Agreement and satisfaction settles a debt or claim for less than the full amount owed. It establishes a new contract, but non-compliance can result in legal consequences. It can be reached on someone else’s behalf, with supervision or informally.
An agreement and satisfaction is a legal agreement that is designed to settle a debt or claim. In this type of settlement, the debtor or plaintiff agrees to receive less than the full amount owed and to consider the matter settled. This type of arrangement is one of many options that can be used to settle receivables and payables. People should be aware that reaching a point of agreement and satisfaction does not mean it is impossible to face legal consequences, as will be discussed further in this article.
In a simple example, someone might agree to pay $500 United States Dollars (USD) to pay off a $750 USD debt. From the point of view of the creditor, receiving the payment in bulk can be advantageous, even if less than the amount owed, to clear the debt from the books. It may even be cheaper, as the lender may recognize that he could be spending more than $250 USD by taking the situation to court and seeking to recover the full amount. In essence, the creditor reduces his losses and, in return, the debtor can rest assured that the debt is fully paid.
Agreement and satisfaction effectively establish a new contract that overwrites the old one. If the obligee later tries to recover the remainder of the debt, the obligee can demonstrate that settlement and satisfaction have been reached, and the court will dismiss the suit. Under the terms of the contract, the obligation is considered extinguished, even when the debtor has not complied with the terms of the original contract.
To borrow the example above again, if the borrower has only made $300 USD in payment to the lender, this could be considered a breach of contract. The settlement and satisfaction in the settlement specified that $500 USD would pay off the original debt; since the debtor does not pay the full amount, the creditor can take steps to recover the rest of the funds. Agreement and satisfaction, in other words, only insulate people from legal sanctions when they comply with the terms of the contract.
It is possible to reach such an agreement on someone else’s behalf. Most commonly, this occurs in situations where people lack the capacity to consent to and negotiate legal settlements, and the person negotiating the contract can be supervised to confirm that the settlement is in the best interests of the person represented. People may also reach agreement and satisfaction on someone else’s behalf more informally; for example, a parent may help an adult child pay off a debt to a landlord, acting on the child’s behalf to resolve the matter.
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