Legal Memorandum: Interpretation of Contractual Ambiguities

Issue: In Alabama, how are contractual ambiguities in oral agreements construed?

There is a well-known rule of construction that provides that any ambiguity in an agreement is construed against the party who drafted it.  See Rogers Found. Repair, Inc. v. Powell, 748 So. 2d 869, 872 (Ala. 1999).

The law is clear, that parties may enter into binding oral agreements even though they also contemplate memorializing those agreements in subsequent written documents.  See Muscle Shoals Aviation, Inc. v. Muscle Shoals Airport Auth., 508 So. 2d 225, 227 (Ala. 1987).  In such cases the language of the original oral agreement will be binding but the interim written summary, or letter of intent is not.

The existence of a contract is determined by objective, express declarations and conduct, not by unexpressed, subjective intentions or beliefs.  Lilley v. Gonzales, 417 So. 2d 161, 163 (Ala. 1982).  As the court observed in Lilley:

Agreement consists of mutual expression; it does not consist of harmonious intentions or states of mind. . . .

[One] may be bound by a contract in ways [one] did not intend, foresee or understand.  The juristic effect (the resulting legal relations) of a man’s expressions in word or act may be very different from what he supposed it would be.

Id. (quoting A. Corbin, Corbin on Contracts § 9 (1952)).

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