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ACCORD AND SATISFACTION IN LAW

OF CONTRACTS

Submitted in partial fulfilment of the requirements

for the award of the degree B.Com., LL.B. (Hons)

Submitted by

D. Nimalan
BC0150017
Submitted to

Dr K. Govinda Rajan

TAMIL NADU NATIONAL LAW SCHOOL

TIRUCHIRAPPALLI 620 009

MARCH, 2016
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Declaration

I, D. NIMALAN do hereby declare that the case analysis entitled

Accord and satsfaction n Law of Contracts submitted to Tamil Nadu
National law school in partial fulfilment of requirement of award of degree
in undergraduate in law is a record of original work done by me under the
supervision and guidance of Professor K. Govinda Rajan, department of
Law, Tamil Nadu National law school and has not formed basis for award
of any degree or diploma or fellowship or any other title to any candidate
of any university.

D. Nimalan

B.Com.,LL.B (Hons)
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Certificate

This is to certify that the case projet topic entitled Accord and
satisfaction in Law of Contracts submitted to Tamil Nadu National law
school in partial fulfillment of requirement of award of degree of under
graduate in Law done by D. Nimalan under the supervision and guidance
of Professor K. Govinda Rajan , department of Law , Tamil Nadu
National Law School.

Prof. K. Govinda Rajan ( )

Place : Tiruchirappalli
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ACKNOWLEDGEMENTS

At the outset, I take this opportunity to thank my Professor K.

Govinda Rajan from the bottom of my heart who has been of immense
help during moments of anxiety and torpidity while the project was taking
its crucial shape.
Thirdly, the contribution made by my parents and friends by
foregoing their precious time is unforgettable and highly solicited. Their
valuable advice and timely supervision paved the way for the successful
completion of this project.
Finally, I thank the Almighty who gave me the courage and stamina
to confront all hurdles during the making of this project. Words arent
sufficient to acknowledge the tremendous contributions of various people
involved in this project, as I know Words are Poor Comforters. I once
again wholeheartedly and earnestly thank all the people who were involved
directly or indirectly during this project making which helped me to come
out with flying colours.
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Research Methodology

The research methodology used in this project is analytical and descriptive.

Data has been collected from various materials, journals and web sources.
This project has been done after a thorough research of materials from
various sources and analysing the information carefully.
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DOCTRINE OF ACCORD AND SATISFACTION

INTRODUCTION OF CONTRACT

The term "contract" is defined in section 2(h) of the Indian contract act, 1872, as follows :
"An agreement enforceable by law is a contract" A Contract is a binding agreement between two
or more persons or parties which is enforceable by law. A contract may be a business
arrangement for the supply of goods or services for a fixed amount of money. Marriage is also a
form of contract. For the formation of contract there must be a minimum of two parties. For a
contract there should be a offer, acceptance, consideration and mutual intent. The Contract
should generally be in written form. The persons who are making the contract should have the
capacity to make the contract. For example minors, persons who were drunk and persons who
are mentally ill cannot make a contract.

ESSENTIALS OF CONTRACT

There must be a presence of these following element for a valid contract

OFFER AND ACCEPTANCE

A contract can be called as a valid contract only if there is a lawful offer by one party and
there must be a lawful acceptance by the another party. There should also be mutual assent (also
called as meeting of minds for a contract.

CAPACITY

The parties to the agreement must be a competent to the contract. If any one of the parties
does not have capacity to the contract the contract is invalid. Section 10 of the contract act says
of the capacities of the parties involving in the contract. According to this section
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1) Minors

2) Persons of unsound mind

3) Persons disqualified by law to which they are subject

These persons are not eligible for a contract. Even if they make a contract the contract is not
valid.

LAWFUL CONSIDERATION

Consideration is required for simple contract and is not required for special contract (contracts
by deed). According to Blackstone " Consideration is the recompense given by the party
contracting to the other." And according to Pollock "Consideration is the price for which the
promise of the other is bought, and the promise thus given for value is enforceable".
Consideration is known as "quid pro-quo" which means something in return.

