breach of contract litigation in alabama - an overview

BREACH OF CONTRACT

LITIGATION IN

ALABAMA

An Overview

Gregory A. Brockwell, Esq.

1

BREACH OF CONTRACT

LITIGATION IN

ALABAMA

An Overview

Gregory A. Brockwell

Leitman, Siegal, Payne & Campbell, P.C.

420 20th

Street North, Suite 2000

Birmingham, AL 35203

(205) 251-5900

[email protected]

www.lspclaw.com

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

in Birmingham, Alabama. 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

2

Contents

I. INTRODUCTION. .......................................................................................................................... 5

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

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

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

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

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

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

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

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

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

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

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

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

J. Abandonment ................................................................................................................................ 15

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

L. Laches............................................................................................................................................. 17

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

N. Waiver ............................................................................................................................................ 18

O. Estoppel ...................................................................................................................................... 18

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

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

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

S. Novation ......................................................................................................................................... 20

T. Illegality ......................................................................................................................................... 21

U. Duress ............................................................................................................................................. 21

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

W. Unconscionability ...................................................................................................................... 22

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

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

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

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

3

BB. Mistake ....................................................................................................................................... 27

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

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

EE. Minority ..................................................................................................................................... 29

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

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

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

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

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

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

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

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

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

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

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

F. When a Court can Revise or Reform a Contract ....................................................................... 37

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

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

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

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

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

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

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

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

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

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

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

R. Punctuation .................................................................................................................................... 46

S. Recitals ........................................................................................................................................... 46

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

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

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

4

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

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

DD. Place ........................................................................................................................................... 52

EE. Time ............................................................................................................................................ 53

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

GG. Conditions .................................................................................................................................. 54

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

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

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

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

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

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

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

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

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

F. Quantum Meruit ........................................................................................................................... 61

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 ............................................................................................................................... 66

VII. CONCLUSION ............................................................................................................................. 68

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

5

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).

6

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.

7

II. WHAT IS A CONTRACT?

What is a contract? The Restatement definition is widely accepted, A contract is a

promise or a set of promises for breach of which the law gives a remedy, or the performance of

which the law in some way recognizes as a duty.4 Differently stated, it is an agreement

between two or more parties creating obligations that are enforceable or otherwise recognizable

at law.5

More specific to Alabama, a contract requires: (1) an agreement, (2) with

consideration, (3) between two or more contracting parties, (4) with a legal object, and (5) legal

capacity.6 A contract is an agreement to do or not to do a certain thing. To prove there was a

contract, plaintiff must provethat there was an offer; that there was an acceptance; that there

was consideration; and that there was mutual assent to the terms.7

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

5 Blacks Law Dictionary (9th ed. 2009).

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

7 Alabama Pattern Jury Instructions-Civil, Contracts 10.01 (3

rd ed.).

8

III. WHAT IS A BREACH OF CONTRACT?

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

perform ones own promise, by repudiating it, or by interfering with another partys

performance.8 When performance of a duty under a contract is due, any non-performance is a

breach.9

In Alabama, a breach of contract is the failure, without legal excuse, to perform any

promise forming the whole or part of the contract.10 Where the defendant has agreed under the

contract to do a particular thing, there is a breach and the right of action is complete upon his

failure to do the particular thing he agreed to do.11 A contract is breached or broken when a

party does not do what it promised to do in the contract. Plaintiff must prove (1) that plaintiff and

defendant entered into a contract; (2) that plaintiff did all of the things that the contract required

it to do; (3) that defendant failed to do the things that the contract required it to do; and (4) that

plaintiff was harmed by that failure. 12 In other words, the plaintiff must prove (1) the

existence of a valid contract binding the parties in the action, (2) his own performance under

the contract, (3) the defendant's nonperformance, and (4) damages.13

Even if the defendants performance under the contract is not yet due, and even if the

contract has not yet actually been breached, the defendant may be guilty of breach through the

doctrine of repudiation (also known as prospective non-performance or anticipatory

breach). A repudiation is (a) a statement by the obligor to the oblige indicating that the obligor

will commit a breach that would itself give the oblige a claim for damages for total breach, or (b)

