Dyer v. National By-Products, Inc. – Case Brief
Dyer v. National By-Products, Inc., 830 N.W.2d 732 (Iowa 1986).
Facts: Dyer (P) worked for National (D) when he lost his right foot in a work-related accident. Dyer was given a leave of absence at full pay. After returning to work at the same position he held before the accident P was laid off. P sued D for a breach of an oral contract and asserted that he had been given lifetime employment in exchange for his forbearance from litigating his claim against D for the injury. National denied Dyer’s allegation and moved for summary judgment on the grounds that there was no genuine factual issue. The court granted D’s motion and held that no reciprocal promise to work for the employer for life was present and there was no forbearance of any viable cause of action because workers’ compensation provided P’s sole remedy. P appealed.
Issue: Can forbearance from asserting an unfounded legal claim act as valuable consideration to create an enforceable contract?
Holding and Rule: Yes, forbearance from asserting an unfounded legal claim may act as valuable consideration to create an enforceable contract if that claim is asserted in good faith.
The law favors the settlement without resorting to court action. Compromise of a doubtful right asserted in good faith is sufficient consideration for an enforceable promise.
Less certain for the court was the issue of whether the settlement of an unfounded claim asserted in good faith is consideration for a contract settlement. The court held that forbearance is sufficient if there is any reasonable ground for the claimant’s belief that it is just to try to enforce his claim. The party must not be making his claim or threatening suit for purposes of vexation or in order to profit from its nuisance value. Restatement 2nd Contracts Section 74 also supports this view. Compromise of disputed claims is clearest when a claim is surrendered at a time when it is uncertain whether it is valid or not even if the invalidity later becomes clear. The court reasoned that as a matter of public policy the law favors compromise and that policy would be defeated if a party could second guess his settlement and litigate the validity of the compromise.
The court held that the factual issue of P’s good faith remained and must be examined and there must be reasonable grounds for a belief in order for the court to be convinced that the belief was honestly entertained. The court held that summary judgment in favor of D should not have been granted because a material fact remained regarding whether P’s forbearance was in good faith.
Disposition: Reversed and remanded.
Note: Not all jurisdictions agree and they require that the claim forborne must have some merit in fact or at law before it can provide consideration.