Paralegal Advanced Competency Exam (PACE) Practice Exam

When is a contract discharged according to the principle of accord and satisfaction?

1. When both parties physically sign the document

2. When one party accepts compensation in lieu of the original contract

3. After a court ruling is made

4. When negotiations successfully conclude

The correct answer is: When one party accepts compensation in lieu of the original contract

The principle of accord and satisfaction is a legal concept referring to the resolution of a dispute or claim through mutual agreement. In this context, a contract is discharged when one party accepts compensation or an alternative performance in lieu of what was originally agreed upon in the contract. This means that a new agreement (the accord) has been reached where one party agrees to accept something different from what was initially promised, and upon this acceptance, the original obligation is fulfilled (the satisfaction). By accepting this new form of compensation, the original contract is effectively terminated, and both parties acknowledge the new terms. This concept is essential in contract law because it recognizes that parties may come to a new understanding that resolves their disputes without requiring the fulfillment of the original terms. The other choices do not correctly apply the concept of accord and satisfaction. Simply signing a document does not inherently create a resolution of obligations; there must be a new agreement and acceptance of an alternative performance. Court rulings pertain to enforcement or adjudication of disputes rather than the mutual agreement for discharge of contract. Negotiations concluding successfully may or may not result in a legally binding accord unless a new agreement, including satisfaction, is established.