8 Blacks Law Dictionary (9th ed. 2009).

9 Restatement (Second) of Contracts, 235(2) (1981).

10 Seybold v. Magnolia Land Co., 376 So.2d 1083, 1084 (Ala. 1979).

11 Id.

12 Alabama Pattern Jury Instructions-Civil, Contracts 10.13 (3rd ed.).

13 State Farm Fire & Cas. Co. v. Slade, 747 So. 2d 293, 303 (Ala. 1999).

9

a voluntary affirmative act which renders the obligor unable or apparently unable to perform

without such a breach.14 Repudiation is a contracting partys words or actions that indicate an

intention not to perform the contract in the future; a threatened breach of contract. 15 In

Alabama, repudiation has been explained as rejection, disclaimer, renunciation, or even

abandonment.16 Once a party to a contract materially breaches the contract by repudiating the

parties agreement, the other party is excused from performance and has an immediate cause of

action for the breach.17

14

Restatement (Second) of Contracts, 250 (1981). 15

Blacks Law Dictionary (9th ed. 2009). 16

Draughons Business College v. Battles, 35 Ala. App. 587, 590, 50 So.2d 788, 790 (1951). 17

Baldwin v. Panetta, 4 So.3d 555, 562 (Ala. Civ. App. 2008).

10

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,

18

Technically speaking, an affirmative defense assumes that the plaintiffs allegations are true (i.e., that there is a valid contract and that it has been breached), yet the defendant has a

defense or excuse and therefore is not liable for the breach. See, e.g., Patterson v. Liberty Nat. Life Ins. Co., 903 So.2d 769, 779 (Ala. 2004)(defining an affirmative defense as a defense that raises a new matter and that would be a defense even if the relevant allegations in the

plaintiffs complaint were true). The careful reader will note that some of what is included in this section is not a true affirmative defense but rather goes to the more basic issue of is there a contract? For conveniences sake, the author has decided to group together both true affirmative defenses and those that relate more to the plaintiffs failure to prove the underlying elements. 19

Restatement (Second) of Contracts 33 (1981). 20

See Iron Age Publishing Co. v. Western Union Telegraph Co., 83 Ala. 498, 503 (1888).

11

and the circumstances under which it was made.21 A contract that leav[es] material portions

open for future agreement is nugatory and void for indefiniteness.22

Thus, the terms within the contract must be reasonably certain or definite. A defendant

can defeat a plaintiffs breach of contract claim by showing that the essential terms of the

contract are so uncertain, vague and/or indefinite that a valid and binding contract was never

formed between the parties.

B. Agreement to Agree

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

agree. Many times two parties will enter into a written agreement to agree or letter of

intent which leaves many key terms open or unaddressed, assuming that a formal agreement

will later be reached. Such an agreement to agree is generally unenforceable. In order to be

enforceable, a contract to enter into a future contract must be definite and certain in all of its

terms and conditions so that the court can ascertain what the parties have agreed upon.23 If the

terms are open or uncertain, there is nothing that a court can enforce:

An agreement to enter into negotiations, and agree upon the terms

of a contract, if they can, cannot be made the basis of a cause of

action. There would be no way by which the court could determine

what sort of a contract the negotiations would result in, no rule by

which the court could ascertain whether any, or, if so, what

damages might follow a refusal to enter into such future contract.

So, to be enforceable, a contract to enter into a future contract must

specify all its material and essential terms, and leave none to be

agreed upon as the result of future negotiations.24

21

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

12

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)).

13

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


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).

14

3. Non-occurrence of a condition is not a breach by a party unless he is under a duty that the condition occur.

37

An event may be made a condition either by the agreement of the parties or by a term supplied

by the court.38 If the condition has not occurred or did not occur, then performance is not due.

G. Time of the Essence

Generally speaking, a party has a reasonable time for performance, and time is not of the

essence in a contract.39

However, parties may draft a provision into the contract clearly

manifesting the intention to make time of the essence.40

A time of the essence clause specifies

a certain time or date when a partys performance is due and is a condition within the contract. In

other words, one partys performance is expressly conditioned on the timely performance by the

other party. If such a time is of the essence clause is included in the contract, then the one

partys failure to perform timely is a failure of condition, and the other party is thereby excused

from further performance.

