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BREACH OF CONTRACT

LITIGATION IN
ALABAMA
An Overview
Gregory A. Brockwell, Esq.

BREACH OF CONTRACT
LITIGATION IN
ALABAMA
An Overview

Gregory A. Brockwell
Brockwell Smith LLC
420 20th Street North, Suite 2000
Birmingham, AL 35203
(205) 800-8500
greg@brockwellsmith.com
www.brockwellsmith.com

About the Author: Gregory A. Brockwell is a business litigation attorney based in


Birmingham, Alabama. Other than handling contract negotiations, drafting, and
transactions, he spends most of his time litigating contract disputes of one form or
another. His practice focuses on representing local individuals and businesses in
contract-related disputes with their business partners, banks, insurance companies,
competitors, and the like. General practice areas include Business Torts and
Corporate Litigation, Contract Litigation, Securities Litigation, Trust and Estate
Litigation, Insurance/Bad Faith Litigation, and Shareholder Disputes.i

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I.

Contents
INTRODUCTION. ................................................................................................................................. 5

II.

WHAT IS A CONTRACT? ................................................................................................................... 7

III.

WHAT IS A BREACH OF CONTRACT? .......................................................................................... 8

IV.

WHAT ARE SOME LEGAL EXCUSES OR DEFENSES? .................................................... 10

A.

Uncertainty/Vagueness ........................................................................................................................ 10

B.

Agreement to Agree.............................................................................................................................. 11

C.

Lack of Mutuality / Consideration...................................................................................................... 12

D.

Failure of Consideration ...................................................................................................................... 12

E.

No Meeting of the Minds...................................................................................................................... 13

F.

Failure of Conditions............................................................................................................................ 13

G.

Time of the Essence .......................................................................................................................... 14

H.

Merger into Subsequent Contract / Effect of an Integration or Merger Clause ................ 14

I.

Lack of Standing................................................................................................................................... 15

J.

Abandonment ....................................................................................................................................... 16

K.

Repudiation/Renunciation ............................................................................................................... 16

L.

Laches .................................................................................................................................................... 17

M.

Unclean Hands.................................................................................................................................. 17

N.

Waiver ................................................................................................................................................... 18

O.

Estoppel ............................................................................................................................................. 18

P.

Failure of Performance ........................................................................................................................ 19

Q.

Impossibility of Performance .......................................................................................................... 19

R.

Accord and Satisfaction ....................................................................................................................... 20

S.

Novation ................................................................................................................................................ 20

T.

Illegality ................................................................................................................................................. 21

U.

Duress .................................................................................................................................................... 21

V.

Economic Duress .................................................................................................................................. 21

W.

Unconscionability ............................................................................................................................. 22

X.

Statute of Frauds .................................................................................................................................. 23

Y.

Statute of Limitations & Rule of Repose ............................................................................................ 24

Z.

Fraud in the Inducement ..................................................................................................................... 25

AA.

Fraud in the Factum ........................................................................................................................ 26


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BB.

Mistake .............................................................................................................................................. 27

CC.

Insolvency or Bankruptcy ............................................................................................................... 28

DD.

Death of a Party................................................................................................................................ 29

EE.

Minority ............................................................................................................................................ 29

FF.

Incompetence / Insanity ................................................................................................................... 29

GG.

Undue Influence ............................................................................................................................... 30

HH.

Foreign Corporation Not Registered to do Business in Alabama ................................................ 30

II.

Unlicensed General Contractor and/or Homebuilder................................................................... 31

JJ.

Unlawful Restraint of Business ....................................................................................................... 32

V.

WHAT ARE SOME RULES OF CONSTRUCTION? ..................................................................... 34


A.

Freedom of Contract ............................................................................................................................ 34

B.

Four-Corners Rule ............................................................................................................................... 34

C.

Merger Clause ...................................................................................................................................... 34

D.

Parol Evidence ...................................................................................................................................... 35

E.

The Role of Ambiguity / Patent v. Latent....................................................................................... 36

F.

When a Court can Revise or Reform a Contract .............................................................................. 38

G.

Construction as a Whole .................................................................................................................. 39

H.

Parties Intent ................................................................................................................................... 39

I.

Parties Pre-Contract Negotiations ..................................................................................................... 41

J.

Choice of Law ....................................................................................................................................... 41

K.

Modification / Subsequent Agreement ........................................................................................... 41

L.

Construction of Oral Contracts .......................................................................................................... 42

M.

Construction of Written Contracts ................................................................................................. 43

N.

Reasonableness of Construction.......................................................................................................... 44

O.

Construction against Drafting Party .............................................................................................. 44

P.

General vs. Specific Words and Clauses ............................................................................................ 45

Q.

Mistakes in Writing, Grammar, or Spelling .................................................................................. 46

R.

Punctuation ........................................................................................................................................... 46

S.

Recitals .................................................................................................................................................. 46

T.

Separate Clauses (In Pari Materia) ................................................................................................ 47

U.

Conflicting Provisions .......................................................................................................................... 47

V.

Construing Instruments Together ...................................................................................................... 47

W.

Oral Agreements Collateral to Written Contracts ........................................................................ 48

X.

Matters Annexed to or Referred to as Part of the Contract ............................................................. 48


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Y.

Terms Implied as Part of Contract ..................................................................................................... 49

Z.

Conduct / Construction by Parties...................................................................................................... 50

AA.

Entire or Severable Contracts ......................................................................................................... 51

BB.

Alternative Stipulations and Options ............................................................................................. 51

CC.

Dependent or Independent Stipulations ......................................................................................... 52

DD.

Place................................................................................................................................................... 52

EE.

Time ................................................................................................................................................... 53

FF.

Duration of Contract........................................................................................................................ 54

GG.

Conditions ......................................................................................................................................... 54

HH.

Compensation / Price ....................................................................................................................... 55

II.

Custom / Usage of Trade or Business ............................................................................................. 55

JJ.

Rules under UCC Article 2.............................................................................................................. 56

VI.

WHAT ARE POSSIBLE REMEDIES / DAMAGES? ...................................................................... 57

A.

Damages, Generally.............................................................................................................................. 57

B.

Nominal Damages ................................................................................................................................. 58

C.

Incidental & Consequential Damages ................................................................................................ 58

D.

Lost Profits ............................................................................................................................................ 59

E.

Mental Anguish .................................................................................................................................... 61

F.

Quantum Meruit .................................................................................................................................. 62

G.

Liquidated Damages ........................................................................................................................ 62

H.

Penalty ............................................................................................................................................... 63

I.

Punitive Damages ................................................................................................................................. 63

J.

Attorney Fees & Expenses ................................................................................................................... 63

K.

Interest .............................................................................................................................................. 64

L.

Restitution ............................................................................................................................................. 64

M.

Specific Performance ....................................................................................................................... 64

N.

Rescission .............................................................................................................................................. 65

O.

Reformation ...................................................................................................................................... 67

VII.

CONCLUSION ..................................................................................................................................... 68

DISCLAIMER .................................................................................................................................................... 69

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BREACH OF CONTRACT LITIGATION


IN ALABAMA
An Overview
A contract is a promise or a set of promises for the breach of which the law gives a remedy,
or the performance of which the law in some way recognizes as a duty;1
however,
Not all promises are legally enforced, and of those which are, different categories receive
differing degrees of legal recognition: some only if in writing, others between certain kinds of
parties, still others only to the extent that they have been relied on and that reliance has
caused measurable injury.2
I.

INTRODUCTION.
Breach of Contract Litigation. Like trying to cover the ocean with a blanket, this topic

may be too broad for a simple e-book. In truth, it would require a multi-volume treatise to address
each and every issue that may arise.3 That being said, there are some basic guideposts for the
practicing lawyer who must evaluate, prosecute, and/or defend a breach of contract case. For
each case, the lawyer must ask:
1. Is there a contract?
2. Is there a breach? Or a repudiation?
3. Is there a legal excuse or defense for the breach?
4. Is there harm (or damages)?
5. What is the remedy?

Restatement (Second) of Contracts 1 (1981).


Charles Fried, Contract as Promise, a Theory of Contractual Obligation, Harvard University
Press (1981).
3
See, e.g., Williston on Contracts (4th ed. 2000).
2

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For any Alabama lawyer addressing these questions, the following is intended to provide
a thorough overview. The reader should keep in mind, however, that this is only an overview,
and each case must be analyzed based on its own unique facts.

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II.

WHAT IS A CONTRACT?
What is a contract? The Restatement definition is widely accepted, A contract is a promise

or a set of promises for breach of which the law gives a remedy, or the performance of which the
law in some way recognizes as a duty.4 Differently stated, it is an agreement between two or
more parties creating obligations that are enforceable or otherwise recognizable at law.5
More specific to Alabama, a contract requires: (1) an agreement, (2) with consideration,
(3) between two or more contracting parties, (4) with a legal object, and (5) legal capacity. 6 A
contract is an agreement to do or not to do a certain thing. To prove there was a contract, plaintiff
must provethat there was an offer; that there was an acceptance; that there was consideration;
and that there was mutual assent to the terms.7

Restatement (Second) of Contracts, 1 (1981).


Blacks Law Dictionary (9th ed. 2009).
6
Gray v. Reynolds, 514 So.2d 973, 975 (Ala. 1987).
7
Alabama Pattern Jury Instructions-Civil, Contracts 10.01 (3rd ed.).
5

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III.

WHAT IS A BREACH OF CONTRACT?


What is a breach of contract? It is a violation of a contractual obligation by failing to

perform ones own promise, by repudiating it, or by interfering with another partys
performance.8 When performance of a duty under a contract is due, any non-performance is a
breach.9
In Alabama, a breach of contract is the failure, without legal excuse, to perform any
promise forming the whole or part of the contract.10 Where the defendant has agreed under the
contract to do a particular thing, there is a breach and the right of action is complete upon his
failure to do the particular thing he agreed to do.11 A contract is breached or broken when a
party does not do what it promised to do in the contract. Plaintiff must prove (1) that plaintiff and
defendant entered into a contract; (2) that plaintiff did all of the things that the contract required it
to do; (3) that defendant failed to do the things that the contract required it to do; and (4) that
plaintiff was harmed by that failure.12 In other words, the plaintiff must prove (1) the existence
of a valid contract binding the parties in the action, (2) his own performance under the contract,
(3) the defendant's nonperformance, and (4) damages.13
Even if the defendants performance under the contract is not yet due, and even if the
contract has not yet actually been breached, the defendant may be guilty of breach through the
doctrine of repudiation (also known as prospective non-performance or anticipatory
breach). A repudiation is (a) a statement by the obligor to the oblige indicating that the obligor

Blacks Law Dictionary (9th ed. 2009).


9
Restatement (Second) of Contracts, 235(2) (1981).
10
Seybold v. Magnolia Land Co., 376 So.2d 1083, 1084 (Ala. 1979).
11
Id.
12
Alabama Pattern Jury Instructions-Civil, Contracts 10.13 (3rd ed.).
13
State Farm Fire & Cas. Co. v. Slade, 747 So. 2d 293, 303 (Ala. 1999).
8

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will commit a breach that would itself give the oblige a claim for damages for total breach, or (b)
a voluntary affirmative act which renders the obligor unable or apparently unable to perform
without such a breach.14 Repudiation is a contracting partys words or actions that indicate an
intention not to perform the contract in the future; a threatened breach of contract.15 In Alabama,
repudiation has been explained as rejection, disclaimer, renunciation, or even abandonment.16
Once a party to a contract materially breaches the contract by repudiating the parties agreement,
the other party is excused from performance and has an immediate cause of action for the
breach.17

14

Restatement (Second) of Contracts, 250 (1981).


Blacks Law Dictionary (9th ed. 2009).
16
Draughons Business College v. Battles, 35 Ala. App. 587, 590, 50 So.2d 788, 790 (1951).
17
Baldwin v. Panetta, 4 So.3d 555, 562 (Ala. Civ. App. 2008).
15

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WHAT ARE SOME LEGAL EXCUSES OR DEFENSES?18

IV.

Even if there is a breach, it does not necessarily follow that the breaching party is liable.
The breaching party may have a legal excuse or defense for its conduct, and such defenses are
numerous under Alabama law. If an excuse or defense applies, then there may be no liability for
breach of contract.
A.

Uncertainty/Vagueness

Under the Restatement (Second) of Contracts, the terms of a contract must be reasonably
certain.19 The terms within a contract must provide a basis for determining the existence of a
breach and for giving an appropriate remedy for the terms to be reasonably certain.

The

Restatement goes on to state that a proposed bargain does not show a manifestation of intent if one
or more terms are uncertain.
Long ago, the Alabama Supreme Court set out the rule for certainty in Alabama, stating
that the terms of the contract must be distinctly alleged, so as to leave none of its essential details
in doubt or uncertain.20 According to Iron Age, The contract must be alleged and proved to
be reasonably certain as to its subject-matter, its stipulations, its purposes, its parties, and the

Technically speaking, an affirmative defense assumes that the plaintiffs allegations are true
(i.e., that there is a valid contract and that it has been breached), yet the defendant has a
defense or excuse and therefore is not liable for the breach. See, e.g., Patterson v. Liberty
Nat. Life Ins. Co., 903 So.2d 769, 779 (Ala. 2004)(defining an affirmative defense as a defense
that raises a new matter and that would be a defense even if the relevant allegations in the
plaintiffs complaint were true). The careful reader will note that some of what is included in
this section is not a true affirmative defense but rather goes to the more basic issue of is there
a contract? For conveniences sake, the author has decided to group together both true
affirmative defenses and those that relate more to the plaintiffs failure to prove the underlying
elements.
19
Restatement (Second) of Contracts 33 (1981).
20
See Iron Age Publishing Co. v. Western Union Telegraph Co., 83 Ala. 498, 503 (1888).
18

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circumstances under which it was made.21 A contract that leav[es] material portions open for
future agreement is nugatory and void for indefiniteness.22
Thus, the terms within the contract must be reasonably certain or definite. A defendant can
defeat a plaintiffs breach of contract claim by showing that the essential terms of the contract are
so uncertain, vague and/or indefinite that a valid and binding contract was never formed between
the parties.
B.

