District Court determined, as a matter of law, that consideration for the alleged settlement was lacking because the forborne claim was not a viable cause of action.
Dyer v. National By-Products, Inc.
Dyer, an employee of National By-Products, lost his right foot in a job-related accident. Defendant placed Dyer on a leave of absence at full pay for the next ten months. Plaintiff then returned to his previous job until being laid off seven months later. Plaintiff then filed suit against defendant claiming it was a breach of an oral contract, which he believed in good faith. Plaintiff claimed his reason for waiting was his belief that it was in exchange for lifetime employment, although defendant denied ever making that offer after plaintiff's injury. After extensive discovery, the employer moved for summary judgment, which plaintiff resisted. Court granted on the basis that no reciprocal promise was present and that there was no forbearance of a viable cause of action because workers' compensation was Dyer's sole remedy.
Is good faith forbearance to litigate a claim, which proves to be invalid and unfounded, sufficient consideration to uphold a contract of settlement?
Plaintiff's forbearance from pursuing an action was his consideration. The court considered the claim he forbore from asserting rather than the good faith of his belief in that claim's validity.
Workers' compensation was plaintiff's sole remedy, so he forbore from an invalid claim, which cannot be consideration.
Forbearance in good faith is sufficient even when the claim forborne from is invalid.
While not unanimous, most states and the Restatement follow that good faith is sufficient regardless of the merits of the case. To hold otherwise would weaken such contracts if they could be broken by showing the forborne case was invalid. Dyer believed such a claim was valid in good faith, and thus showed forbearance.
Good faith forbearance to litigate a claim, which proves to be invalid and unfounded, is sufficient consideration to uphold a contract of settlement. Reversed and remanded.