Duncan v. Black

Court of Appeals of Missouri, 1959.

324 S.W.2d 483.

Dawson, pp. 219-222

 

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 Duncan with the agreed-upon allotment in the second year after the contract was made.  Duncan threatened to sue, and Black settled by giving Duncan a promise to pay $1,500.  Black didn’t pay up, and then Duncan actually sued to collect the promised $1,500.  However, it turns out that by law cotton allotments can’t be bought or sold, so the lawsuit would have been more or less bogus.

 

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 didn’t intentionally bring a bogus lawsuit) and (2) the claim has some kind of basis in reality (i.e. it isn’t actually totally bogus notwithstanding what the parties think).[1]

 

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 shouldn’t be enforced either.

 

Conclusion: The trial court’s judgment was affirmed and the plaintiff’s action was dismissed.

 

Question

 

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 we’re not going to allow the settlement of any bogus lawsuit to constitute consideration, why should we care whether the lawsuit was naughty or nice?

 

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[1] The Restatement (Second) of Contracts § 74 says, in so many words, that dropping an invalid lawsuit isn’t 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 they’ll drop the suit, and that writing is bargained for, then it doesn’t matter if the person who wrote it actually didn’t believe their lawsuit was any good.