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DISCHARGE OF CONTRACTS

B. Consequence of accord: Executory accords are enforceable. However, an accord does not discharge the previous contractual duty as soon as the accord is made; instead, no discharge occurs until the terms of the accord are performed. Rest. 2d, § 281(2). The possible effects of an accord may be illustrated by reference to the above example.

1. Accord and satisfaction: Suppose that, in the above example, Debtor pays the $1,100 in 60 days. His payment, pursuant to the terms of the accord, acts as a satisfaction. That is, it discharges his original obligation to pay $1,000, and Creditor will not be able to sue for any damages which he may have sustained as a result of the later payment. The combination of the original executory accord and the later satisfaction of it are referred to as an “accord and satisfaction.”

2. Failure to perform accord agreement: But now suppose that Debtor does not pay the $1,100 in 60 days. Here, Creditor has an option. He may if he wishes sue for breach of the original contact to pay $1,000, or, he may sue for breach of the accord agreement. Thus he has the alternative of either recovering $1,000 plus damages for failure to get his money in 30 days, or $1,100 plus damages for his failure to get his money in 60 days. Rest. 2d, § 281(3).

3. Breach by Creditor: By making the accord agreement, Creditor impliedly promises that he will give Debtor 60 days in which to raise the money. If Creditor breaches this implied promise by suing for the $1,000 after 30 days, Debtor will have two choices. He can obtain specific performance of the accord agreement (i.e., obtain an order preventing Creditor from suing until the 60 days are up), or he can pay the $1,000 and recover damages for Creditor’s failure to wait the full 60 days.

C. Check cashing as an accord and satisfaction: Suppose that Debtor owes a sum to Creditor but that the parties are in dispute as to the proper amount of the debt; Debtor claims that he owes $100, but Creditor claims that the debt is $200. Suppose further that Debtor sends Creditor a check for $150, marked “payment in full.” If Creditor cashes the check, can he be said to have impliedly accepted an offer of accord and satisfaction, thus discharging Debtor? The brief answer is yes, in most cases. The subject is discussed more extensively supra, p. 103.

III. SUBSTITUTED AGREEMENT

A. Substituted agreement distinguished from executory accord: An accord agreement, as we have noted, does not discharge the debtor until he has performed according to its terms. Therefore, if she breaches the accord agreement, the creditor has the option of suing for breach of the original contract, or for breach of the accord. But rather than making an accord agreement, the parties may make a substituted agreement, by which the previous contract is immediately discharged, and replaced with a new agreement. See Rest. 2d, § 279(1).

Example: Debtor owes Creditor $1,000, payable in 30 days. Creditor says to Debtor, “If you promise to pay me $1,100 in 60 days, I will immediately cancel the $1,000 debt that is payable in 30 days.” Debtor promises to do so. The parties have made a substituted agreement, immediately discharging the original debt.

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