CONSENSES-AD-IDEM

It means there should be mutual assent or mutual agreement. There should be a intention of
a parties to form the contract. It refers to the situation in which tere is a common understanding
in the formation of the contract. This element is often considered necessary requirement for the
formation of the contract.

FREE CONSENT

Consent is considered as a free consent when it was given without the existence of

1) Coercion

2) Fraud

3) Undue influence

4) Misinterpretation and

5) Mistake
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LEGALITY OF OBJECT

The parties must contract for a lawful object. If the object to the agreement is opposed by
the law is considered as unlawful or void, depending upon the provisions of the law by which it
is opposed. An object is considered as unlawful if it is

1) Forbidden by law

2) If it was permitted it would defeat the provisions of any law

3) It was fraudulent

4) It involves in injury to any person or any property

5) If the court says it is immoral or against the public policy.

LEGAL FORMALITIES

According to the Indian contract act a contract may be a oral contract or a legal contract. In
some cases contract must only be in written form. The contracts, which were made, by
companies and the selling and buying of shares must be registered.

DEFENSES

There are various defenses for a contract they are as follows

1) Mistake

2) incapacity

3) Duress and Undue influence

6) unconscionability

7) Misinterpretation
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8) Frustration of purpose

MISTAKE

Mistake is the incorrect understanding or state by one or more parties who are involved in
the contract can be used as a defense for a contract. There are three types of mistakes which
happens in the contract they are

1) COMMON MISTAKE

This mistake arises when both the persons involved in the contract have same mistaken
belief on the facts of the contract

2) MUTUAL MISTAKE

This mistake arises when both the parties to the contract misunderstood the terms and facts
of the contract. They both understand the terms of the contract in a different way.

3) UNILATERAL MISTAKE

This mistake arises when only one party involved in the contract mistaken the terms of the
contract.

MISREPRESENTATION

Misinterpretation is a false statement which was made by one party to the another and
induced the party to enter into the contract. There are two types of misinterpretation they are

1) FRAUD IN FACTUM

This misinterpretation focuses whether the party alleging misinterpretation knew that they
were entering into a contract. If the party don't know that they were entering into a contract, there
is no meeting of minds and the contract is void.
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2) FRAUD IN INDUCEMENT

In this mistake the misinterpretation attempts the persons to get into a contract. If the
party would have known the true facts would not have entered into the contract. The
misinterpretation of the material facts makes the contract voidable.

DURESS AND UNDUE INFLUENCE

In this case the person was compelled to enter into a contract by threatening him. Undue
infuence is the way in which one person takes advantage over the position of other person to
enforce him to enter into the contract.

UNCONSCIONABILITY

The contracts was unjust which was unjust completely in favor of one party involved in the
contract because of his superior bargaining power and they are contrary to conscience.

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http://study.com/academy/lesson/contract-law-terms-definitions-contract-types.html
http://www.legalserviceindia.com/laws/contracts.htm
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ACCORD AND SATISFACTION

INTRODUCTION2

Accord and satisfaction is normally a matter of state law and is usually defined as an
agreement to discharge a claim in which the parties agree to give and accept different
performance which is usually less than what express or implied contract may be the subject
matter of an accord and satisfaction. Since accord and satisfaction is a new agreement made
instead of the older agreement it should contain all the essentials of the contract and it also
requires the meeting of minds. It is also known as the substituted contract.

Usually Accord and satisfaction deals with a debtor's offer of payment and a creditor's
acceptance of a lesser amount than the creditor originally claimed to be owed it is a method of
discharging a claim by the settlement of claim and performing the new agreement. The accord is
the agreement and the satisfaction its execution of performance. Both the giving and the
acceptance constitutes the essential element of an accord. Compliance with the new agreement
discharges the prior obligations of the parties. Accord and satisfaction occurs where the parties "
by a subsequent agreement have satisfied the former agreement and the latter agreement have
been satisfied.