Agreement to Agree

A common form of vague (and therefor unenforceable) contract is the agreement to


agree. Many times two parties will enter into a written agreement to agree or letter of intent
which leaves many key terms open or unaddressed, assuming that a formal agreement will later be
reached. Such an agreement to agree is generally unenforceable. In order to be enforceable,
a contract to enter into a future contract must be definite and certain in all of its terms and
conditions so that the court can ascertain what the parties have agreed upon.23 If the terms are
open or uncertain, there is nothing that a court can enforce:
An agreement to enter into negotiations, and agree upon the terms
of a contract, if they can, cannot be made the basis of a cause of
action. There would be no way by which the court could determine
what sort of a contract the negotiations would result in, no rule by
which the court could ascertain whether any, or, if so, what damages
might follow a refusal to enter into such future contract. So, to be
enforceable, a contract to enter into a future contract must specify
all its material and essential terms, and leave none to be agreed upon
as the result of future negotiations.24

21

Id. (citing 3 Pom. Eq. Jur. 1405).


Grand Harbour Dev., LLC v. Lattof, 2013 WL 2130932 *7 (Ala. Civ. App. May 17, 2013).
23
Drummond Co., Inc. v. Walter Industries, Inc., 962 So. 2d 753, 778 (Ala. 2006).
24
Muscle Shoals Aviation, Inc. v. Muscle Shoals Airport Authority, 508 So.2d 225, 227 (Ala.
1987).
22

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C.

Lack of Mutuality / Consideration

It is a well-settled general rule that consideration is an essential element of, and is


necessary to the enforceability or validity of, a contract. 25 It is generally stated that in order to
constitute consideration for a promise, there must have been an act, a forbearance, a detriment, or
a destruction of a legal right, or a return promise, bargained for and given in exchange for the
promise.26 If there is no such consideration, then there is no contract.
The Supreme Court of Alabama held that [A] contract, lacking in mutuality, is
unenforceable, because there is an absence of consideration moving, from one party the other.27
Consideration must be a real promise and not a possibility. The court in Marcum stated, [A]
promise which is merely illusory, such as an agreement to buy only what the promisor may choose
to buy, falls short of being a consideration for the promisee's undertaking, and neither is bound.28
D.

Failure of Consideration

Failure of consideration is the neglect, refusal and failure of one of the contracting parties
to do, perform, or furnish, after making and entering into the contract, the consideration in
substance and in fact agreed on.29 A failure of consideration is predicated on the happening of
events which materially change the rights of the parties, which events were not within their
contemplation at the time of the execution of the contract. 30 Typically, a total failure of
consideration is used as an excuse for nonperformance of a contract.31

25

Kelsoe v. International Wood Products, Inc., 588 So.2d 877, 878 (Ala. 1991).
Id.
27
Marcum v. Embry, 282 So. 2d 49, 51 (Ala. 1973).
28
Id.
29
BSI Rentals, Inc. v. Wendt, 893 So. 2d 1184, 1189 (Ala. Civ. App. 2004).
30
Lemaster v. Dutton, 694 So. 2d 1360, 1366 (Ala. Civ. App. 1996).
31
Id. (citing 17A Am.Jur.2d Contracts 670 (1991)).
26

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E.

No Meeting of the Minds

To have a contract, there must be a meeting of the minds. The Restatement holds that
the formation of a contract requires a bargain in which there is a manifestation of mutual assent
to the exchange and a consideration.32 In other words, mutual assent means whether the parties
came to a meeting of the minds and agreed on the terms of the contract.
The Alabama Supreme Court has explained that mutual assent to the material terms of a
contract is one element that is required for a valid contract to be formed.33 Evidence of mutual
assent may include the signatures on a written agreement.34 It may also include other external
and objective manifestations of mutual assent, explained as conduct of one party from which the
other may reasonably draw the inference of assent to an agreement.35
F.

Failure of Conditions

A contract may be subject to certain conditions, such that performance is not due until
those certain conditions have been met. A condition is an event, not certain to occur, which
must occur, unless its non-occurrence is excused, before performance under a contract becomes
due.36 The Restatement explains:
1. Performance of a duty subject to a condition cannot become due
unless the condition occurs or its non-occurrence is excused.
2. Unless it has been excused, the non-occurrence of a condition
discharges the duty when the condition can no longer occur.

32

Restatement (Second) of Contracts 17 (1981).


See I.C.E. Contractors, Inc. v. Martin and Cobey Construction, Co., Inc., 58 So.3d 723, 725
(Ala. 2010).
34
Id. at 726.
35
Deeco, Inc. v. 3-M Co., 435 So.2d 1260, 1262 (Ala. 1983).
36
Restatement (Second) of Contracts 224 (1981).
33

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3. Non-occurrence of a condition is not a breach by a party unless


he is under a duty that the condition occur.37
An event may be made a condition either by the agreement of the parties or by a term supplied
by the court.38 If the condition has not occurred or did not occur, then performance is not due.
G.

Time of the Essence

Generally speaking, a party has a reasonable time for performance, and time is not of the
essence in a contract. 39 However, parties may draft a provision into the contract clearly
manifesting the intention to make time of the essence.40 A time of the essence clause specifies
a certain time or date when a partys performance is due and is a condition within the contract. In
other words, one partys performance is expressly conditioned on the timely performance by the
other party. If such a time is of the essence clause is included in the contract, then the one partys
failure to perform timely is a failure of condition, and the other party is thereby excused from
further performance.
H.

Merger into Subsequent Contract / Effect of an Integration or Merger


Clause

According to the Alabama Supreme Court, A merger clause is a clause which states that
all oral representations or agreements are merged into and subsumed by the written document of
which the clause is a part.41 In a breach of contract action, the defendant may use a merger clause
to defend the plaintiffs claim that the defendant violated a prior or contemporaneous writing or
oral agreement. The Court in Belmont Homes stated, [W]hen a contract is integrated, no extrinsic

37

Restatement (Second) of Contracts 225 (1981).


Restatement (Second) of Contracts 226 (1981).
39
Joseph v. MTS Inv. Corp., 964 So.2d 642, 648 (Ala. 2006).
40
Bell v. Coots, 451 So. 2d 268 (Ala. 1984).
41
Belmont Homes, Inc. v. Law, 841 So.2d 237, 240 (Ala. 2002).
38

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evidence of prior or contemporaneous agreements will be admissible to change, alter, or contradict


the contractual writing.42
I.

Lack of Standing

A plaintiffs standing to commence an action depends on whether the party has been
injured in fact and whether the injury is to a legally protected right.43 A lack of standing defense
typically arises when the plaintiff appears to be a stranger to the contract (i.e., is not a party to the
contract). Whether a party has standing implicates the subject matter jurisdiction of the court.44
[W]hen a party without standing purports to commence an action, the trial court acquires no
subject-matter jurisdiction.45 Once a court recognizes the plaintiff lacks standing, all orders and
judgments entered in the case, except for an order of dismissal, are void ab initio.46 Id.
Typically, the plaintiffs response to the standing defense is either (1) that the plaintiff is
in fact a party to the contract, or (2) that the plaintiff is a third-party beneficiary of the contract. In
Alabama, a third-party beneficiary does indeed have standing, as explained by the Alabama
Supreme Court, [I]f one person makes a promise for the benefit of a third party,
such beneficiary may maintain an action thereon, though the consideration does not move from
the latter.47

42

Id.
Bernals, Inc. v. Kessler-Greystone, LLC, 70, So.3d 315, 319 (Ala. 2011).
44
Id.
45
Id.
46
Id.
47
Locke v. Ozark City Bd. of Educ., 910 So. 2d 1247 (Ala. 2005).
43

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J.

Abandonment

A party might argue that the contract has been abandoned. A contract may be rescinded
or discharged by acts or conduct of the parties inconsistent with the continued existence of
the contract and mutual assent to abandon a contract may be inferred from the attendant
circumstances and conduct of the parties.

48

[W]hen a party, without sufficient

cause, abandons a contract, leaving unperformed the work contracted for, he cannot recover,
under the common counts, on a quantum valebat or quantum meruit.49 However, the court goes
on to say:
[A]nd where a party, in compliance with his contract, enters upon
its performance and is wrongfully forced by the other party
to abandon it before completion, without fault on his part, he is
entitled to recover damages for breach of the contract; if profits
form a constituent element thereof, and their loss is the natural and
proximate result of the breach, and such as were reasonably in the
contemplation of the contracting parties, the amount of such
damages, if susceptible of estimation with reasonable certainty, is
recoverable.50
K.

Repudiation/Renunciation

Alabama law is well settled that repudiation may be proven where words or acts show an
intention to refuse performance within the future time allowed by the contract.51 The general rule
with respect to repudiation is that when one party repudiates a contract, the non-repudiating party

48

San-Ann Service, Inc. v. Bedingfield, 305 So. 2d 374, 377 (Ala. 1974).
Varner v. Hardy, 96 So. 860, 861 (Ala. 1923).
50
Varner, 96 So. at 861.
51
HealthSouth Rehab. Corp. v. Falcon Mgmt. Co., 799 So. 2d 177, 182 (Ala. 2001); (citing
Shirley v. Lin, 548 So. 2d 1329, 1334 (Ala. 1989) (quoting Draughon's Bus. Coll. v. Battles, 50
So. 2d 788, 790 (Ala. 1951))).
49

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is discharged from its duty to perform. 52 However, the non-repudiating party cannot recover
damages for the repudiation of the contract if he was unable to perform his obligation.53
L.

Laches

Laches is defined as neglect to assert a right or a claim that, taken together with a lapse of
time and other circumstances causing disadvantage or prejudice to the adverse party, operates as a
bar.54 Acquiescence and lapse of time are the two principal foundations of laches.55 To raise the
defense successfully, the defendant must show:
1. Plaintiff delayed in asserting her right or claim;
2. Plaintiffs delay is inexcusable; and
3. Plaintiffs delay caused defendant undue prejudice.56
M.

Unclean Hands

The clean-hands doctrine is defined as the principle that a party cannot seek equitable
relief or assert an equitable defense if that party has violated an equitable principle, such as good
faith.57 Such a party is described as having unclean hands.58 Id. For the defense to be applicable,
the partys unclean hands must relate to the particular subject matter of the lawsuit. 59 Proof of

52

HealthSouth, 799 So. 2d at 182.


Beauchamp v. Coastal Boat Storage, LLC., 4 So.3d 443, 451 (Ala. 2008).
54
Ex Parte Grubbs, 542 So. 2d 927, 928-29 (Ala. 1989) (citing Black's Law Dictionary 787 (5th
ed.1979)).
55
Owens v. Cunningham, 95 So. 2d 74, 76 (Ala. 1957).
56
Ex Parte Grubbs, 542 So. 2d at 929.
57
Blacks Law Dictionary (9th ed. 2009).
58
Id.
59
See Daniel v. Haggins, 240 So.2d 660, 661 (Ala. 1970); Ruffin v. Crowell, 46 So.2d 218, 226
(Ala. 1950).
53

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unclean hands requires a showing of specific acts of willful misconduct which is morally
reprehensible.60
N.

Waiver

In Alabama, a waiver is generally defined as the intentional relinquishment of a known


right.61 Alabama also recognizes that parties are free to contract as they [please], provided they
contract within the law.

62

Additionally, parties may waive their right to enforce

a contractual right in certain circumstances.63 To determine whether a waiver can be used as an


affirmative defense, the Court in Spencer stated:
The question of waiver, the voluntary surrender of a known right, is
in the main a question of intention, and the authorities hold that, to
be effectual, it must be manifested in some unequivocal manner; if
not express, then by such language or conduct as to evince clearly
the intention to surrender. To constitute a waiver, there must be an
intention to relinquish the right, or there must be words or acts
calculated to induce the other contracting party to believe, and
which deceive him into the belief, that the holder of the right has
abandoned it.64
O.

Estoppel

Estoppel is a bar that prevents one from asserting a claim or right that contradicts what
one has said or done before or what has been legally established as true.65 Estoppel exists when
one person by his words, acts, conduct, or silence, induces another, on the faith thereof, to pledge
his credit, incur a liability, or part with something valuable.... [T]o allow such representation to be

60

Retail Developers of Alabama, LLC v. East Gadsden Golf Club, Inc., 985 So.2d 924, 932 (Ala.
2007).
61
Bell v. Birmingham Broad. Co., 82 So. 2d 345 (Ala. 1955).
62
Ex parte Spencer, 111 So. 3d 713, 717 (Ala. 2012) (quoting Perkins v. Skates, 124 So. 514,
515 (Ala. 1929)).
63
Ex parte Spencer, 111 So. 3d at 717.
64
Id.
65
Blacks Law Dictionary (9th ed. 2009).
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gain-said, would be a fraud on him who had thus acted, believing it to be true.66 The purpose of
equitable estoppel and promissory estoppel is to promote equity and justice in an individual case
by preventing a party from asserting rights under a general technical rule of law when his own
conduct renders the assertion of such rights contrary to equity and good conscience.67
P.

Failure of Performance

As previously mentioned, one essential element of a plaintiffs breach of contract claim is


the plaintiffs own performance under the contract.68 In order to establish that a defendant is liable
for breach of contract, a plaintiff must prove her own performance, or that she is ready, willing
and able to perform.69 If the plaintiff itself failed to perform, then there is no actionable breach of
contract.
Q.

Impossibility of Performance

Generally speaking, impossibility of performance is not a defense to a contract in


Alabama. Alabama typically follows the strict rule, which will require the parties, when they
form a contract, to foresee its consequences as accurately as possible, that at the expense of serious
hardship to one of them if unforeseen circumstances render it impossible to perform his promise.70
There are exceptions.

First, there is an exception where the performance

becomes impossible by law, either by reason of a change in the law, or by some action or authority
of the government. It is generally held that, where the act or thing contracted to be done is
subsequently made unlawful by an act of the Legislature, the promise is avoided.71 Second, there

66

Fountain Bldg. & Supply Co., Inc. v. Washington, 602 So. 2d 362, 364 (Ala. 1992).
Mazer v. Jackson Ins. Agency, 340 So. 2d 770, 772 (Ala. 1976).
68
See, e.g., State Farm Fire & Cas. Co. v. Slade, 747 So. 2d 293, 303 (Ala. 1999).
69
Winkleblack v. Murphy, 811 So. 2d 521, 529 (Ala. 2001).
70
Hawkins v. First Fed. Sav. and Loan Assn, 291 Ala. 257, 260, 280 So.2d 93, 95 (1973).
71
Id.
67

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is an exception where the performance depends upon the continued existence of a thing which is
assumed as a basis of the agreement, the destruction of the thing by the enactment of a law
terminates the obligation.72 Id.
R.

Accord and Satisfaction

An accord is an agreement to accept in extinction of an obligation something different


from or less than that to which the person agreeing to accept is claiming or entitled.73 Acceptance
of the consideration of an accord extinguishes the obligation and is called satisfaction. 74 If
there has been an accord and satisfaction then the original contract is extinguished and is no
longer enforceable.
S.

