I get a few calls a week from individuals and businesses with contract disputes, so I often lose sight of the fact that the law of contracts is not "walking around knowledge." For quick reference for nonlawyers who may be Googling this topic as they try to figure out how to handle a contract dispute, I thought it may be useful to create a brief overview of contract law where I principally practice, in Alabama.*
1. To have a valid, enforceable contract, there must be an agreement by all the parties on the primary, or material, terms. Those contract terms might include the price, the date or time for performance, and the nature of the goods or services being provided, among other things.
2. To have an enforceable contract, there must also be disclosure of material information by those agreeing to be bound by the contract. For example, if one person knows the house they are selling has problems that affect its safety or habitability, they are required to tell the buyer about those problems.
3. To have an enforceable contract, both sides must harbor an intent to perform under the contract when they sign it. Entering into a contract with no intent to perform is deemed fraud and deceit in Alabama.
4. If the parties comply with 1 – 3, above, the contract is usually enforceable, even if one or more of the parties never reads the document reflecting their agreement. I am as guilty as anyone in failing to read contracts I sign, but Alabama law considers me to have knowledge of the terms of an agreement if I sign it. Even if a party to a written agreement is illiterate, and they don't ask for the document to be read and explained to them before they sign it (or have someone sign their name for them), the agreement can be enforceable against them.
5. Ambiguity in a contract is construed against the drafter, meaning, if there is more than one way to interpret the contract language, then it is ambiguous. That ambiguity works AGAINST the person that wrote the ambiguous document (so they can't take advantage of that type of error in the agreement).
The best way to avoid problems with contracts is to read them closely BEFORE signing them, and asking any questions about the confusing bits BEFORE taking action under the agreement.
Fraud in entering into and operating under contracts is a less straight-forward issue. I'll prepare a list of basics for a another blog on Alabama law.
*This should not be used as legal advice. It is merely a very general overview of some of the more central tenets of contract law.
Any lawyers reading this with anything to add or amend in this list are more than welcome to email me or post their comments below. No "pride of authorship" prevents me from accepting constructive criticism.