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

According to the Alabama Supreme Court, A merger clause is a clause which states that

all oral representations or agreements are merged into and subsumed by the written document of

which the clause is a part.41 In a breach of contract action, the defendant may use a merger

clause to defend the plaintiffs claim that the defendant violated a prior or contemporaneous

writing or oral agreement. The Court in Belmont Homes stated, [W]hen a contract is integrated,

37



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).

15

no extrinsic evidence of prior or contemporaneous agreements will be admissible to change,

alter, or contradict the contractual writing.42

I. Lack of Standing

A plaintiffs standing to commence an action depends on whether the party has been

injured in fact and whether the injury is to a legally protected right.43 A lack of standing

defense typically arises when the plaintiff appears to be a stranger to the contract (i.e., is not a

party to the contract). Whether a party has standing implicates the subject matter jurisdiction of

the court.44

[W]hen a party without standing purports to commence an action, the trial court

acquires no subject-matter jurisdiction.45 Once a court recognizes the plaintiff lacks standing,

all orders and judgments entered in the case, except for an order of dismissal, are void ab

initio.46 Id.

Typically, the plaintiffs response to the standing defense is either (1) that the plaintiff

is in fact a party to the contract, or (2) that the plaintiff is a third-party beneficiary of the

contract. In Alabama, a third-party beneficiary does indeed have standing, as explained by the

Alabama Supreme Court, [I]f one person makes a promise for the benefit of a third party,

such beneficiary may maintain an action thereon, though the consideration does not move from

the latter.47

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

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).

16

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 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

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))). 52

HealthSouth, 799 So. 2d at 182. 53

Beauchamp v. Coastal Boat Storage, LLC., 4 So.3d 443, 451 (Ala. 2008).

17

L. Laches

Laches is defined as neglect to assert a right or a claim that, taken together with a lapse

of time and other circumstances causing disadvantage or prejudice to the adverse party, operates

as a bar.54 Acquiescence and lapse of time are the two principal foundations of laches.55 To

raise the defense successfully, the defendant must show:

1. Plaintiff delayed in asserting her right or claim;

2. Plaintiffs delay is inexcusable; and

3. Plaintiffs delay caused defendant undue prejudice.56

M. Unclean Hands

The clean-hands doctrine is defined as the principle that a party cannot seek equitable

relief or assert an equitable defense if that party has violated an equitable principle, such as good

faith.57

Such a party is described as having unclean hands. 58 Id. For the defense to be

applicable, the partys unclean hands must relate to the particular subject matter of the

lawsuit.59

Proof of unclean hands requires a showing of specific acts of willful misconduct

which is morally reprehensible.60

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


Id. 59

See Daniel v. Haggins, 240 So.2d 660, 661 (Ala. 1970); Ruffin v. Crowell, 46 So.2d 218, 226

(Ala. 1950). 60

Retail Developers of Alabama, LLC v. East Gadsden Golf Club, Inc., 985 So.2d 924, 932 (Ala.

2007).

18

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 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

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


Fountain Bldg. & Supply Co., Inc. v. Washington, 602 So. 2d 362, 364 (Ala. 1992).

19

rule of law when his own conduct renders the assertion of such rights contrary to equity and

good conscience.67

P. Failure of Performance

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

the plaintiffs own performance under the contract.68 In order to establish that a defendant is

liable for breach of contract, a plaintiff must prove her own performance, or that she is ready,

willing and able to perform.69

If the plaintiff itself failed to perform, then there is no actionable

breach of contract.

Q. Impossibility of Performance

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

Alabama. Alabama typically follows the strict rule, which will require the parties, when they

form a contract, to foresee its consequences as accurately as possible, that at the expense of

serious hardship to one of them if unforeseen circumstances render it impossible to perform his

promise.70

There are exceptions. First, there is an exception where the performance

becomes impossible by law, either by reason of a change in the law, or by some action or

authority of the government. It is generally held that, where the act or thing contracted to be done

is subsequently made unlawful by an act of the Legislature, the promise is avoided.71 Second,

there is an exception where the performance depends upon the continued existence of a thing

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 Assn, 291 Ala. 257, 260, 280 So.2d 93, 95 (1973). 71

Id.