Novation

Novation is the act of substituting for an old obligation a new one that either replaces
an existing obligation with a new obligation or replaces an original party with a new party. 75 In
Alabama, novation requires: (1) a previous valid obligation; (2) an agreement of the parties
thereto to a new contract or obligation; (3) an agreement that it is an extinguishment of the old
contract or obligation; and (4) the new contract or obligation must be a valid one between the
parties thereto.76 Also, the party alleging a novation has the burden of proving that such was the
intention of the parties.77 If there has been a novation, then the original contract is extinguished
and is no longer enforceable.

72

Id.
Ala. Code 8-1-20.
74
Ala. Code 8-1-22.
75
Blacks Law Dictionary (9th ed. 2009).
76
Warrior Drilling & Eng'g Co. v. King, 446 So.2d 31, 33 (Ala.1984).
77
Pilalas v. Baldwin County Sav. & Loan Ass'n, 549 So.2d 92, 95 (Ala.1989).
73

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T.

Illegality

In general, a contract supported by illegal consideration is voidto the extent of the


illegality.78 The basis of the rule is that the court will not become a party to the enforcement of
contracts subversive of the public policy of the state.79 Explained more fully:
No principle of law is better settled than that a party to an illegal
contract cannot come into a court of law and ask to have his illegal
objects carried out; nor can he set up a case in which he must
necessarily disclose an illegal purpose as the groundwork of his
claim. The rule is expressed in the maxims, Ex dolo malo non oritur
actio, and In pari delicto potior est conditio defendentis. The law in
short will not aid either party to an illegal agreement; it leaves the
parties where it finds them.80
U.

Duress

Duress is defined as subjecting a person to improper pressure which overcomes his will
and coerces him to comply with demands to which he would not yield if acting as a free agent.81
If assent to a contract is given under duress, then the contract is voidable by the victim. 82
Examples of improper pressure may be (1) a threat of a crime or a tort; (2) a threat of criminal
prosecution; (3) a threat of the use of civil process in bad faith; (4) a threat that is a breach of the
contractual duty of good faith and fair dealing.83
V.

Economic Duress

A contract agreed to under improper threat to a partys economic interests may give rise to
the defense of economic duress. Alabama law recognizes the contract defense of economic

78

See Wright v. Martin, 214 Ala. 334, 336, 107 So. 818, 820 (1926).
Id.
80
Thompson v. Wiik, Reimer & Sweet, 391 So. 2d 1016, 1020 (Ala. 1980) (quoting 17 C.J.S.
Contracts 272, p. 1188 (1963)).
81
BSI Rentals, Inc. v. Wendt, 893 So.2d 1184, 1189 (Ala. Civ. App. 2004).
82
Restatement (Second) of Contracts 175 (1981).
83
Restatement (Second) of Contracts 176 (1981).
79

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duress.84 To demonstrate a prima facie case of economic duress, a party must show (1) wrongful
acts or threats; (2) financial distress caused by the wrongful acts or threats; (3) the absence of any
reasonable alternative to the terms presented by the wrongdoer.85 A contract may be executed
under such circumstances of business necessity or compulsion as to render the contract involuntary
and entitle the coerced party to excuse his performance, especially where undue advantage or threat
to do an unlawful injury is shown.86
W.

Unconscionability

The standard for determining whether a contract is unconscionable is whether there are
(1) terms that are grossly favorable to a party that has (2) overwhelming bargaining power.87
One of the criteria for finding a contract unconscionable is that it be patently unfair. 88
Additional factors may be whether one party was unsophisticated and/or uneducated, whether
there was an absence of meaningful choice on one partys part, and whether there were
oppressive, one-sided, or patently unfair terms.89 It has been further defined as a provision that
no man in his sense and not under delusion would make on the one hand, and as no honest and
fair man would accept on the other.90
As to consumer credit transactions, the defense has been codified:
With respect to a consumer credit transaction, if the court as a matter
of law finds the contract or any provision of the contract to have
been unconscionable at the time it was made, the court may refuse
Tidwell v. Tidwell, 505 So.2d 1236, 1238 (Ala. Civ. App. 1987)(Alabama recognizes that
upon showing of duress or undue influence a party may be relieved of contractual obligations.).
85
Penick v. Most Worshipful Prince Hall Grand F&AM Lodge of Alabama, Inc., 46 So.3d 416,
431 (Ala. 2010).
86
Wright Therapy Equipment, LLC v. Blue Cross and Blue Shield of Alabama, 991 So.2d 701,
707 (Ala. 2008).
87
Leonard v. Terminix Intern. Co., L.P., 854 So.2d 529, 538 (Ala. 2002).
88
Id.
89
Layne v Garner, 612 So. 2d 404, 408 (Ala. 1992).
90
Leeman v. Cooks Pest Control, Inc., 902 So. 2d 641, 645 (Ala. 2004).
84

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to enforce the contract, or it may enforce the remainder of the


contract without the unconscionable provision, or it may so limit the
application of any unconscionable provision as to avoid any
unconscionable result.91
X.

Statute of Frauds

Alabamas statute of frauds holds that certain agreements are void unless they are in
writing:
In the following cases, every agreement is void unless such agreement or some note
or memorandum thereof expressing the consideration is in writing and subscribed
by the party to be charged therewith or some other person by him thereunto lawfully
authorized in writing:
1. Every agreement which, by its terms, is not to be performed within one year
from the making thereof;
2. Every special promise by an executor or administrator to answer damages
out of his own estate;
3. Every special promise to answer for the debt, default or miscarriage of
another;
4. Every agreement, promise or undertaking made upon consideration of
marriage, except mutual promises to marry;
5. Every contract for the sale of lands, tenements or hereditaments, or of any
interest therein, except leases for a term not longer than one year, unless the
purchase money, or a portion thereof is paid and the purchaser is put in
possession of the land by the seller;
6. Every agreement, contract or promise to make a will or to devise or
bequeath any real or personal property or right, title or interest therein;
7. Every agreement or commitment to lend money, delay or forebear
repayment thereof or to modify the provisions of such an agreement or
commitment except for consumer loans with a principal amount financed
less than $25,000;
8. Notwithstanding Section 7-8-113, every agreement for the sale or purchase
of securities other than through the facilities of a national stock exchange or
of the over-the-counter securities market.92

91
92

Ala. Code 5-19-16 (1996).


Ala. Code 8-9-2 (1996).
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With regard to the sale of land, an equitable exception to the statute of frauds may exist
under certain circumstances. In the case of Darby v. Johnson, the Alabama Supreme Court
addressed the issue of whether the statute of frauds prohibits enforcement of an oral agreement
involving land even though both parties acknowledge existence of the agreement. 93 The Court
concluded, An oral agreement involving land will be enforced when some or all of the purchase
money is paid and the seller gives possession of the land to be buyer.94 This is known as the part
performance exception, and to fall within it, One must pay some or all of the purchase price and
be put in possession of the land by the seller.95
Until recently, it was held that even if the part performance standard is not met, an
exception to the statute of frauds may still exist due to a breaching partys fraud in the inducement,
explained as when the breaching party procured the land or purchase money with no intent to
perform the oral agreement admitted to have been made. 96 This fraud in the inducement
exception has been overruled.97
Y.

Statute of Limitations & Rule of Repose

A defendant may raise a Statute of Limitations defense to defeat a plaintiffs breach of


contract claim by claiming that the plaintiff waited too long to file suit with the court. In Alabama,
the amount of time a party has to file an action on an open or unliquidated account is 3 years; an
action on a written promise and/or any simple contract is 6 years; and an action on a contract under

93

Darby v. Johnson, 477 So. 2d 322, 324 (Ala. 1985).


Id.
95
Id. at 326.
96
Darby, 477 So.2d at 326-27.
97
See Nix v. Wick, 66 So.3d 209 (Ala. 2010); DeFriece v. McCorquodale, 998 So.2d 465 (Ala.
2008).
94

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seal is 10 years.98 The statute of limitations in breach of contract claim begins to run when the
breach occurs and not when the contract is entered.99
Special rules may apply for certain contracts or claims. For example, under UCC Article
2, an action for breach of any contract for sale must be commenced within 4 years, and this may
be reduced by agreement to not less than 1 year.100 Under UCC Article 3, special rules apply for
negotiable instruments. 101 Under UCC Article 4, special rules apply for bank deposits and
collections. 102

The 180-day rule of repose under UCC Article 4 may be reduced by

agreement.103 The time to file a mechanics lien is 6 months for the original contractor, 4 months
for suppliers and subcontractors, and 30 days for day laborers; and a suit to enforce the lien must
be commenced within 6 months.104
Z.

Fraud in the Inducement

Fraud in the inducement consists of one party's misrepresenting a material fact concerning
the subject matter of the underlying transaction and the other party's relying on the
misrepresentation to his, her, or its detriment in executing a document or taking a course of
action.105
In issues of fraud, Alabama employs a reasonable reliance standard, which includes a
general duty to read the documents received in connection with a particular transaction, together
with a duty to inquire and investigate.106 The Alabama Supreme Court has consistently held that

98

Ala. Code 6-2-37; 6-2-34(4)&(9); and 6-2-33(1).


Ala. Code 6230 (1975); See Stephens v. Creel, 429 So. 2d 278 (Ala. 1983).
100
Ala. Code 7-2-725.
101
Ala. Code 7-3-118.
102
Ala. Code 7-4-111; 7-4-406(f).
103
See, e.g., Graves v. Wachovia Bank, NA, 607 F.Supp.2d 1277 (M.D. Ala. 2009).
104
Ala. Code 35-11-215, 35-11-221.
105
Johnson Mobile Homes of Alabama, Inc. v. Hathcock, 855 So. 2d 1064, 1067 (Ala. 2003).
106
AmerUS Life Ins. Co. v. Smith, 5 S.3d 1200, 1208 (Ala. 2008).
99

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a plaintiff who is capable of reading documents, but who does not read them or investigate facts
that should provoke inquiry, has not reasonably relied upon a defendants oral representations that
contradict the written terms in the documents.107 A person cannot blindly rely on an agent's oral
representations to the exclusion of written disclosures in a contract.108 Under a very narrow
exception, however, this rule may not apply if there is a special relationship between the
parties.109
Generally a mere statement of opinion cannot support a defense of fraudulent
inducement.110 However, the defense may be available if a party is able to show that an opinion
was stated with an intent to deceive, that reliance on said opinion was reasonable, that the facts
were not equally known to both sides, and that the statement of opinion was made by the one who
knew the facts better.111
AA.

Fraud in the Factum

Fraud in the factum occurs when a legal instrument as actually executed differs from
the one intended for execution by the person who executes it, or when the instrument may have
had no legal existence.112 This defense is said to be rare, with an illustrative example of when
a blind person signs a mortgage when misleadingly told that the paper is just a letter.113
In Alabama, fraud in the factum is explained:
When the execution of an instrument, which the party signing did
not intend to sign, and did not know he was signing, is procured by
a misrepresentation of its contents, and the party signing it does so
without reading it or having it read, relying upon such
107

Id.
Harold Allen's Mobile Home Factory Outlet, Inc. v. Early, 776 So.2d 777, 784 (Ala. 2000).
109
See Potter v. First Real Estate Co., 844 So.2d 540 (Ala. 2002).
110
See Reynolds v. Mitchell, 529 So.2d 227, 231 (Ala. 1988).
111
Id.
112
Blacks Law Dictionary (9th ed. 2009).
113
Id.
108

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misrepresentations and fraud, and believing he is signing a different


instrument, he can avoid the effect of his signature notwithstanding
he was able to read and had an opportunity to read the instrument.114
The misrepresentation must go to the essential nature or existence of the contract itself, for
example, a misrepresentation that an instrument is a promissory note when in fact it is a
mortgage.115
BB.

Mistake

A mistake is a belief that is not in accord with the facts.116 A mistake can be either
unilateral or mutual and both can make a contract voidable under certain circumstances.
A unilateral mistake is a mistake by only one party to the contract. 117 In Alabama, the
general rule is that a unilateral mistake does not make a contract voidable. 118 However, if a
unilateral mistake goes to the substance of the contract itself, the contract may be voidable.119 The
party seeking relief based on a unilateral mistake must show that the mistake was material to the
transaction and also that his mistake is not due to want of care or diligence. 120 Also, a party
may be relieved from an obvious mistake: Where there is a mistake that on its face is so palpable
as to place a person of reasonable intelligence upon his guard, there is not a meeting of the minds
of the parties, and consequently there can be no contract.121

114

Willcutt v. Union Oil Co. of California, 432 So.2d 1217, 1220 (Ala. 1983).
Harold Allens Mobile Home Factory Outlet, Inc. v. Early, 776 So.2d 777, 783 n.6 (Ala.
2000).
116
Restatement (Second) of Contracts 151 (1981).
117
Blacks Law Dictionary (9th ed. 2009).
118
See Ex parte Perusini Const. Co., 242 Ala. 632, 635, 7 So.2d 576, 578 (Ala. 1942)(A
unilateral error, it has been said does not avoid a contract.).
119
Id.
120
Id.
121
Id.
115

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A mutual mistake is a mistake that is shared and relied on by both parties to a contract.122
The Restatement lays out the elements that a defendant must prove in order to claim the defense
of mutual mistake:
1. There is a mistake;
2. It is mutual (a mistake of both parties);
3. It is present at the time the contract is made;
4. It relates to a basic assumption;
5. It has a material effect on the exchange; and
6. The party seeking relief did not bear the risk.123
A mutual mistake exists when the parties have entered into an agreement, but the agreement does
not express what the parties intended.124 In determining whether a mutual mistake exists, [t]he
initial factual question is, of course, what the parties intended the agreement to express at the time
they were executed.125
CC.

Insolvency or Bankruptcy

A partys mere inability to pay is not a defense to a contract. However, if the party properly
files for bankruptcy protection and obtains a discharge in bankruptcy, then the discharge may serve
as a valid defense to a contractual obligation. A discharge in bankruptcy is defined as the release
of a debtor from personal liability for prebankruptcy debts. 126 [A] discharge in bankruptcy
releases the bankrupt from the obligation of a debt, not in the sense that the debt is paid or satisfied,

Blacks Law Dictionary (9th ed. 2009).


123
Restatement (Second) of Contracts 152 (1981).
124
Daniels v. Johnson, 539 So.2d 259, 260 (Ala. 1989).
125
Jim Walter Homes, Inc. v. Phifer, 432 So.2d 1241, 1242 (Ala. 1983).
126
Blacks Law Dictionary (9th ed. 2009).
122

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but only that there is afforded the debtor a complete legal defense to an action on the debt if he
chooses to avail himself of it.127
DD.

