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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, Esq.

BREACH OF CONTRACT LITIGATION IN ALABAMA

An Overview

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

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

Contents

I.

5

II. WHAT

IS

A

CONTRACT?

III.

WHAT

IS

A

7

BREACH OF CONTRACT?

8

IV.

WHAT ARE SOME “LEGAL EXCUSES” OR “DEFENSES?”

10

  • A. Uncertainty/Vagueness

10

  • B. Agreement to

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

Lack of Standing

  • I. ...................................................................................................................................

15

Abandonment

  • J. .......................................................................................................................................

16

  • K. Repudiation/Renunciation

16

  • L. ....................................................................................................................................................

Laches

17

  • M. ..................................................................................................................................

Unclean Hands

17

Waiver

  • N. ...................................................................................................................................................

18

  • O. Estoppel

18

  • P. Failure of Performance

19

  • Q. Impossibility of Performance

19

  • R. Accord and Satisfaction

20

  • S. ................................................................................................................................................

Novation

20

Illegality

  • T. .................................................................................................................................................

21

  • U. ....................................................................................................................................................

Duress

21

Economic Duress

  • V. ..................................................................................................................................

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

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

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

Parol Evidence

  • D. ......................................................................................................................................

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. Written Contracts .................................................................................................

Construction

of

43

  • N. Construction ..........................................................................................................

Reasonableness

of

44

  • O. Construction against Drafting Party

44

  • P. General vs. Specific Words and Clauses

45

  • Q. Mistakes in Writing, Grammar, or Spelling

46

Punctuation

  • R. ...........................................................................................................................................

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

Y.

Terms Implied as Part of Contract

49

Z.

Conduct / Construction by Parties

50

AA. Entire or Severable Contracts .........................................................................................................

51

BB.

51

CC.

52

DD.

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,

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

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?

  • 1 Restatement (Second) of Contracts § 1 (1981).

  • 2 Charles Fried, Contract as Promise, a Theory of Contractual Obligation, Harvard University Press (1981).

  • 3 See, e.g., Williston on Contracts (4th ed. 2000).

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.

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 prove…that there was an offer; that there was an acceptance; that there was consideration;

and that there was mutual assent to the terms.” 7

  • 4 Restatement (Second) of Contracts, § 1 (1981).

  • 5 Black’s Law Dictionary (9 th ed. 2009).

  • 6 Gray v. Reynolds, 514 So.2d 973, 975 (Ala. 1987).

  • 7 Alabama Pattern Jury Instructions-Civil, Contracts §10.01 (3 rd ed.).

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 one’s own promise, by repudiating it, or by interfering with another party’s

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 defendant’s 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

8 Black’s Law Dictionary (9 th 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).

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 party’s 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).

  • 15 Black’s Law Dictionary (9 th ed. 2009).

  • 16 Draughon’s 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).

IV.

WHAT ARE SOME “LEGAL EXCUSES” OR “DEFENSES?” 18

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

18 Technically speaking, an “affirmative defense” assumes that the plaintiff’s 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

plaintiff’s 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 convenience’s sake, the author has decided to group together both true “affirmative defenses” and those that relate more to the plaintiff’s 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).

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 plaintiff’s 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).

  • 22 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).

  • 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).

  • 26 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)).

  • 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).

  • 33 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).

  • 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 party’s performance is due and is a condition within the contract. In

other words, one party’s 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 party’s

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 plaintiff’s 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).

  • 38 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).

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

the contractual writing.’” 42

  • I. Lack of Standing

A plaintiff’s 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 plaintiff’s 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.

  • 43 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).

  • 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).

  • 49 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))).

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. Plaintiff’s delay is inexcusable; and

  • 3. Plaintiff’s 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 party’s “unclean hands” must relate to the particular subject matter of the lawsuit. 59 Proof of

  • 52 HealthSouth, 799 So. 2d at 182.

  • 53 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 Black’s Law Dictionary (9 th 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).

“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 Black’s Law Dictionary (9 th ed. 2009).

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 plaintiff’s breach of contract claim is

the plaintiff’s 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).

  • 67 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 Ass’n, 291 Ala. 257, 260, 280 So.2d 93, 95 (1973).

  • 71 Id.

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.

  • 73 Ala. Code § 8-1-20.

  • 74 Ala. Code § 8-1-22.

  • 75 Black’s Law Dictionary (9 th 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).

  • 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 party’s 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).

  • 79 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).

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 party’s 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

  • 84 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).

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

Alabama’s “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 Ala. Code § 5-19-16 (1996). 92 Ala. Code § 8-9-2 (1996).

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 party’s 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 plaintiff’s 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).