20

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


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).

21

T. Illegality

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

illegality.78

The basis of the rule is that the court will not become a party to the enforcement of

contracts subversive of the public policy of the state.79 Explained more fully:

No principle of law is better settled than that a party to an illegal

contract cannot come into a court of law and ask to have his illegal

objects carried out; nor can he set up a case in which he must

necessarily disclose an illegal purpose as the groundwork of his

claim. The rule is expressed in the maxims, Ex dolo malo non

oritur actio, and In pari delicto potior est conditio defendentis. The

law in short will not aid either party to an illegal agreement; it

leaves the parties where it finds them.80

U. Duress

Duress is defined as subjecting a person to improper pressure which overcomes his will

and coerces him to comply with demands to which he would not yield if acting as a free agent.81

If assent to a contract is given under duress, then the contract is voidable by the victim.82

Examples of improper pressure may be (1) a threat of a crime or a tort; (2) a threat of criminal

prosecution; (3) a threat of the use of civil process in bad faith; (4) a threat that is a breach of the

contractual duty of good faith and fair dealing.83

V. Economic Duress

A contract agreed to under improper threat to a partys economic interests may give rise

to the defense of economic duress. Alabama law recognizes the contract defense of economic

78

See Wright v. Martin, 214 Ala. 334, 336, 107 So. 818, 820 (1926). 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 176 (1981).

22

duress.84 To demonstrate a prima facie case of economic duress, a party must show (1)

wrongful acts or threats; (2) financial distress caused by the wrongful acts or threats; (3) the

absence of any reasonable alternative to the terms presented by the wrongdoer.85 A contract

may be executed under such circumstances of business necessity or compulsion as to render the

contract involuntary and entitle the coerced party to excuse his performance, especially where

undue advantage or threat to do an unlawful injury is shown.86

W. Unconscionability

The standard for determining whether a contract is unconscionable is whether there are

(1) terms that are grossly favorable to a party that has (2) overwhelming bargaining power.87

One of the criteria for finding a contract unconscionable is that it be patently unfair. 88

Additional factors may be whether one party was unsophisticated and/or uneducated, whether

there was an absence of meaningful choice on one partys part, and whether there were

oppressive, one-sided, or patently unfair terms.89 It has been further defined as a provision that

no man in his sense and not under delusion would make on the one hand, and as no honest and

fair man would accept on the other.90

As to consumer credit transactions, the defense has been codified:

With respect to a consumer credit transaction, if the court as a

matter of law finds the contract or any provision of the contract to

have been unconscionable at the time it was made, the court may

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).

23

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

the contract without the unconscionable provision, or it may so

limit the application of any unconscionable provision as to avoid

any unconscionable result.91

X. Statute of Frauds

Alabamas statute of frauds holds that certain agreements are void unless they are in

writing:

In the following cases, every agreement is void unless such agreement or some

note or memorandum thereof expressing the consideration is in writing and

subscribed by the party to be charged therewith or some other person by him

thereunto lawfully authorized in writing:

1. Every agreement which, by its terms, is not to be performed within one year from the making thereof;

2. Every special promise by an executor or administrator to answer damages out of his own estate;

3. Every special promise to answer for the debt, default or miscarriage of another;

4. Every agreement, promise or undertaking made upon consideration of marriage, except mutual promises to marry;

5. Every contract for the sale of lands, tenements or hereditaments, or of any interest therein, except leases for a term not longer than one year, unless

the purchase money, or a portion thereof is paid and the purchaser is put in

possession of the land by the seller;

6. Every agreement, contract or promise to make a will or to devise or bequeath any real or personal property or right, title or interest therein;

7. Every agreement or commitment to lend money, delay or forebear repayment thereof or to modify the provisions of such an agreement or

commitment except for consumer loans with a principal amount financed

less than $25,000;

8. Notwithstanding Section 7-8-113, every agreement for the sale or purchase of securities other than through the facilities of a national stock

exchange or of the over-the-counter securities market.92

91

Ala. Code 5-19-16 (1996). 92

Ala. Code 8-9-2 (1996).