DEFINITION

Accord and satisfaction is a contract law concept about the purchase of the release from
a debt obligation. Accord is an agreement made after breach whereby some consideration other
than his legal remedy is to be accepted by the party not in fault followed by performance of the
substituted consideration. Satisfaction is the legal consideration which binds parties to the
agreement. The liability arising out of breach of contract may be discharged by accord and
saisfaction.

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http://www.duhaime.org/LegalDictionary/A/AccordandSatisfaction.aspx
http://accordandsatisfaction.uslegal.com/general-nature-and-essentials/
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Accord and satisfaction is a settlement of an unliquidated debts. The receipt given by

the appellants and accepted by the respondents and acted upon by both proves conclusively that
all the parties agreed to the settlement of their existing disputes by the arrangement formulated in
the receipt. Accord and satisfaction is the substituted agreement. Whatever were the rights and
duties of the parties involved in the contract they were abandoned after te new agreement was
made. The parties acquire new rights and duties for the new agreement as per stated in the new
agreement. The above situation is explained in the following case BHEL Vs Amarnath.

Bhel Vs Amarnath

Messrs Heavy Electricals Limited gave a contract to the appellant for making certain
construction work. The work was completed by the first week of March, 1965. The Company
prepared a final bill of the work done by the appellant. On 29-3-1965 the appellant signed a no
claim declaration and also gave a receipt in token of accepting the amount found due to the
appellant. The appellant raised disputes in regard to some of the items of work, alleging short
payment. Finding the response, the appellant served a notice upon the company requiring it to
appoint an arbitrator in terms of the arbitration clause contained in the contract. This also failed
to evoke any response from the company. Consequently on 16th September. 1968 the appellant
moved an application in court under section 20. Arbitration Act praying that the court may
require the agreement to be filed in court and refer the disputes between the parties to arbitration
in accordance with the arbitration agreement.

The Company contested this application. It pleaded that the appellant had given a clear no
claim certificate in final settlement of his claims in respect of the work done under the contract,
and that he accepted payment of Rs. 12,374.04 by means of a cheque dated 14-12-1965 in full
and final settlement of his dues. This amounted to the discharge of the contract, along with which
the arbitration agreement extinguished, as such no dispute capable of being referred to arbitration
remained in existence. The application under section 20 was not maintainable. The court below
accepted the plea raised in bar and dismissed the application.3

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In this case the appellant already received an amount from the company by means of chequed
which was fixed based on the work done by him. Later he sued the company saying that the
court may require the agreement to be filed in court and refer the disputes between the parties to
arbitration in accordance with the arbitration agreement. But as he already accepted the amount
given by the company he cannot claim any amount or any arbitration agreement cannot be done.

If two parties involve in a contract and if one doesn't want to carry on the rules and
obligation of the contract he can avoid his obligation if there is an accord and satisfaction
between the persons who were involving in the contract the contract can be cancelled. Accord
and the satisfaction between the two parties the existing contract can be cancelled and no person
has obligation towards the other person. The obligation need not to be executed and need not to
be executed. In pk ramaiah &co vs ntpc In view of final settlement of the claim there was an
accord and satisfaction and was no existing arbitable dispute. Where a claim for damages were
settled by the railway by sending a cheque in full and final payment and which was to be
returned if not acceptable, but the claimant encashed the cheque in protest stating that objections
to encashment may be communicated within 10 days, it was held that because there was no
reply from railway, there was no mutually agreed accord and satisfaction.