Death of a Party

Death of a party is not a defense. Alabama adopts the American common-law doctrine that
contractual causes of action survive the death of the plaintiff as well as the death of the
defendant.128 This common-law rule has been adopted by Ala. Code 6-5-462 that states:
In all proceedings not of an equitable nature, all claims upon which
an action has been filed and all claims upon which no action has
been filed on a contract, express or implied, and all personal claims
upon which an action has been filed, except for injuries to the
reputation, survive in favor of and against personal
representatives.129
EE.

Minority

For legal purposes, a person becomes an adult (i.e., reaches the age of majority) at age 19
years.130 Until reaching that age, the person lacks the legal capacity to enter into contracts, and
therefore any contract entered into will be voidable by the minor. It is settled law that the contract
of an infant, other than contracts for necessaries, is voidable at his election at any time during his
minority or within a reasonable time after attaining his majority, and the disaffirmance of his
contract renders it void ab initio.131
FF.

Incompetence / Insanity

No one can question that under our law the contracts of an insane person are ordinarily
void so as not to bind him personally, even in favor of an innocent purchaser for value. 132 All
First Natl Bank of Dozier v. Henderson, 243 Ala. 636, 639, 11 So.2d 366, 368 (1942).
Alabama Law of Damages 11:36 (2013).
129
Ala. Code 6-5-462 (1975).
130
Ala. Code 26-1-1.
131
Standard Motors, Inc. v. Raue, 37 Ala. App. 211, 212, 65 So.2d 829, 830 (1953).
132
Metro. Life Ins. Co. v. Bramlett, 224 Ala. 473, 475, 140 So. 752, 754 (1932).
127
128

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contracts of an insane person are void; but he and his estate shall be liable for necessaries furnished
him, which may be recovered upon the same proof and upon the same conditions as if furnished
to an infant.133 However, the good faith purchase of real property from an insane person may not
be void.134 The test of insanity is not merely that the grantors mental powers were impaired,
but whether he had sufficient capacity to understand in a reasonable manner the nature and effect
of the act which he was doing.135
GG.

Undue Influence

Undue influence may be asserted as a defense to certain transactions. A conveyance of


lands, obtained for a grossly inadequate consideration, by unfair advantage taken of great mental
weakness, though not amounting to absolute incapacity, of the grantor, will, in equity, be set aside,
on equitable terms, when application therefor is made seasonably by the grantor, his
representatives or heirs.136 The essence of undue influence is that the will of the influencing
party so overpowered the will of the other party that the other party's act essentially became the
act of the influencing party.137 It is a species of fraud.138
HH.

Foreign Corporation Not Registered to do Business in Alabama

Alabama has a door-closing statute that protects corporations and citizens within
Alabama against foreign (i.e., out-of-state) corporations. The statute provides:
A foreign corporation transacting business in this state without
registering as required... may not maintain a proceeding in this state
without so registering or complying. All contracts or agreements
made or entered into in this state by foreign corporations prior to
registering to transact business in this state shall be held void at the
133

Ala. Code 8-1-170.


Ala. Code 8-1-171.
135
Jones v. Moore, 295 Ala. 31, 36, 322 So.2d 682, 686 (1975).
136
Milliner v. Grant, 253 Ala. 475, 476, 45 So.2d 314, 315 (1950).
137
Fortis Benefits Ins. Co. v. Pinkley, 926 So. 2d 981, 988 (Ala. 2005).
138
Id.
134

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action of the foreign corporation or by any person claiming through


or under the foreign corporation by virtue of the contract or
agreement; but nothing in this section shall abrogate the equitable
rule that he who seeks equity must do equity.139
Alabama courts have held that foreign corporations attempting to do business in the state without
registering cannot use the states judicial system to enforce a contract claim.140
It should be noted that the door-closing statute is repealed effective January 1, 2014.141
Thus, this defense will no longer be available.
II.

Unlicensed General Contractor and/or Homebuilder

A general contractor (as defined under Alabama law, Ala. Code 34-8-1(a)) must be
licensed.142 As a penalty, an unlicensed general contractor cannot enforce its contracts. Express
or implied contracts entered into by an unlicensed general contractor are null and void because
they violate public policy.143 Moreover, such contracts are illegal and unenforceable by the
unlicensed general contractor.144
Similarly, an unlicensed homebuilder may not enforce its contracts. A residential home
builder who fails to maintain a license with the Alabama Home Builders Licensure Board is
statutorily barred from bringing or maintaining any action to enforce the provisions of any contract
for residential home building which he or she entered into in violation of this chapter.145

139

Ala. Code 10A-2-15.02.


Brown v. Pool Depot, Inc., 853 So.2d 181, 184 (Ala. 2002).
141
Ala. Act 2012-304.
142
Ala. Code 34-8-6(a).
143
Goodwin v. Morris, 428 So.2d 78, 79 (Ala. Civ. App. 1983).
144
Id.
145
King v. Riedl, 58 So. 3d 190, 195 (Ala. Civ. App. 2010)(relying on Ala. Code 3414A14).
140

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JJ.

Unlawful Restraint of Business

Subject to certain exceptions, a contract restraining a party from exercising a lawful


profession, trade, or business of any kind is void.146 The notable exceptions are non-compete/nonsolicitation agreements if certain criteria are met.147
Alabama courts disfavor non-compete agreements because they tend not only to deprive
the public of efficient service, but [also] to impoverish the individual.148 Generally, restrictive
covenants not to compete are prohibited in Alabama.149 Nevertheless, courts can enforce the
terms of a covenant not to compete if and only if the party seeking to enforce the agreement proves
the following:
1. the employer has a protectable interest;
2. the restriction is reasonably related to that interest;
3. the restriction is reasonable in time and place;
4. the restriction imposes no undue hardship on the employee.150
An interest is a protectable interest when an employer possesses a substantial right in its
business sufficiently unique to warrant the type of protection contemplated by [a] noncompetition
agreement.151 The justification for a non-compete agreement must lie in the prevention of the
appropriation by the employee of valuable trade secrets. 152 Thus, employers cannot have a
protectable interest in information legally obtainable by [their] competitors. 153 Similarly,

146

Ala. Code 8-1-1.


Id.
148
Clark v. Liberty Nat. Life Ins. Co., 592 So. 2d 564, 656 (Ala. 1992) (quoting James S. Kemper
& Co. v. Cox & Associates, Inc., 434 So. 2d 1380, 1384 (Ala. 1983)).
149
Birmingham Television Corp. v. DeRamus, 502 So. 2d 761, 763 (Ala. 1986).
150
Ex parte Caribe, U.S.A., Inc., 702 So. 2d 1234, 1239 (Ala. 1997).
151
Clark, 592 So. 2d at 566 (quoting DeVoe v. Cheatham, 413 So. 2d 1141, 1142 (Ala. 1982)).
152
Birmingham Television, 502 So. 2d at 764.
153
Ormco Corp v. Johns, 869 So. 2d 1109, 1117 (Ala. 2003).
147

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employers cannot have a protectable interest in normal skills of the trade; such skills are neither
sufficiently unique nor valuable trade secrets.154 Furthermore, to hold that a normal skill of
the trade constitutes a protectable interest would place an undue burden on the ordinary laborer
and prevent him or her from supporting his or her family.155
Non-compete agreements impose an undue hardship when they prevent a highly skilled
working man from engaging in the only trade he knows and by which he can support himself
and his family.156 The existence of an undue hardship also depends on whether the agreement
will do greater harm to the employee than good to the employer. 157 That is, courts should not
enforce a non-compete agreement if it seriously limits the defendant's employment opportunities
without providing any legitimate benefit to the plaintiff.158

154

See Greenlee v. Tuscaloosa Office Products and Supply, Inc., 474 So. 2d 669, 671 (Ala. 1985)
(holding that the ability to service and repair copiers is a normal skill of the trade that cannot
serve as a protectable interest for purposes of a non-compete agreement).
155
Id.
156
Chavers v. Copy Products Co. of Mobile, 519 So. 2d 942, 945 (Ala. 1988).
157
White Dairy Co. v. Davidson, 283 Ala. 63, 66-67 (Ala. 1968).
158
36 Causes of Action 2d 103 (2008).
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V.

WHAT ARE SOME RULES OF CONSTRUCTION?


There are times that a contract must be interpreted by the court. At those times, the court

will be required to employ various rules of construction to assist in its interpretation. The
practicing attorney should become familiar with these rules, as they can either be friend or foe
when advocating for your clients position.
A. Freedom of Contract
As a bedrock principle, Alabama recognizes the parties freedom of contract. Alabamas
Constitution states, There can be no law of this state impairing the obligation of contracts by
destroying or impairing the remedy for their enforcement.159 The right of freedom of contract is
a cherished one that courts are bound to protect.160
B. Four-Corners Rule
When a contract is unambiguous its construction and legal effect is based on what is found
within its four corners.161 When examination is limited to the four corners of an agreement, the
first of two conflicting provisions prevails over the second provision. 162 Any inconsistencies
between clauses or conditions that cannot be reconciled must be resolved in favor of the first
clause.163
C. Merger Clause
A merger clause is properly used to ensure that preliminary negotiations, whether oral or
written, are either memorialized in the final contract or are not considered part of it.164 A merger

159

Ala. Const. Art. IV, 95.


Ex parte Life Ins. Co. of Georgia, 810 So.2d 744, 751 (Ala. 2001).
161
Southland Quality Homes, Inc. v. Williams, 781 So.2d 949, 954 (Ala. 2000).
162
Voyager Life Ins. Co. v. Whitson, 703 So.2d 944, 949 (Ala. 1997).
163
Id.
164
Harbor Village Home Ctr., Inc v. Thomas, 882 So.2d 811, 816 (Ala. 2003).
160

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clause establishes that the written agreement is a completely integrated document, into which all
prior and contemporaneous negotiations are merged.165 Such a clause applies only to contracts
between the same parties.166 Nonetheless, parties may modify the terms of their agreement, and,
if the terms of a subsequent agreement contradict the earlier agreement, the terms of the later
agreement prevail.167
D. Parol Evidence
If the contract is unambiguous, then the four-corners rule should apply. However,
extrinsic or parol evidence, including construction placed upon language by parties, is admissible
to aid in interpretation of an ambiguous contract.168 Parol evidence can help explain or clarify the
ambiguity. 169 If the language of instrument is ambiguous in any respect, the surrounding
circumstances and construction placed on language by the parties may be taken into consideration
in determining the instruments meaning, and the intent of the parties may be ascertained by parol
evidence.170
Whether a writing is ambiguous is a question of law for the court.171 Parol evidence is not
permitted to explain unequivocal contract terms.172 Where no ambiguity exists, a courts only
function is to interpret the lawful meaning and intentions of parties as found within agreement and

165

Id.
Lewis v. Oakley, 847 So.2d 307, 329 (Ala. 2002).
167
McLemore v. Hyundai Motor Mfg. Ala., LLC, 7 So.3d 318, 332-33 (Ala. 2008).
168
Lammons v. Lammons, 481 So.2d 390, 391 (Ala. Civ. App. 1985).
169
Bain v. Gartrell, 666 So.2d 523, 524 (Ala. Civ. App. 1995).
170
Fouts v. Beall, 518 So.2d 1236, 1239 (Ala. 1987).
171
Med. Clinic Bd. of City of Birmingham-Crestwood v. Smelley, 408 So.2d 1203, 1206 (Ala.
1981).
172
Trimble v. Todd, 510 So.2d 810, 812 (Ala. 1987).
166

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to give effect to them.173 Parol evidence is not admissible to contradict, vary, add to, or subtract
from its terms, in the absence of mistake, fraud, or ambiguity.174
The terms of an oral contract can be established through parol evidence, and a
determination of those terms is for the trier of fact.175 It is possible for parties to negotiate more
than one agreement at the same timeone written and the other oral, and the oral contract may be
admissible and enforceable.176
E. The Role of Ambiguity / Patent v. Latent
When a trial court is faced with a contract issue, it must determine as soon as practicable
the threshold issue whether the contract is ambiguous.177 If the court finds no ambiguity, it must
determine the force and effect of the contract terms as a matter of law. 178 If the court finds
ambiguity in the contract, it must use the established contract construction rules to resolve the
ambiguity. 179 When faced with ambiguity in a contract, the court is not to revoke the entire
agreement, but resolve the ambiguity to give effect to the parties intent.180
Ambiguity exists when a contract has more than one meaning. 181 When determining
whether an agreement is ambiguous, agreement must be construed in its entirety, and a single
provision or sentence is not to be disassociated from others having referenced to same subject

173

Id.
Clark v. Albertville Nursing Home, Inc., 545 So.2d 9, 11 (Ala. 1989).
175
Black Diamond Dev., Inc. v. Thompson, 979 So.2d 47, 52 (Ala. 2007).
176
Pasquale Food Co. v. L & H Intl Airmotive, Inc., 51 Ala. App. 127, 134, 283 So.2d 438, 444
(1973).
177
Certain Underwriters at Lloyds v. S. Nat. Gas Co., 2013 WL 3242933 *13 (Ala. June 28,
2013).
178
Id.
179
Id.
180
Ward v. Check Into Cash of Ala., LLC, 981 So.2d 434, 438 (Ala. Civ. App. 2007).
181
Exxon Mobil Corp. v. Ala. Dept. of Conservation & Natural Res., 986 So.2d 1093, 1120 (Ala.
2007).
174

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matter.182 The court will not twist language to create ambiguity where there is none when the
meaning of a contract can be discerned through a plain reading.183 An undefined word or phrase
does not create an inherent ambiguity in a contract.184 The fact that adverse parties contend for
different constructions does not of itself force the conclusion that the disputed language is
ambiguous.185
Patent ambiguity occurs when a document contains unclear or unintelligible language or
language on its face that suggests multiple meanings. 186 A latent ambiguity occurs when
language used is clear and intelligible and suggests a single meaning, but some extrinsic fact or
extraneous evidence creates a necessity for interpretation or a choice among two or more possible
meanings.187
A patent ambiguity is not a true ambiguity; it is merely confusion
created on the face of the will by the use of defective, obscure or
insensible language. On the other hand, a latent ambiguity occurs
where the language is clear and intelligible, but when considered in
light of certain extraneous facts, it takes on a multiple meaning.188
Whether an ambiguity is patent or latent is very significant in Alabama, for, [E]xtrinsic
evidence is not admissible if ... the ambiguity within the instrument is a patent one.... Extrinsic
evidence is admissible only in the case of a latent ambiguity.189

182

Yu v. Stephens, 591 So.2d 858, 859 (Ala. 1991).