24

With regard to the sale of land, an equitable exception to the statute of frauds may exist

under certain circumstances. In the case of Darby v. Johnson, the Alabama Supreme Court

addressed the issue of whether the statute of frauds prohibits enforcement of an oral agreement

involving land even though both parties acknowledge existence of the agreement.93 The Court

concluded, An oral agreement involving land will be enforced when some or all of the purchase

money is paid and the seller gives possession of the land to be buyer.94 This is known as the

part performance exception, and to fall within it, One must pay some or all of the purchase

price and be put in possession of the land by the seller.95

Until recently, it was held that even if the part performance standard is not met, an

exception to the statute of frauds may still exist due to a breaching partys fraud in the

inducement, explained as when the breaching party procured the land or purchase money with

no intent to perform the oral agreement admitted to have been made.96 This fraud in the

inducement exception has been overruled.97

Y. Statute of Limitations & Rule of Repose

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

contract claim by claiming that the plaintiff waited too long to file suit with the court. In

Alabama, the amount of time a party has to file an action on an open or unliquidated account is 3

years; an action on a written promise and/or any simple contract is 6 years; and an action on a

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).

25

contract under seal is 10 years.98

The statute of limitations in breach of contract claim begins to

run when the breach occurs and not when the contract is entered.99

Special rules may apply for certain contracts or claims. For example, under UCC Article

2, an action for breach of any contract for sale must be commenced within 4 years, and this may

be reduced by agreement to not less than 1 year.100

Under UCC Article 3, special rules apply for

negotiable instruments.101

Under UCC Article 4, special rules apply for bank deposits and

collections.102

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

agreement.103

The time to file a mechanics lien is 6 months for the original contractor, 4 months

for suppliers and subcontractors, and 30 days for day laborers; and a suit to enforce the lien must

be commenced within 6 months.104

Z. Fraud in the Inducement

Fraud in the inducement consists of one party's misrepresenting a material fact

concerning the subject matter of the underlying transaction and the other party's relying on the

misrepresentation to his, her, or its detriment in executing a document or taking a course of

action.105

In issues of fraud, Alabama employs a reasonable reliance standard, which includes a

general duty to read the documents received in connection with a particular transaction, together

with a duty to inquire and investigate.106 The Alabama Supreme Court has consistently held

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).

26

that a plaintiff who is capable of reading documents, but who does not read them or investigate

facts that should provoke inquiry, has not reasonably relied upon a defendants oral

representations that contradict the written terms in the documents.107 A person cannot blindly

rely on an agent's oral representations to the exclusion of written disclosures in a contract.108

Under a very narrow exception, however, this rule may not apply if there is a special

relationship between the parties.109

Generally a mere statement of opinion cannot support a defense of fraudulent

inducement.110

However, the defense may be available if a party is able to show that an opinion

was stated with an intent to deceive, that reliance on said opinion was reasonable, that the facts

were not equally known to both sides, and that the statement of opinion was made by the one

who knew the facts better.111

AA. Fraud in the Factum

Fraud in the factum occurs when a legal instrument as actually executed differs from

the one intended for execution by the person who executes it, or when the instrument may have

had no legal existence.112 This defense is said to be rare, with an illustrative example of

when a blind person signs a mortgage when misleadingly told that the paper is just a letter.113

In Alabama, fraud in the factum is explained:

When the execution of an instrument, which the party signing did

not intend to sign, and did not know he was signing, is procured by

a misrepresentation of its contents, and the party signing it does so

without reading it or having it read, relying upon such

107

Id. 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


Id.

27

misrepresentations and fraud, and believing he is signing a

different instrument, he can avoid the effect of his signature

notwithstanding he was able to read and had an opportunity to read

the instrument.114

The misrepresentation must go to the essential nature or existence of the contract itself, for

example, a misrepresentation that an instrument is a promissory note when in fact it is a

mortgage.115

BB. Mistake

A mistake is a belief that is not in accord with the facts.116 A mistake can be either

unilateral or mutual and both can make a contract voidable under certain circumstances.