In the case Kapurchand Godha vs Mir nawab himayatalikhan the plaintiff after some
initial protest expressed readiness to accept the sum sent in full satisfaction of his claim and
discharge the promisory note making endorsement of full satisfaction and received the payment.
In these circumstances it was held that the case was completely covered by section 63 promise
may dispense with or remit performance of the promise of contract act. Another example is the
decision in Snow view properties limited Vs punjab and sind bank. In this case the bank filed
case against the person who borrowed the money from the bank but the bank said they will be
compromised if a borrower paid a certain sum of money. The borrower accepted it and paid the
money. The claim of bank ended by accord and satisfaction. The bank was required by the court
to return to the borrower his mortgage hypothecation documents.

In a claim under a fire insurance policy, the policy holder accepted an amount by way
of full and final satisfaction of is claim on the basis of the second surveyor report. The
insurance company was held to be discharged from its liability.
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Salim jabeen Vs national insurance co ltd

The appellant, Mrs. Salima Jabeen, entered into an agreement of Insurance bearing
Policy No. 421003/11/94/31/00917 with National Insurance Company, respondent No. 1 in
respect of a built up house with land underneath and appurtenant thereto, situated at Gulabhagh
Zukura, Srinagar.

The policy of insurance was valid for one year from 13-1-1995. The policy also
covered fire risk inter alia by militant acts. The sum assured was Rs. twenty three lacs. On the
intervening night of March 31, and April 1, 1994, militants set the house with household goods
on fire. The house and the goods sustained substantial damage. The appellant approached the
Insurance Company. One Shri M. K. Warikoo, was appointed and deputed as Surveyor to
investigate and to assess the loss.

The Surveyor, oh inspection of the site and on the assessment of the loss, assessed the
loss and damage of the insured house. However, the respondents Company with Regional Office
at Chandigarh, referred the matter to another Surveyor-cum-loss assessor OM Puri of Purisons
Surveyors Pvt. Ltd. On 6-2-1995. This Surveyor, on investigation and reassessment of loss and
damages, assessed the total loss in the sum of Rs. 6,61,772/- and forwarded its report to the
respondents on 24-9-1995. This amount has been received and paid to the appellant.

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http://www.indiankannon.com/
5
http://www.lectlaw.com/def/e040.htm
http://www.yourdictionary.com/estoppel
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The appellant comprehending that the loss assessed by the first Surveyor, Shri M. K. Warikoo,
was on higher side, claimed this amount. After receiving Rs. 6,61,722/-, the loss assessed and
valued by second surveyor, she laid claim to the amount of Rs. 4,89,096/-, the difference
between the loss assessed and valued by the first and second Surveyor. For the purpose, she filed
complaint No. 62/97 before the Commission, and also claimed further compensation of Rs. two
lacs for inconvenience and injury caused to the complainant due to negligence.

As there was already a amount was given by the respondent to the appellant which was
accepted by the appellant there was accord and satisfaction in this case and the appellant cannot
claim any further amount.

In the case saraswat trading agency vs union of india the creditor agreed that if a lesser sum
than due was paid by the debtor before the specified date, it would be accepted in full satisfaction
of all claims, but the debtor paid still lesser sum within the specified date, the court said the
debtor could not insist that his payment should be recorded as full satisfaction of all the claims.
An illegal contract cannot support and accord and satisfaction.

ESTOPPEL

Estoppel is a legal principle that bars a party from denying or alleging a certain fact owing
to that party's previous conduct, allegation or denial The rationale behind estoppel is to prevent
injustice owing to inconsistency or fraud. There are two general types of estoppel

1) Equitable estoppel

2) Legal estoppel

EQUITABLE ESTOPPEL
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Sometimes known as estoppel in pais, protecting one party from being harmed by another
party's voluntary conduct. Voluntary conduct may be a action, silence, acquiescence, or
concealment of material facts.

LEGAL ESTOPPEL

Legal estoppel consist of estoppel by deed and estoppel by record. Under the doctrine of
estoppel by deed, a party to a property deed is precluded from asserting, as against another party
to the deed, any right or title in derogation of the deed, or from denying the truth of any material
fact asserted in the deed.

