Composition Agreement Law & Legal Definition


A composition agreement at the common law is an agreement made between an embarrassed or insolvent debtor and two or more of his creditors, that each of the creditors entering into the agreement will be paid a specified amount, less than the whole of their claims, and the creditors agree to accept such payment in full satisfaction of their claims. The agreement works an inchoate novation of the original claim. It is substantially an accord for which the consideration is the satisfaction to be made by the debtor, and such an accord is no bar to suit on the original debt, unless the satisfaction is performed. [Clarence A. Nachman Co., 6 F.2d 427 (2d Cir. N.Y. 1925)]