Porter Capital Corp. v. Thomas, 101 So.3d 1209, 1219 (Ala. Civ. App. 2012).
184
Hipsh v. Graham Creek Estates Owners Assn, Inc., 927 So.2d 846, 849 (Ala. Civ. App.
2005).
185
Cockrell v. Cockrell, 40 So.3d 712, 716 (Ala. Civ. App. 2009).
186
Kelmor, LLC v. Ala. Dynamics, Inc., 20 So.3d 783, 790-91 (Ala. 2009).
187
Id.
188
McCollum v. Atkins, 912 So.2d 1146, 1148 (Ala. Civ. App. 2005).
189
Id.
183

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F. When a Court can Revise or Reform a Contract


Courts cannot rewrite a contract that uses unambiguous language and has one reasonable
construction.190 Courts cannot rewrite or make new contracts under the guise of construing it.191
A court cannot refine away contract terms that are expressed with sufficient clarity to convey
parties intent and meaning.192 Courts cannot make new contracts for parties or raise doubts where
none exist.193 Courts cannot stretch a contracts language to apply to matters not contemplated by
parties when they entered the contract.194
Where possible, courts should not tamper with and change contract terms.195 Courts are
under no obligations and do not have the power to make a wiser or better contract for a party than
he may be supposed to have made for himself.196 Courts cannot set up a contract for parties.197 A
court has the duty to accept construction that will uphold, not destroy, the contract and give effect
and meaning to all terms.198
Although all of the above general rules hold that a court cannot rewrite a contract, Alabama
law does provide that a contract can be revised under certain circumstances of fraud or mistake:
When, through fraud, a mutual mistake of the parties or a mistake of
one party which the other at the time knew or suspected, a written
contract does not truly express the intention of the parties, it may be
revised by a court on the application of the party aggrieved so as to
Shoneys LLC v. MAC E., LLC, 27 So.3d 1216, 1222-23 (Ala. 2009).
Public Bldg. Auth. of Huntsville v. St. Paul Fire & Marine Ins. Co., 80 So.3d 171, 180 (Ala.
2010).
192
Matthews Masonry, Co. v. Aldridge, 25 So.3d 464, 469 (Ala. Civ. App. 2009).
193
Title Max of Birmingham, Inc. v. Edwards, 973 So.2d 1050, 1054 n.1 (Ala. 2007).
194
Carroll v. LJC Defense Contracting, Inc., 24 So.3d 448, 456 (Ala. Civ. App. 2009).
195
Wiregrass Constr. Co. v. Tallapoosa River Elec. Coop., Inc., 365 So.2d 95, 98 (Ala. Civ. App.
1978).
196
Pasquale Food Co. v. L & H Intl Airmotive, Inc., 51 Ala. App. 127, 138, 283 So.2d 438, 448
(1973).
197
Pizitz-Smolian Coop. Stores v. Meeks, 224 Ala. 330, 331, 140 So. 442 (1932).
198
Robertson v. Mount Royal Towers, 2013 WL 3154008 *4 (Ala. June 21, 2013).
190
191

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express that intention, so far as it can be done without prejudice to


the rights acquired by third persons in good faith and for value.199
G. Construction as a Whole
A party may not accept only the portions of a contract he finds advantageous while
rejecting others.200 Contract provisions are to be interpreted in context.201 Specific provisions are
not read in isolation.202 In determining parties intentions in construing a contact, a court considers
the contract as a whole, although the immediate object of inquiry is the meaning of a particular
clause.203 Whenever possible, effect must be given to all parts. Id. Inconsistent parts of a contract
are to be reconciled if possible.204 If reconciliation is impossible, any doubt will be resolved in
favor of the first part, considering the instrument as a whole.205 Where there is a choice between
a valid construction and an invalid construction, the court has a duty to accept the construction that
will uphold the contract and give effect and meaning to all of its terms.206 Arguments based upon
the interpretation of certain provisions and terms in the contracts, like the interpretation of
unambiguous contracts, are questions of law.207
H. Parties Intent
The parties intent is determined by their outward manifestations, as may be expressed in
the writing.208 Contract law is premised on an objective, not subjective, manifestation of intent

199

Ala. Code 8-1-2.


Wells Fargo Bank, N.A. v. Chapman, 90 So.3d 774, 780 (Ala. Civ. App. 2012).
201
Booth v. Newport Television, LLC, 111 So.3d 719, 725 (Ala. Civ. App. 2011).
202
Id.
203
N & L Enterprises, LLC. v. Lioce Properties., LLC, 51 So.3d 273, 279-80 (Ala. 2010).
204
Bod. of Water & Sewer Commrs of Mobile v. Bill Harbert Constr. Co., 870 So.2d 699, 710
(Ala. 2003).
205
Id.
206
Blue Cross Blue Shield of Ala. v. Rigas, 923 So.2d 1077, 1091 (Ala. 2005).
207
Smith v. Smith, 892 So.2d 384, 388 (Ala. Civ. App. 2003).
208
Carr v. Stillwaters Dev. Co. LP, 83 F.Supp.2d 1269, 1278 (M.D. Ala. 1999).
200

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approach.209 The conduct of one party from which another can reasonably draw an inference of
assent to agreement is an effective form of acceptance.210 The parties intent is discerned from
whole of contract.211
The parties intentions are derived from the contract itself where the language is plain and
unambiguous.212 Where there is uncertainty and ambiguity, the court has a duty to construe the
contract so as to express the parties intent.213 Courts should do this so far as possible without
contravening legal principles, statutes, or public policy.214
To ascertain the contracting parties intentions, regard must be had to the subject matter,
the parties relationship at the time of contracting, and the law which is it justly inferable they had
in view while contracting.215 When there is no indication that the contract terms are used in a
special or technical sense, courts should give them ordinary, plain, and natural meaning.216 A court
cannot refine away contract terms that are expressed with sufficient clarity to convey the parties
intent and meaning.217 Parties may contract as they see fit, so long as they do not offend some rule
of law or contravene public policy.218 A court will not attempt to alter their expressed intentions
if clear and unambiguous.219

209

McLemore v. Hyundai Motor Mfg. Ala., LLC, 7 So.3d 318, 333 (Ala. 2008).
Deeco, Inc. v. 3-M Co., 435 So.2d 1260, 1262 (Ala. 1983).
211
Dillards, Inc. v. Gallups, 58 So.3d 196, 200-01 (Ala. Civ. App. 2010).
212
N & L Enterprises, LLC. v. Lioce Properties, LLC, 51 So.3d 273, 279 (Ala. 2010).
213
Kelmor, LLC v. Ala. Dynamics, Inc., 20 So.3d 783, 791 (Ala. 2009).
214
J.I.T. Services, Inc. v. Temic Telefunken-RF, Engg, LLC, 903 So.2d 852, 856 (Ala. Civ. App.
2004).
215
FabArc Steel Supply, Inc. v. Composite Constr. Sys., Inc., 914 So.2d 344, 358 (Ala. 2005).
216
Lewis v. Oakley, 847 So.2d 307, 327 (Ala. 2002).
217
Matthews Masonry, Co. v. Aldridge, 25 So.3d 464, 469 (Ala. Civ. App. 2009).
218
Vardaman v. Benefit Assn of Ry. Employees, 263 Ala. 236, 239, 82 So.2d 272, 275 (1955).
219
Id.
210

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I. Parties Pre-Contract Negotiations


It is the courts duty, not the jurys, to analyze and determine the meaning of a contract
when its terms are clear and certain. 220 It is also the courts duty to ascertain whether or not
contract is ambiguous.221 But when the contract terms are doubtful of meaning or language is
ambiguous, pre-contract negotiations and conduct or parties may be looked to by the jury as an aid
in interpreting the contract.222
J. Choice of Law
Contracting parties have the right to choose a particular states laws to govern an
agreement.223 Where application of another states laws is contrary to state policy, however, the
parties choice of law will not be given effect and Alabama state law will govern.224
K. Modification / Subsequent Agreement
In order to modify a contract, both parties must mutually assent to the new terms.225 Parties
may modify the terms of their agreement, and, if the terms of a subsequent agreement contradict
the earlier agreement, the terms of the later agreement prevail.226 Amendments to the conditions
of unilateral-contract relationships with notice of the changed conditions are not inconsistent with
the general law of contracts.227 Where the rights of a third party are at stake, the terms of a contract
are not the controlling or governing factors if they are in conflict with actual facts and the way in
which contract was actually performed.228

220

C.F. Halstead Contractor, Inc. v. Dirt, Inc., 294 Ala. 644, 649, 320 So.2d 657, 661 (1975).
Id.
222
Id.
223
Polaris Sales, Inc. v. Heritage Imports, Inc., 879 So.2d 1129, 1133 (Ala. 2003).
224
Cherry, Bekaert & Holland v. Brown, 582 So. 2d 502, 506-07 (Ala. 1991).
225
Whorton v. Bruce, 17 So.3d 661, 665 (Ala. Civ. App. 2009).
226
McLemore v. Hyundai Motor Mfg. Ala., LLC, 7 So.3d 318, 332-33 (Ala. 2008).
227
SouthTrust Corp. v. James, 880 So.2d 1117, 1123 (Ala. 2003).
228
Bond v. Trim Line, Inc., 465 So.2d 365, 367 (Ala. 1985).
221

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There must be new consideration for subsequent agreement altering the original contract.229
But, parties who mutually agree may change or modify their contract without any new
consideration.230 The parties to an executory agreement may modify its terms without any new
consideration other than mutual assent.231 A written executory contract may be verbally modified
or rescinded by mutual agreement, with no other consideration than the mutuality of agreement to
do so.232 The minds of the parties must meet upon the fact and terms of the modification to make
it binding and there must be an abandonment of the entire contract, not merely a waiver of some
portion of it.233
L. Construction of Oral Contracts
Determining an oral contracts terms is for the trier of fact.234 The court, not the jury, will
analyze and determine the meaning of a contract, whether verbal or written, when its terms are
clear and certain.235 The court will also ascertain whether or not it is ambiguous in the light of its
terms. Id. The terms of an oral contract can be established through parol evidence. 236 Where a
contract is verbal and detailed by witnesses, its terms and its parties intentions should be found
by jury, notwithstanding that there is no other conflict in the testimony than the uncertainty of the
intention arising from the narration.237

229

Mooradian v. Canal Ins. Co., 272 Ala. 373, 377, 130 So.2d 915, 918 (1961).
Dicky v. Vaughn, 198 Ala. 283, 285, 73 So. 507, 508 (1916).
231
Winegardner v. Burns, 361 So.2d 1054, 1057 (Ala. 1978).
232
Cowin v. Salmon, 244 Ala. 285, 292, 13 So.2d 190, 195 (1943).
233
Id.
234
Dabbs v. Four Tees, Inc., 36 So.3d 542, 557 (Ala. Civ. App. 2008).
235
Air Conditioning Engrs v. Small, 259 Ala. 171, 176, 65 So.2d 698, 703-04 (1953).
236
Black Diamond Dev., Inc. v. Thompson, 979 So.2d 47, 52 (Ala. 2007).
237
Keel v. Weinman, 266 Ala. 684, 687, 98 So.2d 611, 614 (1957).
230

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An oral agreement may be presented to demonstrate that written terms of offer have been
modified, waived or varied. 238

Oral agreements to extend time for performing previous

agreements merely supplement, rather than change, the agreements' terms and obligations in other
respects.239 Proof of an oral modification of a contract serves as proof of the modification itself,
but also as proof of a waiver of the requirement for a writing.240
M. Construction of Written Contracts
Once a contract between two parties is reduced to writing, absent mistake or fraud, the
court must construe the contract as written.241 A contract that is plain and unambiguous must be
enforced as written.242 A court cannot alter a contract with unambiguous and plain language by
construction, but rather must expound it as made by parties.243 The terms of a written contract,
not the mental operations of one party, control the contracts interpretation.244
A written contract may, in the absence of statutory provisions requiring a writing, be
modified by a subsequent oral agreement. 245 A written contract may be amended, altered, or
changed by a subsequent oral agreement between the parties. 246 This is possible even where
contract contains requirement that all modifications be in writing.247

238

Cater v. Haralson, 362 So.2d 242, 244 (Ala. Civ. App. 1978).
Id.
240
Ex parte Coleman, 861 So.2d 1080, 1084-85 (Ala. 2003).
241
Shepherd Realty Co., Inc., v. Winn-Dixie Montgomery, Inc., 418 So.2d 871, 874 (Ala. 1982).
242
Gray v. Reynolds, 514 So.2d 973, 976 (Ala. 1987).
243
Lilley v. Gonzales, 417 So.2d 161, 163 (Ala. 1982).
244
Kinmon v. J.P. King Auction Co., Inc., 290 Ala. 323, 325, 276 So.2d 569, 570 (Ala. 1973).
245
Jernigan v. Happoldt, 978 So.2d 764, 767-78 (Ala. Civ. App. 2007).
246
Keystone Lime Works, Inc. v. Smitherman, 40 Ala. App. 20, 24, 108 So.2d 371, 375 (1958).
247
Duncan v. Rossuck, 621 So.2d 1313, 1315 (Ala. 1993).
239

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N. Reasonableness of Construction
Parties presumably intend to make reasonable contracts, so courts will give ambiguous
contracts a reasonable construction.248 Courts do this to avoid unconscionable results.249 Courts
cannot make contracts for parties, but must give such contracts as are made a reasonable
construction and enforce them accordingly.250
In interpreting contracts, court will give natural meaning to words used so that all
provisions of contract are given reasonable interpretation.251 Where a contract is subject to more
than one construction and is ambiguous, courts may look to the parties conduct, the contracts
provisions and its subject matter in construing the contract to ascertain intent of parties and give
the contract reasonable construction to avoid unconscionable results. 252 All are contracts
construed together so that a harmonious operation can be given to each provision as far as the
language used will permit. 253 Contracts will not be construed to render them oppressive or
inequitable to either party or to place one party at mercy of other, unless it is clear that it was their
manifest intention when executing the agreement.254
O. Construction against Drafting Party
If all other rules of contract construction fail to resolve ambiguity, then any ambiguity must
be construed against the contracts drafter under the rule of contra preferentem.255 If a court finds