Where a contractor accepted the final bill without any objection and under the terms of the
contract, such act had binding efficacy against him, it was held that the claim of the contractor
for additional payments and damages raised two years after acceptance of the final bill was
barred by estoppel

Government of gujarat vs R.L. Kalathia &co

Brief facts leading to the filing of the present appeal are to the effect that the present
respondent original plaintiff entered into an agreement with the Executive Engineer, Irrigation
Division, Jamnagar for the work of construction of Earthen, Dam, Wasterwair and outlet of
Fulzer II Irrigation Scheme. Said contract was entered into B-2 Form which is a usual Public
Works Department's Form. Said agreement contains mutual bilateral reciprocal contractual
obligation on the part of the parties. The plaintiff was required to perform certain works and
certain obligations were also put up on the shoulder of the defendant.6

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The plaintiff claims that it completed the work in all aspects on 30-8-1973 and this date has
been considered as a date of completion of the said work by the defendant also.Then, the
defendant was required to prepare final bill as per Clause 8 of the said Contract and the payment
thereof was required to be made on or before 31st March, 19 As per the averments made by the
plaintiff in the plaint, said bill was actually prepared and was accepted by the present plaintiff
under protest because according to the case of the plaintiff, said bill did not represent true and
correct picture of the payment, measurements etc. It has also been alleged that on referring to the
said final bill, the plaintiff come to know for the first time that certain disputes were raised by the
defendant in the said final bill dated 31-3-1974; that even during the execution of the work,
certain claims cropped up and they were put forward by the plaintiff before the defendant but
after a protracted correspondence, the things were not settled. Therefore, according to the
plaintiff, since the final bill was paid on 31-3-1974, the plaintiff case to known that the said
disputes would not be settled by the defendant and, therefore, the plaintiff has filed the said suit
before the trial Court for recovery.

The suit of the plaintiff was resisted by the defendant by filing written statement at Exh. 13
before the trial Court wherein it has been contended that the plaintiff has no cause of action for
fifing the suit; that the notice under Section 80 of the Code of Civil Procedure is defective and,
therefore. the suit is liable to be dismissed; that the agreement has taken place in Form B-2
between the parties. It has been denied that the plaintiff has completed the work in question in all
respects on 30-8-1973. The defendant has also denied that it has considered this date to be the
date of completion of work by the plaintiff. It has also been denied that the final bill did not
contain true and correct picture of payment and measurement. It has also been denied that the
under payment has been made to the plaintiff. It has been submitted that as per Clause 10 of the
contract, all the Running Account Bills were required to be submitted by the contractor and if he
did not do so, the Engineer-in-charge can prepare the bill which would bind the contractor also.

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It has also been contended that as per Clause 8, final bill was also required to be submitted
within one month from the date of completion of work otherwise the Engineer-in-charge can
charge certificate of measurement of the work to be treated as final and binding. It has been
contended that the plaintiff never submitted any Running Account Bills ("RA Bills' for short)
and, therefore, the Dy. Engineer had prepared such RA Bills from time to time

According to the defendant, even the Final Bill was also not prepared by the plaintiff and
the same was prepared by the Engineer of the defendant and it was signed by the plaintiff in
token of acceptance. According to the defendant, since the plaintiff has accepted the payment of
RA Bills and the Final Bills, the plaintiff is guilty by not preferring RA Bills and Final Bills. It
has been denied that there is no provision for performance of contractual obligation. It has also
been denied that the defendant has not considered the claims of the plaintiff but as per the case of
the defendant, it has scrutinised all the claims properly and due amounts were paid to the
plaintiff either in the RA Bills or in the Final Bill. The defendant has also raised contention in its
written statement that the RA Bills or the Final Bills were prepared by the defendant's Engineer
after scrutinizing relevant record and the same were accepted and signed by the original plaintiff
and, therefore, the plaintiff is estopped from challenging the contents of the said bills. According
to the defendant, all the claims of the original plaintiff were properly scanned and scrutinized and
appropriate decision has been taken on merits and, therefore, according to the defendant, original
plaintiff is not entitled to bring the suit. According to the defendant, the suit is barred by the law
of limitation and the Civil Court has no jurisdiction to entertain the claim of the plaintiff and,
therefore, suit of the plaintiff is required to be dismissed. As the plaintiff

As the final bill was accepted by the plaintiff and he did not claim the damage then and he
filed it after two years and the damages were filed by him after the two years so the final bill wa
barred by estoppel.