A unilateral mistake is a mistake by only one party to the contract.117 In Alabama, the

general rule is that a unilateral mistake does not make a contract voidable.118

However, if a

unilateral mistake goes to the substance of the contract itself, the contract may be voidable.119

The party seeking relief based on a unilateral mistake must show that the mistake was material

to the transaction and also that his mistake is not due to want of care or diligence.120 Also, a

party may be relieved from an obvious mistake: Where there is a mistake that on its face is so

palpable as to place a person of reasonable intelligence upon his guard, there is not a meeting of

the minds of the parties, and consequently there can be no contract.121

114

Willcutt v. Union Oil Co. of California, 432 So.2d 1217, 1220 (Ala. 1983). 115

Harold Allens Mobile Home Factory Outlet, Inc. v. Early, 776 So.2d 777, 783 n.6 (Ala. 2000). 116



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.

28

A mutual mistake is a mistake that is shared and relied on by both parties to a

contract.122 The Restatement lays out the elements that a defendant must prove in order to

claim the defense of mutual mistake:

1. There is a mistake;

2. It is mutual (a mistake of both parties);

3. It is present at the time the contract is made;

4. It relates to a basic assumption;

5. It has a material effect on the exchange; and

6. The party seeking relief did not bear the risk.123

A mutual mistake exists when the parties have entered into an agreement, but the agreement does

not express what the parties intended.124

In determining whether a mutual mistake exists, [t]he

initial factual question is, of course, what the parties intended the agreement to express at the

time they were executed.125

CC. Insolvency or Bankruptcy

A partys mere inability to pay is not a defense to a contract. However, if the party

properly files for bankruptcy protection and obtains a discharge in bankruptcy, then the discharge

may serve as a valid defense to a contractual obligation. A discharge in bankruptcy is defined as

the release of a debtor from personal liability for prebankruptcy debts.126 [A] discharge in

bankruptcy releases the bankrupt from the obligation of a debt, not in the sense that the debt is

122



Daniels v. Johnson, 539 So.2d 259, 260 (Ala. 1989). 125

Jim Walter Homes, Inc. v. Phifer, 432 So.2d 1241, 1242 (Ala. 1983). 126

Blacks Law Dictionary (9th ed. 2009).

29

paid or satisfied, 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 Natl 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).

30

contracts of an insane person are void; but he and his estate shall be liable for necessaries

furnished him, which may be recovered upon the same proof and upon the same conditions as if

furnished to an infant.133 However, the good faith purchase of real property from an insane

person may not be void.134

The test of insanity is not merely that the grantors mental powers

were impaired, but whether he had sufficient capacity to understand in a reasonable manner the

nature and effect of the act which he was doing.135

GG. Undue Influence

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

of lands, obtained for a grossly inadequate consideration, by unfair advantage taken of great

mental weakness, though not amounting to absolute incapacity, of the grantor, will, in equity, be

set aside, on equitable terms, when application therefor is made seasonably by the grantor, his

representatives or heirs.136 The essence of undue influence is that the will of the influencing

party so overpowered the will of the other party that the other party's act essentially became the

act of the influencing party.137 It is a species of fraud.138

HH. Foreign Corporation Not Registered to do Business in Alabama

Alabama has a door-closing statute that protects corporations and citizens within

Alabama against foreign (i.e., out-of-state) corporations. The statute provides:

A foreign corporation transacting business in this state without

registering as required... may not maintain a proceeding in this

state without so registering or complying. All contracts or

agreements made or entered into in this state by foreign

corporations prior to registering to transact business in this state

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.

31

shall be held void at the action of the foreign corporation or by any

person claiming through or under the foreign corporation by virtue

of the contract or agreement; but nothing in this section shall

abrogate the equitable rule that he who seeks equity must do

equity.139

Alabama courts have held that foreign corporations attempting to do business in the state without

registering cannot use the states judicial system to enforce a contract claim.140

It should be noted that the door-closing statute is repealed effective January 1, 2014.141

Thus, this defense will no longer be available.

II. Unlicensed General Contractor and/or Homebuilder

A general contractor (as defined under Alabama law, Ala. Code 34-8-1(a)) must be

licensed.142

As a penalty, an unlicensed general contractor cannot enforce its contracts.