248

Bellsouth Mobility, Inc. v. Cellulink, Inc., 814 So.2d 203, 216 (Ala. 2001).
Intl Harvester Co. v. Bosticks Intl, Inc., 365 So.2d 84, 87 (Ala. Civ. App. 1978).
250
Beaver Constr. Co., Inc., v. Lakehouse, LLC, 742 So.2d 159, 164 (Ala. 1999).
251
Tri-Tube, Inc. v. OEM Components, Inc., 672 So.2d 1303, 1306 (Ala. Civ. App. 1995).
252
Quick v. Campbell, 412 So.2d 264, 266 (Ala. 1982).
253
U.S. Fidelity & Guaranty Co. v. Jacksonville State Univ., 357 So.2d 952, 955 (Ala. 1978).
254
G.F.A. Peanut Assn v. W.F. Covington Planter Co., 238 Ala. 562, 566, 192 So. 502, 506
(1939).
255
FabArc Steel Supply, Inc. v. Composite Constr. Sys., Inc., 914 So.2d 344, 357 (Ala. 2005).
249

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a contract to be ambiguous, the trier of fact determines which competing meaning governs,
construing the agreement against the drafting party. 256
P. General vs. Specific Words and Clauses
A contracts specific provisions prevail over general provisions relating to the same subject
matter.257 Specific terms and exact terms have greater weight than general language. 258
In construing contracts, the doctrine of ejusdem generis may often be used in
ascertaining the intent and meaning of doubtful and associated words and phrases.259 This doctrine
provides that general words, following the enumeration of particular classes of persons or things,
are constructed to apply only to persons or things of the same general nature or class as those
specifically enumerated. 260 Similar is the principle of noscitur a sociis, where general and
specific words which are capable of an analogous meaning are associated one with the other, they
take color from each other, so that the general words are restricted to a sense analogous to that of
the less general.261 Although they are helpful, the doctrines should never be used to violate or
impinge upon what otherwise would appear to be the contracting parties manifest intention.262

256

Birmingham News Co. v. Lynch, 797 So.2d 440, 443 (Ala. 2001).
Ward v. Check Into Cash of Ala., LLC, 981 So.2d 434, 438 (Ala. Civ. App. 2007).
258
Restatement (Second) of Contracts 203(c) (1981); Ex parte Dan Tucker Auto Sales, Inc., 718
So.2d 33, 36 (Ala. 1998).
259
Henry v. McCormack Bros. Motor Car Co., 232 Ala. 196, 198, 167 So. 256, 257 (1936).
260
Avis Rent A Car Systems, Inc. v. Heilman, 876 So.2d 1111, 1122 (Ala. 2003).
261
Id.; see also Chunn v. Whisenant, 877 So.2d 595, 600 (Ala. 2003).
262
Gulf, M. & O. R. R. v. Berman Bros. Iron & Metal Co., 249 Ala. 159, 164, 30 So.2d 446, 450
(1947).
257

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Q. Mistakes in Writing, Grammar, or Spelling


In contract construction, it is permissible to interpose words to make the meaning clear,
and to carry out the intention of the parties.263 Where a contract appears to have been drawn by a
person unskilled in the use of language, greater latitude of construction is permissible in arriving
at the parties intention.264
R. Punctuation
In contracts construction, it is permissible to interpose proper punctuation marks to make
the meaning clear and to carry out the intention of the parties. 265 When a contract has been
inartfully drawn, without the use of any marks of punctuation, the court may supply the
punctuation as to best effectuate the intention of the parties.266
S. Recitals
A recital is a preliminary statement in a contract or deed explaining the reasons for
entering into it or the background of the transaction, or showing the existence of particular
facts.267 The following rules apply to contract recitals:
(1) If the recitals in a contract are clear and the operative part of the
contract is ambiguous, the recitals govern the interpretation;
(2) If the recitals are ambiguous and the operative part is clear, the
operative part must prevail.
(3) If the operative part of the contract is unambiguous, the recitals
may still be looked to in determining the proper construction of
the contract and the parties intention.
(4) Recitals in a contract should be reconciled with the operative
clauses, and given effect, so far as possible.
263

Caldwell v. U.S. Fidelity & Guaranty Co., 205 Ala. 463, 465, 88 So. 574, 576 (1921).
Lively v. Robbins, 39 Ala. 461, 463 (1864).
265
Caldwell v. U.S. Fidelity & Guaranty Co., 205 Ala. 463, 465, 88 So. 574, 576 (1921).
266
Seay v. McCormick, 68 Ala. 549, 550 (1881).
267
Blacks Law Dictionary (9th ed. 2009).
264

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(5) Recitals, especially when ambiguous, cannot control the clearly


expressed stipulations of the parties.
(6) Where the recitals are broader than the contract stipulations, the
former will not extend the latter.
(7) Where the language of the covenants or promises in a contract
is more comprehensive than that of the recitals, the intent is to
be ascertained from a consideration of the entire instrument.268
T. Separate Clauses (In Pari Materia)
It is a canon of construction that provisions that are in pari materia (i.e., on the same
subject; relating to the same matter) may be construed together, so that inconsistencies may be
resolved.269 Terms of a written instrument should be construed in pari materia and a construction
adopted which gives effect to all terms used.270
U. Conflicting Provisions
Courts must use all efforts to reconcile contractual provisions; inconsistent parts in a
contract are to be reconciled, if susceptible of reconciliation.271 If an inconsistency between two
clauses of a contract which cannot be reconciled exists, the inconsistency must be resolved in favor
of the prior clause, unless the intention to thereafter qualify is plainly expressed.272
V. Construing Instruments Together
Two seemingly inconsistent documents may be considered one contract if the two writings
contain internal evidence of their identity and unity as constituting a single transaction. 273 The
contemporaneous-writing principle, under which writings executed at same time by same parties

268

Gwaltney v. Russell, 984 So. 2d 1125, 1132-35 (Ala. 2007).


Blacks Law Dictionary (9th ed. 2009).
270
Fed. Land Bank of New Orleans v. Tera Resources, Inc., 373 So.2d 314, 320 (Ala. 1979).
271
Advance Tank & Constr. Co., Inc. v. Gulf Coast Asphalt Co, LLC., 968 So.2d 520, 526 (Ala.
2006).
272
Voyager Life Ins. Co. v. Whiston, 703 So.2d 944, 949 (Ala. 1997).
273
Smith v. Smith, 43 So.3d 1249, 1253 (Ala. Civ. App. 2009).
269

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for same purpose are generally construed together as constituting one contract, is a rule of
construction that the court uses to ascertain parties intention.274 Where more than one writing is
involved in a transaction, a court interprets the writings together.275 Documents do not have to be
executed contemporaneously to be construed together, as long as they refer to one another.276
W. Oral Agreements Collateral to Written Contracts
Without a statute requiring written contracts, a contract that is partly written and partly oral
is valid.277 In order for this to occur, the oral part must be independent and collateral to the written
contract and not vary its written terms.278 Written and oral parts of the contract must be construed
together where the written contract was not intended to reflect the parties final agreement.279
X. Matters Annexed to or Referred to as Part of the Contract
Contracting parties are bound by pertinent references to outside facts and documents.280
Other writings, or matters contained therein, which are referred to in a written contract, may be
regarded as incorporated by the reference as a part of the contract and, therefore, may properly be
considered in the construction of the contract.281 A contract may incorporate the terms of another
document by reference.282 However, a written contract made at a remote time in another and
separate transaction cannot be incorporated into a subsequent written contract without some
reference to that effect.283

274

Ex parte Bill Heard Chevrolet, Inc., 927 So.2d 792, 800 (Ala. 2005).
ANCO TV Cable Co. v. Vista Commcns Ltd. Pship, 631 So.2d 860, 863 (Ala. 1993).
276
K & C Dev. Corp. v. AmSouth Bank, NA, 597 So.2d 671, 674 (Ala. 1992).
277
Green v. Hemmert, 703 So.2d 391, 395 (Ala. Civ. App. 1997).
278
Ison Fin. Co. v. Glasgow, 266 Ala. 391, 394, 96 So.2d 737, 739 (1957).
279
Hodges v. Atkins, 532 So. 2d 651, 652 (Ala. Civ. App. 1988); see also Charter Corp. v.
Lawrence Constr. & Dev. Co., Inc., 289 Ala. 300, 304, 267 So.2d 147, 150 (1972).
280
Advance Tank & Constr. Co. v. Gulf Coast Asphalt Co., 968 So.2d 520, 524 (Ala. 2006).
281
Id.
282
Id.
283
Norville v. Lowenstein, 233 Ala. 249, 251, 171 So. 357, 358 (1936).
275

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Y. Terms Implied as Part of Contract


Whatever is necessarily implied in a contract is as much a part of the contract as if it were
expressly stated therein.284 The manner of performance as well as the terms of performance of a
contract may be implied from the facts.285 Where a contract fails to specify all the duties and
obligations intended to be assumed, the law will imply an agreement to do those things that
according to reason and justice the parties should do in order to carry out the purpose for which
the contract was made.286 A prior course of dealing between parties is instructive as to terms of
an implied agreement.287 However if parties have an express contract, an implied contract about
same matter is generally not recognized.288
The law implies a duty upon all contracting parties to use reasonable skill in fulfilling their
contractual obligations.289 It is a general rule in contracts for work or services that there is implied
a duty to perform with that degree of skill or workmanship which is possessed by those of ordinary
skill in the particular trade for which one is employed.290 The manner of performance as well as
the terms of performance of a contract may be implied from the facts.291
The law also implies a duty of good faith and fair dealing in every contract, providing
that neither party will interfere with the rights of the others to receive the benefits of the
agreement.292 There is an implied covenant that neither party to a contract shall do anything that

284

Ex parte Steadman, 812 So.2d 290, 295 n.4 (Ala. 2001).


Utilities Bd. of City of Opp v. Shuler Bros., Inc., 2013 WL 3154011 *6 (Ala. June 21, 2013).
286
Lloyd Noland Found., Inc. v. City of Fairfield Healthcare Authority, 837 So.2d 253, 267 (Ala.
2002).
287
Hendrix, Mohr & Yardley, Inc. v. City of Daphne, 359 So.2d 792, 797 (Ala. 1978).
288
Kennedy v. Polar-BEK & Baker Wildwood Pship, 682 So.2d 443, 447 (Ala. 1996).
289
Blackmon v. Powell, 2013 WL 2451339 *3 (Ala. June 7, 2013).
290
Utlilities Bd. of City of Opp v. Shuler Bros., Inc., 2013 WL 3154011 *6 (Ala. June 21, 2013).
291
Watts Homes, Inc. v. Alonzo, 452 So. 2d 1331, 1332 (Ala. Civ. App. 1984).
292
Hilley v. Allstate Ins. Co., 562 So.2d 184, 190 (Ala. 1990).
285

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will have the effect of destroying or injuring the rights of the other party to receive the fruits of the
contract; in every contract there exists an implied covenant of good faith and fair dealing.293 The
law may imply a commercial reasonableness standard for certain conduct, although this standard
may be waived depending on the language of the contract.294
Z. Conduct / Construction by Parties
When construing contract terms, the trial court may consider the parties' dealings after
making of the contract because their dealings are important show the contracts construction by
the parties themselves while friendly. 295 But, when there is no ambiguity, parties conduct
subsequent to the agreement cannot be considered as aids in its construction.296 If one must go
beyond the four corners in construing an ambiguous agreement, the surrounding circumstances,
including the practical construction put on the language of the agreement by the parties to the
agreement, are controlling in resolving the ambiguity.297 Evidence necessary to guide the jurys
determination of an ambiguous contract provisions meaning includes the surrounding
circumstances and the construction the parties gave the language.298
The parties prior course of dealing is instructive as to terms of an implied agreement.299
If a contract is of a doubtful import as to any of its provisions, the parties' practical construction is
controlling of its meaning and often prevails over its literal meaning. 300 A course of dealing is

Restatement (Second) Contracts 205. Shoneys LLC v. MAC E., LLC, 27 So.3d 1216, 1220
n.5 (Ala. 2009).
294
Shoneys, 27 So.3d at 1220-22; Homa-Goff Interiors v. Cowden, 350 So.2d 1035, 1038 (Ala.
1977).
295
Carroll v. LJC Defense Contracting, Inc., 24 So.3d 448, 456 (Ala. Civ. App. 2009).
296
F.W. Woolworth Co. v. Grimmer, 601 So.2d 1043, 1045 (Ala. Civ. App. 1992).
297
McLemore v. Hyundai Motor Mfg. Ala., LLC, 7 So.3d 318, 327 (Ala. 2008).
298
Mann v. GTE Mobilnet of Birmingham, Inc., 730 So. 2d 150, 154-55 (Ala. 1999).
299
Hendrix, Mohr & Yardley, Inc. v. City of Daphne, 359 So.2d 792, 797 (Ala. 1978).
300
Montgomery Enters. v. Empire Theater Co., 204 Ala. 566, 572, 86 So. 880, 885 (1920).
293

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relevant not only to the interpretation of express contract terms, but may itself constitute contract
terms, may supplement or qualify express terms, and may even override express terms.301
AA.

Entire or Severable Contracts

The consideration to be paid, and not the subject or thing to be performed, determines
whether a contract is entire or severable.302 If the consideration is single, the contract is entire;but
if it is expressly, or by necessary implication, apportioned, the contract is severable. 303 A contract
is entire when a gross sum is to be paid for a certain and definite consideration. 304 Where the
contract is entire, there must be a complete performance to entitle the party to stipulated
compensation. 305 An agreement between parties that work should be completed before any
compensation is demandable is an entire contract.306
BB.

Alternative Stipulations and Options

Option contracts are strictly construed, and any ambiguities are construed against the
drafter.307 Time is of the essence in an option contract unless it is expressly stated otherwise.308
A contract may provide for alternative choices or remedies. An alternative contract is
defined as a contract in which the performing party may elect to perform one or two or more
specified acts to satisfy the obligationpermitting that party to choose the manner of

301

Marshall Durbin Farms, Inc. v. Fuller, 794 So.2d 320, 325 (Ala. 2000).
Blythe v. Embry, 36 Ala. App. 596, 597, 61 So.2d 142, 143 (1952).
303
Id.
304
Wolfe v. Parham, 18 Ala. 441, 449 (1850).
305
Id.
306
Partridge v, Forsyth, 29 Ala. 200, 204 (1856).
307
Ex parte Keelboat Concepts, Inc., 938 So.2d 922, 926 (Ala. 2005).
308
Id.
302

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performance.309 Where a contract provides for alternatives, and an election of one alternative is
manifested, all rights as between parties will attach as from making of contract.310
CC.