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The supreme court laid down that unless, while accepting the final bill the contractor
unequivocally declares that he would not raise any further claim, he would not be stopped r
precluded from doing so. The mere acceptance of final bill did not have the effect of preventing
the contractor from raising those claims. Any settlements between the parties also does not have
in the contract remains and could be activated if the aggrieved party has anything more to claim.

The settlement was signed without prejudice. Explaining the meaning of this phrase the
supreme court said: The classic definition of the phrase without prejudice is contained in the
judgement of LINDLEY LJ in Walker vs Wilsher. The word without prejudice mean without
prejudice to the position of the writer of the letter if the terms he proposes are not accepted. If the
terms proposed in the letter are the terms he proposes are not accepted. If the terms proposed in
the letter are accepted a complete contract is established and the letter, although written without
prejudice operated to alter the old state of things and to establish a new one.

MATERIAL ALTERATION

A change in the meaning or language of a legal document such as a contract, deed,

lease, or commercial paper, that is made by one party to the document without the consent of the
other after it has been signed or completed. If such a change is made by third party without the
consent of either party to the instrument, it is called a spoliation or mutilation.

Good faith is a continuing obligation in as much as even after entering into the contract no
material alteration can be made by a party in terms of the contract without the consent of the
other. Where a contract is embodied in a deed and the party who has the custody of the deed
alters it without the consent of the other in a particular material, The effect would exactly be the
same as that of cancelling the deed. Both the parties will be discharged from their respective
obligations. 9

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http://legal-dictionary.thefreedictionary.com/Material+Changes
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In the case Kalianna gounder Vs palani Gounder. A memorandum of agreement for the sale
of and under which Rs.2000 were paid in advance was with the plaintiff. The defendant refused
to convey the land and pleaded that the plaintiff had altered the deed by adding the words that the
seller shall clear the debts and execute the sale deed free from encumbrance. Even if it was
assumed that the sentence regardinf encumbrances was written after the deed was executed it
will not nvalidate the deed. Ordinarily when property is agreed to be sold for a price, it would be
the duty of the vendor to clear it of all encumbrances before executing the sale deed. The
alteration if any cannot be regarded as material. In the case HALSBURY'S LAWS OF
ENGLAND A material alteration is one which varies the rights, liabilities or legal position of the
parties as ascertained by the deed in its original state, or otherwise varies the legal effect of the
instrument as originally expressed.

The same principle has been acted upon where without the consent of the other parties the
word partner was deleted from a deed, the date of payment was changed from 1s to 10th and thw
word 'and" was substituted by "or". The party making such alteration was not permitted to put
the deed in the action. Alteration by the purchaser of land for accomodating two signatures of
witness and to make it acceptable as a sacrosanct document was held to have discharged and
agreement. The judgement was reversed by the supreme court of appeal. The court said that the
two independent persons were introduced as marginal witnesses. Such a change did not affect the
validity or enforceability of the agreement. It was not a material alteration. It did not have the
effect of avoiding the agreement.

CONCLUSSION

Section 63 of the Indian contract act allows a party to a contract to dispense with the
performance of the contract by the other party, or to extend the time for performance or to accept
any other satisfaction instead of performance. Accord and satisfaction the substituted agreement
which helps parties involved in the contract to cancel their legal obligation towards the other if
there is accord and satisfaction between the parties for the new agreement.
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