Express or implied contracts entered into by an unlicensed general contractor are null and void

because they violate public policy.143 Moreover, such contracts are illegal and unenforceable

by the unlicensed general contractor.144

Similarly, an unlicensed homebuilder may not enforce its contracts. A residential home

builder who fails to maintain a license with the Alabama Home Builders Licensure Board is

statutorily barred from bringing or maintaining any action to enforce the provisions of any

contract for residential home building which he or she entered into in violation of this

chapter.145

139

Ala. Code 10A-2-15.02. 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).

32

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).

33

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).

34

V. WHAT ARE SOME RULES OF CONSTRUCTION?

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

will be required to employ various rules of construction to assist in its interpretation. The

practicing attorney should become familiar with these rules, as they can either be friend or foe

when advocating for your clients position.

A. Freedom of Contract

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

Alabamas Constitution states, There can be no law of this state impairing the obligation of

contracts by destroying or impairing the remedy for their enforcement.159 The right of freedom

of contract is a cherished one that courts are bound to protect.160

B. Four-Corners Rule

When a contract is unambiguous its construction and legal effect is based on what is

found within its four corners.161

When examination is limited to the four corners of an

agreement, the first of two conflicting provisions prevails over eth 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

clause establishes that the written agreement is a completely integrated document, into which all

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).

35

prior and contemporaneous negotiations are merged.165

Such a clause applies only to contracts

between the same parties.166

Nonetheless, parties may modify the terms of their agreement, and,

if the terms of a subsequent agreement contradict the earlier agreement, the terms of the later

agreement prevail.167

D. Parol Evidence

If the contract is unambiguous, then the four-corners rule should apply. However,

extrinsic or parol evidence, including construction placed upon language by parties, is admissible

to aid in interpretation of an ambiguous contract.168

Parol evidence can help explain or clarify

the ambiguity.169

If the language of instrument is ambiguous in any respect, the surrounding

circumstances and construction placed on language by the parties may be taken into

consideration in determining the instruments meaning, and the intent of the parties may be

ascertained by parol evidence.170

Whether a writing is ambiguous is a question of law for the court.171

Parol evidence is

not permitted to explain unequivocal contract terms.172

Where no ambiguity exists, a courts

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

agreement and 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

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). 173

Id. 174

Clark v. Albertville Nursing Home, Inc., 545 So.2d 9, 11 (Ala. 1989).

36

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

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

175

Black Diamond Dev., Inc. v. Thompson, 979 So.2d 47, 52 (Ala. 2007). 176

Pasquale Food Co. v. L & H Intl Airmotive, Inc., 51 Ala. App. 127, 134, 283 So.2d 438, 444 (1973). 177

Certain Underwriters at Llyods 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). 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).

37

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

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

184

Hipsh v. Graham Creek Estates Owners Assn, Inc., 927 So.2d 846, 849 (Ala. Civ. App. 2005). 185

Cockrell v. Cockrell, 40 So.3d 712, 716 (Ala. Civ. App. 2009). 186

Kelmor, LLC v. Ala. Dynamics, Inc., 20 So.3d 783, 790-91 (Ala. 2009). 187

Id. 188

McCollum v. Atkins, 912 So.2d 1146, 1148 (Ala. Civ. App. 2005). 189

Id. 190

Shoneys 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).

38

parties intent and meaning.192 Courts cannot make new contracts for parties or raise doubts

where none exist.193

Courts cannot stretch a contracts language to apply to matters not

contemplated by parties when they entered the contract.194

Where possible, courts should not tamper with and change contract terms.195

Courts are

under no obligations and do not have the power to make a wiser or better contract for a party

than he may be supposed to have made for himself.196

Courts cannot set up a contract for

parties.197

A court has the duty to accept construction that will uphold, not destroy, the contract

and give effect and meaning to all terms.198

Although all of the above general rules hold that a court cannot rewrite a contract,

Alabama law does provide that a contract can be revised under certain circumstances of fraud or

mistake:

When, through fraud, a mutual mistake of the parties or a mistake

of one party which the other at the time knew or suspected, a

written contract does not truly express the intention of the parties,

it may be revised by a court on the application of the party

aggrieved so as to 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

192

Matthews Masonry, Co. v. Aldridge, 25 So.3d 464, 469 (Ala. Civ. App. 2009). 193

Title Max of Birmingham, Inc. v. Edwards, 973 So.2d 1050, 1054 n.1 (Ala. 2007). 194

Carroll v. LJC Defense Contracting, Inc., 24 So.3d 448, 456 (Ala. Civ. App. 2009). 195

Wiregrass Constr. Co. v. Tallapoosa River Elec. Coop., Inc., 365 So.2d 95, 98 (Ala. Civ. App.

