This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
In other jurisdictions, however, language has been used which seems to indicate that the good faith of the party is not the sole test, but that in order to make the compromise valid, there must be an apparent claim which a reasonable man might believe under the circumstances to be well founded.1 The cases which reject the good faith of the claimant do not all agree upon the same test to be applied in determining whether the claim is sufficiently doubtful to make the compromise thereof enforceable at law. It has been said that there must be some legal merit to the claim,2 or that the claim must not be absolutely and clearly unsustainable,3 or that there must be some foundation for the claim, though it may be doubtful whether it is well founded,4 or that the claim must be asserted on reasonable grounds,5 or that the claim must be one as to which well-informed lawyers and judges might differ,6 or that the compromise is unenforceable if one of the parties knows or should know that his claim is groundless.7 The same court will emphasize now the test of good faith, and now the necessity of reasonable ground for the claim which is compromised.8
7 Roane v. Union Pacific Life Insurance Co., 67 Or. 264, 135 Pac. 892.
8 Post v. Thomas, 212 N.Y. 264, 106 N. E. 69.
1 Alabama. Ware v. Morgan, 67 Ala. 461; Ernst Bros. v. Hollis, 86 Ala. 511, 6 So. 85; Daniel v. Hughes, 196 Ala. 368, 72 So. 23.
Idaho. Vane v. Towle, 5 Ida. 471, 50 Pac. 1004..
Illinois. Woodall v. Peden, 274 111. 301, 113 N. E. 608.
Kentucky. Simmon's Ex'r v. Hunt, 171 Ky. 397, 188 S. W. 495.
Nebraska. Majors v. Majors, 92 Neb. 473, 138 N. W. 574.
Oregon. McNair v. Benson, 63 Or. 66, 126 Pac. 20.
Vermont. Bellows v. Sowles, 55 Vt. 391, 45 Am. Rep. 621; McCloy's Admrx. v. Watkins, 88 Vt. 457, 92 Atl. 968.
"A doubtful or disputed claim sufficient to constitute a good consideration for an executory contract of compromise, is one honestly and in good faith asserted, arising from a state of facts upon which a cause of action can be predicated with the reasonable belief on the part of the party asserting it that he has a fair chance of sustaining his claim, and concerning which an honest controversy may arise, although in fact the claim may be wholly unfounded." Smith v. Farra, 21 Or. 395, 20 L. R. A. 115, 28 Pac. 241 [quoted in McNair v. Benson, 63 Or. 66, 126 Pac. 20].
In speaking of compromises before an action had been brought, the court said, "The surrender of a mere assertion of claim, or the withdrawal of a threat to sue, when the claim is without legal merit, whether its legal validity is known or not, will not uphold a release or agreement of compromise." (Ernst v. Hollis, 86 Ala. 511, 650, 85.) "When a claim is absolutely and clearly unsustainable, at law or in equity, its compromise constitutes no sufficient legal consideration" (Prince v. Prince, 67 Ala. 565) [quoted in Thompson v. Hudgins, 116 Ala. 93, 22 So. 632, which was quoted in Daniel v. Hughes, 196 Ala. 368, 72 So. 23, which cited Ernst Bros. v. Hollis, 86 Ala. 511, 6 So. 85; Russell v. Wright, 98 Ala. 652, 13 So. 594; Thompson v. Hudgins, 116 Ala. 93, 22 So. 632; Crawford v. Engram, 157 Ala. 314, 47 So. 712; Burleson v. Mays, 189 Ala. 107, 66 So. 36]. The early Alabama cases which are cited in support of this doctrine appear to insist that the claim must have had some actual legal validity. Prater v. Miller, 25 Ala. 320; Maull v. Vaughn, 45 Ala, 134.
Language is occasionally used which seems to indicate that the good faith of the claimant is immaterial in cases in which it is sought to compromise a claim arising out of an illegal transaction, whatever the rule may be as to the compromise of other claims.9