Dependent or Independent Stipulations

A dependent contract is a contract conditioned or dependent on another contract.311


Within the same contract, a dependent stipulation might also be known as a proviso or
conditionin other words a limitation, condition, or stipulation upon whose compliance a legal
or formal documents validity or application may depend, using such words as provided
that.312
Whether stipulations in a contract are dependent or independent covenants depends on the
parties intent.313 Where mutual covenants go to whole consideration on both sides of contract,
they are dependent conditions and performance must be shown in an action by either of the parties
for a breach of contract or, in lieu thereof, an offer of performance must be alleged and shown. 314
Promises which form the consideration for each other are held to be concurrent or dependent, and
a failure of performance by one party will discharge the other.315
DD.

Place

Where contract application was completed in Alabama and sent to another state where it
was approved or disapproved and the application clearly provided that final disposition of
application would be made in that state, and contract did receive final approval there, the contract

Blacks Law Dictionary (9th ed. 2009).


310
Becker Roofing Co. v. Carroll, 37 Ala. App. 385, 388, 69 So.2d 295, 298 (1953).
311
Blacks Law Dictionary (9th ed. 2009).
312
Blacks Law Dictionary (9th ed. 2009).
313
Murphy v. Schuster Springs Lumber Co., 215 Ala. 412, 417, 111 So. 427, 431 (1926).
314
Charter Corp. v. Lawrence Constr. & Dev. Co., Inc., 289 Ala. 300, 303, 267 So.2d 147, 150
(1972).
315
Mobile Electric Co. v. Nelson, 209 Ala. 554, 558, 96 So. 713, 717 (1923).
309

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was completed in that state and would be deemed a contract from that state.316 A contract made
by telephone is regarded as being made at the place where the accepting party speaks.317
Article 2 of the Uniform Commercial Code (UCC) applies to certain commercial
contracts. It holds that, unless the parties otherwise agree, The place for delivery of goods is the
sellers place of business or if he has none his residence; or, at the place of the identified goods
if the contracting parties know that said goods are located in some other place.318
EE.

Time

A contract must be construed as of the date it was made. 319 Furthermore, contracts are to
be construed according to the intentions of the parties and in light of the circumstances at the time
they were made.320
Where a contractual obligation to perform exists, and the contract does not prescribed a
time for performance, the law requires the obligated party to perform within a reasonable time.321
The determination of a reasonable time is a question of fact and depends upon the nature of the act
to be done and all the circumstances relating to the act.322 What constitutes reasonable time within
which to perform acts contemplated by contract depends upon the subject-matter, the nature of act
to be performed, and the situation of parties, and, where the facts are undisputed, the question is
one of law for court.323 If the facts are in dispute, the question is one of fact.324

Genesco Employees Credit Assn v. Cobb, 411 So.2d 151, 153 (Ala. Civ. App. 1982).
Cousins v. Harrison, 33 Ala. App. 37, 39, 30 So.2d 393, 394 (1947).
318
Ala. Code 7-2-308.
319
Bowdoin Square, LLC v. Winn-Dixie Montgomery, Inc., 873 So.2d 1091, 1101 (Ala. 2003).
320
Id.
321
Aldridge v. Dolbeer, 567 So.2d 1267, 1268 (Ala. 1990).
322
Grand Harbour Dev., LLC v. Lattof, 2013 WL 2130932 *8 (Ala. Civ. App. May 17, 2013).
323
McKee v. Club-View Heights, Inc., 230 Ala. 652, 655, 162 So. 671, 674 (1935).
324
Id.
316
317

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FF.

Duration of Contract

Parties to a contract may either prescribe a fixed term for its duration or may make it depend
on some prescribed contingency.325 Contracts without a fixed term are terminable at the will of
either party and may be terminated for any cause or for no cause.326 Where an agreement provides
for a termination at a certain time, no notice of termination is necessary. 327 Under the statute of
frauds, a contract to last more than one year may be required to be in writing.328
GG.

Conditions

The parties to a contract may prescribe the conditions under which they shall be bound and
the words so employed are given their ordinary and accepted meaning.329 A contract is construed
to be unconditional, rather than conditional, unless it is shown that it was fairly understood by the
parties that the stipulation relied on to show its conditional character is an essential element in the
contracts performance.330
A condition precedent is an act or event, other than a lapse of time, that must exist or
occur before a duty to perform something promised arises.331 Whether a provision in a contract is
a condition precedent depends, not upon formal words, but upon the parties intent, which is
deduced from the whole instrument.332 Condition precedents are not favored in contract law and
are not upheld unless there is clear language to support them.333 When a contract makes securing

325

Flowers v. Flowers, 334 So.2d 856, 858 (Ala. 1976).


Hickenbottom v. Preferred Risk Mut. Ins. Co., 514 So.2d 881, 882 (Ala. 1987).
327
Employers Ins. Co. of Ala., Inc. v. Hare, 292 Ala. 637, 641, 299 So.2d 243, 245-46 (1974).
328
Ala. Code 8-9-2 (1996).
329
Childersburg Bancorporation, Inc. v. Peoples State Bank of Commerce, 962 So.2d 248, 256
(Ala. Civ. App. 2006).
330
McFadden v. Henderson, 128 Ala. 221, 229-30, 29 So. 640, 642 (1901).
331
CAM Investments, LLC v. Totty, 2013 WL 2130944 *4 (Ala. May 17, 2013).
332
Central Reserve Life Ins. Co. v. Fox, 869 So.2d 1124, 1127 (Ala. 2003).
333
Lemoine Co. of Ala., L.L.C. v. HLH Constructors, Inc., 62 So.3d 1020, 1025 (Ala. 2010).
326

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financing a condition precedent to its performance, neither the contract nor any of its provisions
become binding obligations unless and until financing is obtained.334
HH.

Compensation / Price

Where there is a written contract which specifies the price or compensation, then the terms
of the written contract will govern. However, where the evidence is in dispute, whether parties to
contract agreed upon the cost for project is a question for the jury in a breach of contract action.335
What compensation was agreed upon in an oral subcontract was to be based on is a question for
the jury under conflicting evidence.336
Article 2 of the UCC applies to certain commercial contracts. Where price is left as an
open term, the law will imply a reasonable price.337
II.

Custom / Usage of Trade or Business

In certain circumstances, evidence of custom or usage in trade may be admissible to


ascertain and explain the meaning and intention of parties to contract.338 While custom and usage
cannot prove or establish a contract, such custom and usage may be looked to explain or aid in the
interpretation or construction of a contract.339 Custom and usage may be admissible to explain
what is doubtful, but it is never admissible to contradict what is plain, or to change an express
contract.340

334

Ex parte Bill Heard Chevrolet, Inc., 927 So.2d 792, 799 (Ala. 2005).
Kahn v. Terry, 628 So.2d 390 (Ala. 1993).
336
Mayben v. Travelers Indem. Co., 273 Ala. 643, 645, 144 So. 2d 52, 54 (1962).
337
Ala. Code 7-2-305.
338
See Ex parte McClarty Constr. & Equip. Co., 428 So. 2d 629, 634 (Ala. 1983).
339
Occidental Fire & Cas. Co. v. Eidson, 279 Ala. 111, 118, 182 So.2d 375, 381 (1966).
340
Mall Gift Cards, Inc. v. Wood, 288 Ala. 355, 360, 261 So.2d 31, 35 (1972).
335

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JJ.

Rules under UCC Article 2

Alabama has codified Article 2 of the Uniform Commercial Code (UCC), which is
known as Uniform Commercial Code Sales.341 The statute applies to transactions in goods as
between merchants, not consumers or farmers.342
It is beyond the scope of this document to explain all of the many rules contained within
UCC Article 2. The practicing attorney, when handling a case involving a sale of goods between
merchants, must be aware of Article 2s existence and be prepared to determine if any of its
provisions apply to the particular situation.

341
342

See Ala. Code 7-2-101, et seq.


Ala. Code 7-2-102, 7-2-104.
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VI.

WHAT ARE POSSIBLE REMEDIES / DAMAGES?


A.

Damages, Generally

The term damages is defined as money claimed by, or ordered to be paid to, a person
as compensation for loss or injury. 343 Compensatory damages are awarded to fairly and
reasonably compensate for the harm caused by anothers wrongful conduct. 344

Damages

recoverable for a breach of contract are such as arise naturally and normally from the breach of the
contract, and such as will put the party in the same position he would have occupied had the breach
not occurred.345 Long ago, the Alabama Supreme Court explained:
The broad general rule is that a party injured by a breach of contract
or breach of duty is entitled to recover all his damages, including
gains prevented as well as losses sustained, subject to two
conditions: The damages must be such as may be fairly supposed to
have entered into the contemplation of the parties when they made
the contract, or when the duty was assumed or imposed--that is, the
damages must be such as might be expected to follow its violation;
and they must be certain, both in their nature and in respect to the
cause from which they proceed. The familiar rules on the subject are
all subordinate to these; for instance, that the damages must flow
directly and naturally from the breach is a mere mode of expressing
the first, and that they must be, not the remote, but the proximate,
consequences of such breach, and must not be speculative or
contingent, are different modifications of the last. These two
conditions are entirely separate and independent, and to blend them
tends to confusion. Thus the damages claimed may be the ordinary
and natural, and even necessary, result of the breach; and yet, if in
their nature uncertain, they must be rejected. So they may be definite
and certain, and clearly consequent upon the breach, and yet, if such
as would not naturally flow from such breach, but for some special
circumstances, collateral to the contract or duty itself, or foreign to
its apparent object, they cannot be recovered.346

Blacks Law Dictionary (9th ed. 2009).


344
Ala. Pattern Jury Instructions Civil 11.01.
345
West v. Friday, Inc., 403 So.2d 213, 214 (Ala. 1981).
346
Southern Ry. Co. v. Coleman, 153 Ala. 266, 270-71, 44 So. 837, 838 (1907).
343

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B.

Nominal Damages

Even if a party has suffered no actual damage, he may still file a breach of contract
action.347 This is so, because an unexcused failure to perform a contract is a legal wrong. Action
will lie for the breach although it causes no injury.... The party whose legal right has been invaded
by such breach is entitled to at least nominal damages, for the law recognizes that every injury
imports damages.348
C.

Incidental & Consequential Damages

Incidental damages include expenses reasonably incurred in inspection, receipt,


transportation, care, and custody of goods rightfully rejected.349 Such damages may be recovered
under UCC Article 2.
Consequential damages are losses that do not flow directly and immediately from an
injurious act but that result indirectly from the act.350 To be recoverable, such damages must not
be too remote, but rather must reasonably have been in the contemplation of the parties or have
been foreseeable at the time the contract was entered into.351 One form of consequential damages
(economic loss damages) may be recovered in an insurance bad-faith action.352
Consequential damages include any loss resulting from general or particular requirements
and needs of which the seller, at the time of contracting, had reason to know and which could not

347

See Avis Rent A Car Sys., Inc. v. Heilman, 876 So. 2d 1111, 1120 (Ala. 2003).
Id.
349
Page v. Dobbs Mobile Bay, Inc., 599 So.2d 38, 44 (Ala. 1992)(discussing Ala. Code 7-2715).
350
Blacks Law Dictionary (9th ed. 2009).
351
Scott Southern Div. Employees Credit Union v. Loftin, 50 Ala. App. 571, 574, 281 So.2d 283,
285 (Civ. App. 1973).
352
Chavers v. National Sec. Fire & Cas. Co., 405 So.2d 1, 7 (Ala. 1981).
348

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reasonably be prevented by cover or otherwise.353 Such damages may be recovered under UCC
Article 2. However, consequential damages may also be limited or excluded under UCC Article
2.354
D.

Lost Profits

Under certain circumstances, a partys lost profit may be the correct measure of
compensatory damages.355 The Alabama Supreme Court has stated:
In order that it may be a recoverable element of damages, the loss of
profits must be the natural and proximate, or direct, result of the
breach complained of and they must also be capable of
ascertainment with reasonable, or sufficient, certainty, or there must
be some basis on which a reasonable estimate of the amount of the
profit can be made; absolute certainty is not called for or required.356
This is known as the rule of reasonable certainty. 357 Alabama jury verdicts awarding lost
profits will be affirmed if the plaintiff provides a basis upon which the jury could, with reasonable
certainty, calculate the amount of profits which were lost as a result of defendants wrongful
actions.358 The courts focus on whether the plaintiff has adduced evidence that provides a basis
from which the jury could with reasonable certainty calculate the amount of lost profits.[T]he
risk of uncertainty must fall on the defendant whose wrongful conduct caused the damages.359

353

Page v. Dobbs Mobile Bay, Inc., 599 So.2d 38, 44 (Ala. 1992)(discussing Ala. Code 7-2715).
354
Ala. Code 7-2-719(3); Southland Farms, Inc. v. Ciba-Geigy Corp., 575 So.2d 1077, 1079
(Ala. 1991).
355
See Corson v. Universal Door Sys., Inc., 596 So. 2d 565, 572 (Ala. 1991).
356
Paris v. Buckner Feed Mill, Inc., 279 Ala. 148, 149, 182 So.2d 880, 881 (1966).
357
See Super Valu Stores, Inc. v. Peterson, 506 So.2d 317, 327 (Ala. 1987).
358
Id.
359
Id. at 330.
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Recovery of lost profit damages cannot be denied merely because the damages are
difficult to measure. Recovery should not be denied merely because such damages are difficult
of ascertainment.360 The Supreme Court more fully explained:
It will be enough if the evidence show the extent of the damages as
a matter of just and reasonable inference, although the result be only
approximate. The wrongdoer is not entitled to complain that they
cannot be measured with the exactness and precision that would be
possible if the case, which he alone is responsible for making, were
otherwise.The risk of uncertainty should be thrown upon the
wrongdoer instead of upon the injured party.
Juries are allowed to act upon probable and inferential, as well as
direct and positive proof. And when, from the nature of the case,
the amount of the damages cannot be estimated with certainty, or
only a part of them can be so estimated, we can see no objection to
placing before the jury all the facts and circumstances of the case,
having any tendency to show damages, or their probable amount; so
as to enable them to make the most intelligible and probable estimate
which the nature of the case will permit.
To deny the injured party the right to recover any actual damages in
such cases, because they are of a nature which cannot be thus
certainly measured, would be to enable parties to profit by, and
speculate upon, their own wrongs, encourage violence and invite
depredation. Such is no, and cannot be the law.
Damages include those which cannot be ascertained by a fixed rule,
but must be matter of opinion and probable estimate. And the
adoption of any arbitrary rule in such a case, which will relieve the
wrongdoer from any part of the damages, and throw the loss upon
the injured party, would be little less than legalized robbery.
Whatever of uncertainty there may be in this mode of estimating
damages, is an uncertainty caused by the defendants own wrongful
act; and justice and sound public policy alike require that he should
bear the risk of the uncertainty thus produced.The constant

360

Super Valu, 506 So.2d at 329 (quoting Western Union Tel. Co. v. Tatum, 35 Ala.App. 478,
481, 49 So.2d 673, 675 (1950)).
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tendency of the courts is to find some way in which damages can be


awarded where a wrong has been done.361
One way to prove a start-up businesss lost profit claim is through pre-litigation
projections of anticipated profits. In considering claims by unestablished or new businesses for
lost profits, courts have consistently given special deference to a partys pre-dispute projections of
anticipated profits. As one court succinctly noted, pre-dispute projections are no mere interested
guess prepared with an eye on litigation. Instead, they are the product of deliberation by
experienced businessmen charting their future course.362 Where the pre-dispute projections are
prepared by the defendant, the courts have shown even more deference.363
E.

