324 S.W.2d 483.
Facts: Duncan and Black contracted to sell some land plus a
cotton allotment (a thing having to do with federal regulation of agricultural production).† Black apparently breached the contract by
failing to provide
Issue: Does dropping a bogus lawsuit constitute valid consideration?
Rule: The promise to drop a lawsuit as part of an out-of-court settlement agreement can constitute valid consideration if (1) the lawsuit that is to be settled was brought in good faith (i.e. the plaintiff didnít intentionally bring a bogus lawsuit) and (2) the claim has some kind of basis in reality (i.e. it isnít actually totally bogus notwithstanding what the parties think).
Analysis: The court finds that the lawsuit was brought in good faith, but because the claim is clearly bogus, the promise to drop it is basically worthless.† Also, the court says that allowing the settlement of a claim based on an illegal contract would fly against public policy.† The contract was illegal, and thus not only should it not be enforced, its settlement shouldnít be enforced either.
Conclusion: The trial courtís judgment was affirmed and the plaintiffís action was dismissed.
I think this question suggests how the Restatement Second approach differs from the old way of doing things.† I guess the test is redundant, because in order for a lawsuit to be brought in bad faith, it must be bogus.† But if weíre not going to allow the settlement of any bogus lawsuit to constitute consideration, why should we care whether the lawsuit was naughty or nice?
 The Restatement (Second) of Contracts ß 74 says, in so many words, that dropping an invalid lawsuit isnít consideration unless (1) there is actually some question of how the lawsuit would come out due to uncertainty of facts or of the law, or (2) the party dropping the lawsuit believes their lawsuit was valid.† It gives the caveat that if the suit-dropper writes something down saying theyíll drop the suit, and that writing is bargained for, then it doesnít matter if the person who wrote it actually didnít believe their lawsuit was any good.