Chandan
Accord and Satisfaction
Chandan Goswami 11 Nov 2019

ACCORD AND SATISFACTION

A contract may be discharged by the parties thereto by a substituted agreement and thereafter the original cause of action arising under the earlier contract is discharged and the parties are governed only by the terms of the substituted contract. The ascertainment of the intention of the parties is essentially a question of fact to be decided on the facts and circumstances of each case.[1]

While the discharge of contract by performance refers to the fulfillment of the contract by performance of all the obligations in terms of the original contract, discharge by ‘accord and satisfaction’ refers to the contract being discharged by reason of performance of certain substituted obligations. The agreement by which the original obligation is discharged is the accord, and the discharge of the substituted obligation is the satisfaction. A contract can be discharged by the same process which created it, that is by mutual agreement. A contract may be discharged by the parties to the original contract either by entering into a new contract in substitution of the original contract or by acceptance of performance of modified obligations in lieu of the obligations stipulated in the contract. The Supreme Court in the case of Union of India vs. Master Construction Company reported in (2011) 12 SCC 349 has considered almost all the earlier decisions rendered on the issue and after consideration of the same accepted and affirmed the decision of the Supreme Court in the National Insurance Company vs. Boghara Polyfab Pvt Ltd reported in (2009) 1 SCC 267.

-: “A bald plea of fraud, coercion, duress or undue influence is not enough and the party who sets up such a plea must prima facie establish the same by placing material before the Chief Justice/his designate. If the Chief Justice/his designate finds some merit in the allegation of fraud, coercion, duress or undue influence, he may decide the same or leave it to be decided by the Arbitral Tribunal. On the other hand, if such plea is found to be an afterthought, make-believe or lacking in credibility, the matter must be set at rest then and there.”

British Russian Gazette and Trade Outlook Limited v. Associated Newspaper Limited [1933] 2 K.B. 616 describes the concept of accord and satisfaction. Accord and satisfaction is the purchase of a release from an obligation whether arising under contract or tort by means of any valuable consideration, not being the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative.

It is therefore clear that a bald plea of fraud, coercion, duress or undue influence is not enough and the party who sets up a plea, must prime facie establish the same by placing material before the Chief Justice/his designate.


[1] Chitty in his book on Contracts, 31st Edn., at p. 28

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