Mental Anguish

In a breach of contract action, the general rule is that a plaintiff cannot recover mental
anguish damages.364 However, an exception is that a plaintiff may recover damages for mental
anguish if the jury is satisfied that the contractual duties imposed by this contract are so coupled
with matters of mental solicitude as to the duty that is owed, that a breach of that duty will
necessarily or reasonably result in mental anguish.365 Such damages are also recoverable in an
insurance bad-faith action.366

361

Id. at 328 (quoting American Life Ins. Co. v. Shell, 265 Ala. 306, 311-12, 90 So.2d 719, 723-24
(1956)).
362

Super Valu, 506 So.2d at 330 (quoting Autowest, Inc. v. Peugot, Inc., 434 F.2d 556, 566 (2d
Cir. 1970)).
363
Id.
364
Sanford v. W. Life Ins. Co., 368 So.2d 260, 264 (Ala. 1979).
365
Indep. Fire Ins. Co. v. Lunsford, 621 So. 2d 977, 979 (Ala. 1993).
366
Chavers v. National Sec. Fire & Cas. Co., 405 So.2d 1, 7 (Ala. 1981).
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F.

Quantum Meruit

Quantum meruit is defined as the reasonable value of services; damages awarded in an


amount considered reasonable to compensate a person who has rendered services in a quasicontractual relationship.367 Where there is an implied contract or quasi-contract, a party who has
a reasonable expectation of compensation may be entitled to quantum meruit recovery to prevent
unjust enrichment of one who knowingly accepted and retained a benefit from him. 368 The
plaintiff bears the burden of proving the existence of unjust enrichment and the reasonable value
of the services rendered.369 The amount of the recovery is limited to the value of the benefit gained
by the defendant, regardless of the extent of the detriment to the plaintiff.370
G.

Liquidated Damages

Liquidated damages is defined as an amount contractually stipulated as a reasonable


estimation of actual damages to be recovered by one party if the other party breaches. 371 The
Alabama Supreme Court has offered the following definition: the amount of damages ...
ascertained by the judgment in the action, or ... a specific sum of money ... expressly stipulated by
the parties ... as the amount of damages to be recovered.... [Those] damages which are reasonably
ascertainable at time of breach, measured by fixed or established external standard, or by standard
apparent from documents upon which plaintiffs based their claim. 372 To be enforceable, a
liquidated damages clause in a contract must meet the following criteria:
First, the injury caused by the breach must be difficult or impossible
to accurately estimate; second, the parties must intend to provide for

367

Black's Law Dictionary (9th ed. 2009).


Am. Family Care, Inc. v. Fox, 642 So. 2d 486, 488 (Ala. Civ. App. 1994).
369
Id.
370
Id.
371
Blacks Law Dictionary (9th ed. 2009).
372
U.S. Fid. & Guar. Co. v. German Auto, Inc., 591 So. 2d 841, 843 (Ala. 1991).
368

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the damages rather than for a penalty; and, third, the sum stipulated
must be a reasonable pre-breach estimate of the probable loss.373
If the clause fails to meet these criteria, then it may be an unenforceable penalty, as discussed
below.
H.

Penalty

Some contracts include a penalty clause, designed to punish one party for breach of
contract.374 In Alabama, penalty provisions are void as against public policy.375
I.

Punitive Damages

Punitive damages are damages assessed by way of penalizing the wrongdoer or making
an example to others. 376 Ordinarily, punitive damages are not recoverable for breach of
contract.377 But, Where one rescinds a contract induced by fraud and recovers even nominal
damages, then in an appropriate case he may also recover punitive damages.378
J.

Attorney Fees & Expenses

The general rule is that a party may not recover its attorney fees and expenses unless it is
authorized by statute or contract. 379 If the contract provides for attorney fees, however, a

373

Milton Const. Co., Inc. v. State Highway Dep't, 568 So. 2d 784, 790 (Ala. 1990).
See Milton Const. Co., Inc. v. State Highway Dep't, 568 So. 2d 784, 790 (Ala. 1990).
375
Camelot Music, Inc. v. Marx Realty & Imp. Co., Inc., 514 So. 2d 987, 990 (Ala. 1987);
Southern Elec. Corp. v. Utilities Bd. of City of Foley, Ala., 643 F. Supp. 2d 1302, 1306 (S.D.
Ala. 2009).
376
Blacks Law Dictionary (9th ed. 2009).
377
Geohagan v. General Motors Corp., 291 Ala. 167, 279 So.2d 436 (1973); see also Nolin v.
Dismukes, 554 So.2d 1019 (Ala.1989); John Deere Indus. Equipment Co. v. Keller, 431 So.2d
1155 (Ala.1983).
378
Mid-State Homes, Inc. v. Johnson, 294 Ala. 59, 66, 311 So. 2d 312, 318 (1975).
379
See Cincinnati Ins. Co. v. City of Talladega, 342 So.2d 331, 338 (Ala. 1977).
374

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reasonable fee may be recovered. The issue of reasonableness is largely within the trial courts
discretion, and the court should consider many factors in making its determination.380
K.

Interest

Interest has been held to be a proper component of damages in a breach of contract case.381
By statute, Alabama law provides for prejudgment interest accruing from the date of the breach of
contract.382
L.

Restitution

Restitution is based on the theory of unjust enrichment and may be granted in many
different types of cases. Restitution is generally not aimed at compensating the plaintiff but is
designed to force the defendant to return benefits that it would be unjust to allow the defendant to
keep.383 The law of restitution was created with the purpose and design of forcing a defendant to
return benefits that it would be unjust to allow the defendant to keep; the law of restitution is not
intended to compensate the plaintiff.384 Recovery for money had and received is one of the
principal categories of restitution.385
M.

Specific Performance

Specific performance is defined as a court-ordered remedy that requires precise


fulfillment of a legal or contractual obligation when monetary damages are inappropriate or
inadequate, as when the sale of real estate or a rare article is involved.386 Certain rules related to

380

See Lanier v. Moore-Handley, Inc., 575 So.2d 83, 85 (Ala. 1991); Army Aviation Ctr. Fed.
Credit Union v. Poston, 460 So. 2d 139, 141 (Ala. 1984).
381
See Pittman v. Finlayson, 624 So. 2d 1051, 1052 (Ala. 1993); Ben Cheeseman Realty Co. v.
Thompson, 216 Ala. 9, 12, 112 So. 151, 153 (1927).
382
Ala. Code 8-8-8.
383
Tilley's Alabama Equity 20:1 (5th ed.).
384
Ex parte AmSouth Mortgage Co., Inc., 679 So. 2d 251, 255 (Ala. 1996).
385
Id.
386
Blacks Law Dictionary (9th ed. 2009).
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specific performance are codified in Alabama.387 This should be the first place to refer when
confronting a possible issue of specific performance.
For specific performance to be a proper remedy, certain criteria must be met:
The contract must be just, fair, and reasonable; must not have
originated in mistake, or surprise, or violation of confidence, or
breach of trust, or advantage of condition, nor been obtained by
any unconscientious or unfair methods; must be reasonably certain
in respect to the subject-matter, the terms, and stipulations; must be
founded on a valuable consideration, and its performance not work
hardship or injustice.388
Some additional rules relating to specific performance are:
To authorize the specific enforcement of an agreement to sell land
all the terms of the agreement must have been agreed on, leaving
nothing for negotiation.

If any of the terms be left in doubt or uncertainty, then a specific


performance cannot and ought not to be decreed

Neither party to a contract is entitled to specific performance as a


matter of right, but the granting or withholding of specific
performance is within the sound judicial discretion of the court,
controlled by fixed rules and principles, in view of the special
features and incidents of each case.389
N.

Rescission

To rescind a contract is not merely to terminate it, but to abrogate and undo it from the
beginning; that is, not merely to release the parties from further obligation to each other in respect
to the subject of the contract, but to annul the contract and restore the parties to the relative

387

Ala. Code 8-1-40, et seq. (1975).


Wray v. Harris, 350 So. 2d 409, 412 (Ala. 1977).
389
Dendy v. Anchor Const. Co., Inc., 294 Ala. 120, 122, 313 So. 2d 164, 165 (1975).
388

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positions which they would have occupied if no such contract had ever been made.390 There is
no hard-and-fast rule as to the right of rescission for cause.391
A material falsehood constituting fraud may justify rescission. 392 A contract may be
rescinded for unconscionability.393 It may also be rescinded for duress.394 One partys material
breach of the contract may justify rescission by the other party. 395 Similarly, one partys
repudiation may justify rescission by the other party.396
One seeking rescission ordinarily must return any consideration he may have received
under the contract.397 The general rule is that a party may not disaffirm a voidable contract and at
the same time enjoy the benefits received thereunder.398 This rule, however, is not absolute, and
must be applied to comport with general equitable principles.399
The party seeking rescission must act promptly or within a reasonable time after
discovering the right to rescind.400 What is a reasonable time? One court explained:
What is a reasonable time within which to rescind in any particular
case is ordinarily a question for the jury, to be determined, however,
in the light of the well-settled principle that, if the purchaser would
disaffirm the contract, the law requires him to act promptly and to
restore or offer to restore, what he has received under it at the earliest
practicable moment after the discovery of the cheat, unless, of
course, the thing received is absolutely worthless, or unless its

390

Nat'l Supply Co. v. S. Creamery Co., 224 Ala. 507, 510, 140 So. 590, 592 (1932).
Tilleys Alabama Equity 10:1 (5th ed.).
392
Johnson v. Jagermoore-Estes Properties, 456 So. 2d 1072, 1075 (Ala. 1984).
393
Wilson v. World Omni Leasing, Inc., 540 So.2d 713, 717 (Ala. 1989).
394
Royal v. Goss, 154 Ala. 117, 45 So. 231 (1907).
395
Johnson, 456 So.2d at 1075; see also Birmingham News Co. v. Fitzgerald, 222 Ala. 386, 388,
133 So. 31, 32 (1931).
396
McAllister-Coman Co. v. Mathews, 167 Ala. 361, 364, 52 So. 416, 417 (1910).
397
M.C. Dixon Lumber Co., Inc. v. Mathison, 289 Ala. 229, 239, 266 So.2d 841, 851 (1972).
398
Alabama Football, Inc. v. Stabler, 294 Ala. 551, 553, 319 So. 2d 678, 681 (1975).
399
Id.
400
Mortgage Bond Co. of New York v. Carter, 230 Ala. 387, 388, 161 So. 448, 449 (1935).
391

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restoration has become or been rendered impossible by reason of the


conduct or default of the other party.401
O.

Reformation

Under certain circumstances, a court may exercise its equitable powers to reform a
document to make it conform to the intentions of the parties.402 In such a case, the party opposing
the instrument must produce evidence that is clear, convincing, and satisfactory, which proves that
the deed does not truly express the intentions of the parties.403 Grounds for reformation are fraud,
mutual mistake, or unilateral mistake which the other party knew or suspected. 404 However,
reformation is available only so far as it can be done without prejudice to the rights acquired by
third persons in good faith and for value.405

401

McCoy v. Prince, 11 Ala. App. 388, 393-94, 66 So. 950, 952 (1914).
Pinson v. Veach, 388 So.2d 964, 966 (Ala. 1980).
403
Id.
404
Ala. Code 8-1-2.
405
Id.
402

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VII.

CONCLUSION

Not every purported agreement is a contract. Not every failed agreement is a breach of
contract. For an agreement to be legally enforceable as a contract, specific elements must be
met. Assuming there is a valid contract, and assuming there is a breach, the breaching party
may have available any number of legal excuses or defenses. In such a case, there is no
liability for the breaching party. Finally, even where there is a contract, and a breach, and no
excuse, the non-breaching party still will have to prove that it was harmed and will have to ask
a court to award one or more of several possible remedies.
The field of contract law is a complicated one. For every rule that at first appears to be
black-and-white, there are nuances and exceptions. Any party attempting to navigate this field
would do well to tread carefully and to consider retaining competent legal counsel.

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Gregory A. Brockwell
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DISCLAIMER
The materials in this publication have been prepared for informational purposes only, do not
constitute legal advice, do not necessarily reflect the opinions of Brockwell Smith LLC, or any of
its attorneys or clients, and are not guaranteed to be complete, correct, comprehensive, or current.
You should be aware that the law is constantly changing and varies by circumstance. Therefore,
information on a given law or legal issue may not be current or apply to your particular situation.
Receipt, use or review of this publication or any of the information contained therein does not, nor
is it intended to, create or constitute an attorney- client relationship between you and Brockwell
Smith LLC or any of the firm's attorneys. You should not rely on any information contained in this
publication without first seeking the advice of an attorney.
We would be glad to communicate with you concerning legal matters. The hiring of a lawyer is an
important decision that should not be based solely upon written information about the
qualifications and experience of our firm and its attorneys. We do not intend to represent clients
based upon their review of any portion(s) of this publication that does not comply with legal or
ethical requirements of any jurisdiction to which the publication is subject.
Nothing in this publication is intended to compare the services of our firm to that of any other
lawyer or firm, or to imply specialization or certification by any organization not previously
approved by the Alabama State Bar Board of Legal Specialization. The Alabama Rules of
Professional Conduct require the following statement: "No representation is made that the quality
of legal services to be performed is greater than the quality of legal services performed by other
lawyers."
To the extent the State Bar Rules in your jurisdiction require us to designate a principal office
and/or a single attorney responsible for this publication, we designate the office of Brockwell
Smith LLC, located at 420 20th Street North, Suite 2000, Birmingham, Alabama, 35203, USA, as
our principal office and we designate Gregory A. Brockwell as the attorney responsible for this
publication.

The author wishes to acknowledge and extend his thanks to summer associates Jordan Stephens
(University of Alabama School of Law, JD expected 2015) and R. Clayton Cain (Cumberland
School of Law, JD expected 2015) for their assistance in researching and helping to prepare
portions of this document.

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Gregory A. Brockwell
Brockwell Smith LLC (2016)