1978). 196

Pasquale Food Co. v. L & H Intl Airmotive, Inc., 51 Ala. App. 127, 138, 283 So.2d 438, 448 (1973). 197

Pizitz-Smolian Coop. Stores v. Meeks, 224 Ala. 330, 331, 140 So. 442 (1932). 198

Robertson v. Mount Royal Towers, 2013 WL 3154008 *4 (Ala. June 21, 2013). 199

Ala. Code 8-1-2.

39

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

approach.209

The conduct of one party from which another can reasonably draw an inference of

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 Commrs of Mobile v. Bill Harbert Constr. Co., 870 So.2d 699, 710 (Ala. 2003). 205

Id. 206

Blue Cross Blue Shield of Ala. v. Rigas, 923 So.2d 1077, 1091 (Ala. 2005). 207

Smith v. Smith, 892 So.2d 384, 388 (Ala. Civ. App. 2003). 208

Carr v. Stillwaters Dev. Co. LP, 83 F.Supp.2d 1269, 1278 (M.D. Ala. 1999). 209

McLemore v. Hyundai Motor Mfg. Ala., LLC, 7 So.3d 318, 333 (Ala. 2008).

40

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

210

Deeco, Inc. v. 3-M Co., 435 So.2d 1260, 1262 (Ala. 1983). 211

Dillards, Inc. v. Gallups, 58 So.3d 196, 200-01 (Ala. Civ. App. 2010). 212

N & L Enterprises, LLC. v. Lioce Properties, LLC, 51 So.3d 273, 279 (Ala. 2010). 213

Kelmor, LLC v. Ala. Dynamics, Inc., 20 So.3d 783, 791 (Ala. 2009). 214

J.I.T. Services, Inc. v. Temic Telefunken-RF, Engg, LLC, 903 So.2d 852, 856 (Ala. Civ. App. 2004). 215

FabArc Steel Supply, Inc. v. Composite Constr. Sys., Inc., 914 So.2d 344, 358 (Ala. 2005). 216

Lewis v. Oakley, 847 So.2d 307, 327 (Ala. 2002). 217

Matthews Masonry, Co. v. Aldridge, 25 So.3d 464, 469 (Ala. Civ. App. 2009). 218

Vardaman v. Benefit Assn of Ry. Employees, 263 Ala. 236, 239, 82 So.2d 272, 275 (1955). 219

Id.

41

I. Parties Pre-Contract Negotiations

It is the courts duty, not the jurys, to analyze and determine the meaning of a contract

when its terms are clear and certain.220

It is also the courts duty to ascertain whether or not

contract is ambiguous.221

But when the contract terms are doubtful of meaning or language is

ambiguous, pre-contract negotiations and conduct or parties may be looked to by the jury as an

aid in interpreting the contract.222

J. Choice of Law

Contracting parties have the right to choose a particular states laws to govern an

agreement.223

Where application of another states laws is contrary to state policy, however, the

parties choice of law will not be given effect and Alabama state law will govern.224

K. Modification / Subsequent Agreement

In order to modify a contract, both parties must mutually assent to the new terms.225

Parties may modify the terms of their agreement, and, if the terms of a subsequent agreement

contradict the earlier agreement, the terms of the later agreement prevail.226

Amendments to the

conditions of unilateral-contract relationships with notice of the changed conditions are not

inconsistent with the general law of contracts.227

Where the rights of a third party are at stake,

the terms of a contract are not the controlling or governing factors if they are in conflict with

actual facts and the way in which contract was actually performed.228

220

C.F. Halstead Contractor, Inc. v. Dirt, Inc., 294 Ala. 644, 649, 320 So.2d 657, 661 (1975). 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).

42

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 agreem

breach of contract litigation in alabama - an overview

Documents

breach of contract litigation

corporate litigation

securities litigation

estate litigation

business litigation

contractrelated disputes

insurancebad faith litigation

subsequent contract