  • 94 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).

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 mechanic’s 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). 99 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).

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 defendant’s 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.

  • 108 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 Black’s Law Dictionary (9 th ed. 2009).

  • 113 Id.

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

2000).

  • 116 Restatement (Second) of Contracts § 151 (1981).

  • 117 Black’s Law Dictionary (9 th 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.

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 party’s 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,

  • 122 Black’s Law Dictionary (9 th 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 Black’s Law Dictionary (9 th ed. 2009).

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

  • 127 First Nat’l Bank of Dozier v. Henderson, 243 Ala. 636, 639, 11 So.2d 366, 368 (1942).

  • 128 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).

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 grantor’s 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.

  • 134 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.

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 state’s 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.

  • 140 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).

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/non-

solicitation 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.

  • 147 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).

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).

  • 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 client’s position.

  • A. Freedom of Contract

As a bedrock principle, Alabama recognizes the parties’ “freedom of contract. Alabama’s

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.

  • 160 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).

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 instrument’s 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 court’s only

function is to interpret the lawful meaning and intentions of parties as found within agreement and

  • 165 Id.

  • 166 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).

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.

  • 174 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 Int’l Airmotive, Inc., 51 Ala. App. 127, 134, 283 So.2d 438, 444

(1973).

  • 177 Certain Underwriters at Lloyd’s 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).

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).

  • 183 Porter Capital Corp. v. Thomas, 101 So.3d 1209, 1219 (Ala. Civ. App. 2012).

  • 184 Hipsh v. Graham Creek Estates Owners Ass’n, 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.

  • 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 contract’s 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

  • 190 Shoney’s LLC v. MAC E., LLC, 27 So.3d 1216, 1222-23 (Ala. 2009).

  • 191 Public Bldg. Auth. of Huntsville v. St. Paul Fire & Marine Ins. Co., 80 So.3d 171, 180 (Ala.

2010).

  • 192 Matthew’s 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 Int’l 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).

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.

  • 200 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 Comm’rs 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).

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).

  • 210 Deeco, Inc. v. 3-M Co., 435 So.2d 1260, 1262 (Ala. 1983).

  • 211 Dillard’s, 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, Eng’g, 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 Matthew’s Masonry, Co. v. Aldridge, 25 So.3d 464, 469 (Ala. Civ. App. 2009).

  • 218 Vardaman v. Benefit Ass’n of Ry. Employees, 263 Ala. 236, 239, 82 So.2d 272, 275 (1955).

  • 219 Id.

  • I. Parties’ Pre-Contract Negotiations

It is the court’s duty, not the jury’s, to analyze and determine the meaning of a contract

when its terms are clear and certain. 220 It is also the court’s 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 state’s laws to govern an

agreement. 223 Where application of another state’s 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).

  • 221 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).

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 contract’s 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).

  • 230 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 Eng’rs 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).

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 contract’s 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).

  • 239 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).

  • 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 contract’s

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 contract’s 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).

  • 249 Int’l Harvester Co. v. Bosticks’ Int’l, 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 Ass’n 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).

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 contract’s 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 generismay 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).

  • 257 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).

  • 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).

  • 264 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 Black’s Law Dictionary (9 th ed. 2009).

(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).

  • 269 Black’s Law Dictionary (9 th 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).

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).

  • 275 ANCO TV Cable Co. v. Vista Commc’ns Ltd. P’ship, 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).

  • 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).

  • 285 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 P’ship, 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).

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 contract’s 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 jury’s

determination of an ambiguous contract provision’s 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

  • 293 Restatement (Second) Contracts § 205. Shoney’s LLC v. MAC E., LLC, 27 So.3d 1216, 1220 n.5 (Ala. 2009).

  • 294 Shoney’s, 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).

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 obligation…permitting that party to choose the manner of

  • 301 Marshall Durbin Farms, Inc. v. Fuller, 794 So.2d 320, 325 (Ala. 2000).

  • 302 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.

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

“condition”—in other words “a limitation, condition, or stipulation upon whose compliance a legal

or formal document’s 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

  • 309 Black’s Law Dictionary (9 th ed. 2009).

  • 310 Becker Roofing Co. v. Carroll, 37 Ala. App. 385, 388, 69 So.2d 295, 298 (1953).

  • 311 Black’s Law Dictionary (9 th ed. 2009).

  • 312 Black’s Law Dictionary (9 th 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).

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

seller’s 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

  • 316 Genesco Employee’s Credit Ass’n v. Cobb, 411 So.2d 151, 153 (Ala. Civ. App. 1982).

  • 317 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.

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

contract’s 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).

  • 326 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).

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