Dyer v. National By-Products, Inc.

Supreme Court of Iowa · 1986 · Contracts

considerationforbearanceinvalid claimgood faithconsiderationforbearancesettlementcompromise

Facts

Dyer lost his right foot in a job-related accident while employed by National By-Products. He alleged that he believed in good faith that he had a valid personal-injury claim and that, in exchange for forbearing from suing, the employer promised him lifetime employment. The employer denied making any lifetime-employment promise. After Dyer was later laid off indefinitely, he sued for breach of the alleged oral contract.

Issue

Is good-faith forbearance from litigating a claim that proves to be invalid and unfounded sufficient consideration to support a settlement contract? More specifically, was lack of consideration established as a matter of law merely because Dyer's underlying tort claim was allegedly barred and invalid?

Rule

Forbearance to assert a claim that proves to be invalid is sufficient consideration for a settlement promise if either the claim was in fact doubtful because of uncertainty as to fact or law, or the forbearing party believed the claim might fairly be determined to be valid. The key requirement is good faith; although the claim's invalidity may be considered as evidence bearing on whether that belief was honestly and reasonably entertained, invalidity alone does not defeat consideration as a matter of law.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Des Moines, Olivia Trent told her former landlord, Mason Kerr, that she intended to sue over mold-related injuries from her apartment. Mason denied liability but promised to forgive six months of unpaid rent if Olivia dropped the matter, and she agreed. Months later, a court in a separate case clarified that tenants in Olivia's position had no viable tort claim, but Olivia had honestly believed her claim might fairly be determined valid when she settled.

If Olivia sues to enforce Mason's promise to forgive the rent, what is the strongest argument that consideration existed?

Explanation. The governing rule is that forbearance to assert a claim that proves invalid may still be sufficient consideration if the claim was doubtful or if the forbearing party believed the claim might fairly be determined valid. The majority emphasized that ultimate invalidity alone does not defeat consideration as a matter of law; good faith is the key.