inequitable having regard to the dealings which have taken place between the parties.
The Equitable Principle
In applying the principle it must be remembered that the creditor is only barred from his legal rights when it would be inequitable for him to insist upon them. That is, there must be a true accord to found a defence of accord and satisfaction.
Sources:
McDermott v Black (1940) 63 CLR 161.
Pinnel’s Case 5 Co. Rep. 117a; 77 ER 237.
Foakes v Beer 1884 9 App. Cas. 605.
D & C Builders Ltd v Rees [1966] 2 WLR 288 CA; [1966] 2 QB 617.
Hughes v Metropolitan Railway (1877) 2 App. Cases 439, 448.
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