Accord and Satisfaction vs. Novation
A detailed comparison of these two contracts rules, including key differences, exam strategies, and guidance on when to apply each.
Overview
Accord and satisfaction and novation are both contract law doctrines that allow parties to modify or discharge existing obligations, but they operate in fundamentally different ways and have different effects on the original contract.
An accord and satisfaction is a two-step process. The "accord" is a new agreement in which the parties agree that a different performance will be accepted in satisfaction of the existing obligation. The "satisfaction" is the actual performance of the accord. Critically, the original obligation is not discharged until the satisfaction occurs. If the debtor fails to perform the accord, the creditor can sue on either the original obligation or the accord. For example, if A owes B $10,000 and they agree that A will instead paint B's house, the accord is the painting agreement. Once A paints the house (satisfaction), the $10,000 debt is discharged. If A fails to paint, B can sue for the original $10,000 or for breach of the painting agreement.
A novation replaces the original obligation entirely with a new one. Unlike accord and satisfaction, the original contract is immediately discharged when the novation is formed, not when performance occurs. A novation typically involves substituting a new party for one of the original parties (though it can also involve substituting a new obligation between the same parties). All parties must consent to the novation. For example, if A owes B $10,000 and all three agree that C will pay B instead, the novation immediately discharges A's obligation. B can only pursue C, not A, if payment is not made.
The most important practical difference is timing of discharge: in accord and satisfaction, the original duty survives until the new performance is completed; in novation, the original duty is extinguished immediately upon formation of the new agreement.
Key Differences
| Aspect | Accord and Satisfaction | Novation |
|---|---|---|
| When original duty is discharged | Only upon completion of the substitute performance (satisfaction) | Immediately upon formation of the new agreement |
| If new performance fails | Creditor can sue on original obligation or the accord | Creditor can only sue on the new obligation; original is gone |
| Party substitution | Typically between the same parties | Often involves substituting a new party for an original party |
| Consent required | Agreement between the two original parties | All parties (including any new party) must consent |
| Risk allocation | Creditor retains fallback to original obligation | Creditor gives up right to pursue original obligor |
Exam Tips
On a contracts exam, the distinction between accord and satisfaction and novation often turns on whether the original obligation survives. If the parties intended the original duty to be discharged immediately, it is a novation. If the original duty remains as a backup until the new performance is completed, it is an accord and satisfaction. A common exam pattern involves a third party taking over someone's debt: if the creditor agrees to release the original debtor, it is a novation. If the creditor merely accepts the third party's promise as an additional source of payment but retains rights against the original debtor, it is not a novation (it might be a delegation with assumption).
When to Apply Which
Apply accord and satisfaction when two parties agree on a substitute performance to discharge an existing obligation, and the original obligation remains enforceable until the substitute is completed. Apply novation when all parties agree to replace the original obligation entirely, whether by substituting a new party or a new set of terms. The key question is: is the original contract still alive as a backup? If yes, it is an accord and satisfaction. If the original contract is dead and gone, it is a novation.