Where one party has a valid claim against another, such as a right to payment or performance under a contract, the parties may agree to discharge that original claim by substituting a new agreement in its place, accepted in full satisfaction of the original obligation. The agreement to accept a different or lesser performance in place of the original claim is called the accord; the actual carrying out of that new agreement is called the satisfaction. Until the satisfaction is actually completed, the original claim generally survives and may still be enforced; the accord alone, without satisfaction, does not discharge the original obligation, unless the accord itself was intended by the parties to operate as an immediate, independent substitution of the original claim, replacing it outright regardless of whether the new performance is later actually carried out.

For a valid accord and satisfaction to discharge an original claim, several elements must be present. First, there must be a genuine dispute, or at least an unresolved claim, concerning the original obligation, since accord and satisfaction operates to settle and discharge an existing claim, not to modify an obligation neither party disputes at all. Second, both parties must genuinely agree to accept the new performance in place of, and in full satisfaction of, the original claim, rather than one party unilaterally deciding to perform differently without the other's genuine agreement. Third, the new performance actually agreed upon must, in fact, be carried out, unless the accord itself was intended to substitute for the claim immediately upon agreement.

A common application of the doctrine arises where a creditor is owed a larger sum, and a debtor offers, and the creditor genuinely and knowingly accepts, a smaller sum in full and final settlement of the entire larger debt, with the creditor clearly understanding that accepting and cashing this smaller payment discharges the debtor's obligation to pay the remaining, larger balance entirely. If the creditor does not genuinely understand or agree that the smaller sum is being accepted in full satisfaction of the whole debt, and simply accepts a partial payment while still reserving the right to claim the remaining balance, no valid accord and satisfaction has occurred, and the creditor may still pursue the debtor for the unpaid remainder.

Where a valid accord and satisfaction is completed, the original claim is entirely and permanently discharged, and the party who was owed the original obligation cannot later revive or pursue that original claim, having already accepted the substituted performance in its complete and final settlement.