California Cannabis Claims: Breach of Contract

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cannabis contract

Happy
2020,
everyone!
Our
litigation
team
would
like
to
kick-start
the
year
by
starting
a
series
on
the
most
common
causes
of
action
that
we
see
in
and
around
the
cannabis
industry.
We
hope
these
overviews
help
our
audience
not
only
understand
what
they
can
expect
if
they
ever
find
themselves
in
litigation,
but
also
what
they
can
and
should
be
mindful
of
in
conducting
their
businesses
to
avoid
litigation
altogether.

Of
course,
we
must
begin
with
the
most
prevalent
cause
of
action
of
all:
breach
of
contract.


Introduction

This
is
sometimes
missed:
a
breach
of
contract
claim
has
to
begin
with
a
valid
contract,
which
is
an
agreement
to
do
or
not
do
something(s).
The
contract
can
be
written
or
oral.
It
also
can
be
express
or
implied
(arises
by
law
or
from
facts).


Statute
of
Limitations

The
statute
of
limitations
for
breach
of
contract
depends
on
whether
it’s
written
or
oral

four
years
for
a
written
contract
and
two
years
for
an
oral
contract.
The
clock
starts
ticking
when
the
breach
occurs.

Note,
parties
can
agree
to

reasonably

shorten
the
period
within
which
a
breach
of
contract
claim
has
to
be
filed.
But

If
you
decide
to
try
this
in
one
of
your
agreements,
know
that
what’s
“reasonable”
may
vary
depending
on
the
situation.


Elements
of
a
Breach
of
Contract
Claim

California
Civil
Jury
Instructions
(CACI)
provides,
in
relevant
part:

“To
recover
damages
from
[name
of
defendant] for
breach
of
contract,
[name
of
plaintiff] must
prove
all
of
the
following:

1.
That
[name
of
plaintiff] and
[name
of
defendant] entered
into
a
contract;

2.
That
[name
of
plaintiff] did
all,
or
substantially
all,
of
the
significant
things
that
the
contract
required
[him/her/it] to
do;
[or]2.
That
[name
of
plaintiff] was
excused
from
having
to
[specify
things
that
plaintiff
did
not
do,
e.g.,
obtain
a
guarantor
on
the
contract];

3.That
[specify
occurrence
of
all
conditions
required
by
the
contract
for
[name
of
defendant]’s
performance
…];
[or]3.That
[specify
condition(s)
that
did
not
occur] [was/were] [waived/excused];

4.
That
[name
of
defendant] failed
to
do
something
that
the
contract
required
[him/her/it] to
do;
[or]4.
That
[name
of
defendant] did
something
that
the
contract
prohibited
[him/her/it] from
doing;

5. 
That
[name
of
plaintiff] was
harmed;
and

6. 
That
[name
of
defendant]’s
breach
of
contract
was
a
substantial
factor
in
causing
[name
of
plaintiff]’s
harm.”

While
that
may
be
a
little
hard
to
follow,
elements
1-4
essentially
indicate
that
in
order
to
obtain
remedies
for
a
defendant’s
breach
of
contract,
the
plaintiff
must
plead
and
prove
(1)
the
parties
entered
into
a
valid
contract
(as
mentioned
above),
(2)
it
performed
its
own
obligations
under
the
contracts
(or
was
excused
from
doing
so),
and
(3)
the
defendant
didn’t
perform
its
obligations
in
turn.
Element
5
is
pretty
straightforward:
any
partial
or
total
breach
that
causes
harm
creates
a
right
to
damages.
Element
6
is
less
straightforward:
the
plaintiff
must
show
that
the
defendant’s
breach
was
a
“substantial
factor”
in
causing
the
plaintiff’s
damages.


Remedies

A
breach
of
contract
claim
gives
rise
to
a
few
different
kinds
of
remedies
or
“damages”.
The
most
common
are:

  • Compensatory
    damages:
    compensation
    for
    all
    the
    plaintiff’s
    harm
    caused
    by
    the
    breach,
    that
    in
    the
    ordinary
    course,

    could
    be
    expected
    to
    result
    from
    it
    .
    One
    question
    we
    often
    get
    is
    whether
    lost
    profits
    can
    be
    awarded

    in
    short,
    lost
    profits

    may

    be
    recoverable
    if
    they’re
    sufficiently
    certain.
    So,
    for
    example,
    if
    you’ve
    got
    a
    newer
    business
    that
    isn’t
    very
    established
    or
    you’ve
    got
    a
    business
    with
    varying
    profits
    each
    month,
    an
    award
    of
    lost
    profits
    is
    unlikely.
  • Liquidated
    damages:
    a
    contractual
    liquidated
    damages
    provision
    is
    valid
    unless
    the
    defendant
    establishes
    that
    it
    was
    unreasonable
    under
    the
    circumstances
    at
    the
    time
    the
    contract
    was
    made
    or
    it
    fails
    to
    bear
    a
    reasonable
    relationship
    to
    actual
    damages
    the
    parties
    could
    have
    anticipated
    ahead
    of
    time.
  • Rescission
    of
    the
    contract:
    rescission
    will
    extinguish
    the
    contract
    and
    return
    the
    parties
    to
    the
    status
    quo
    ante.
    Usually,
    each
    side
    has
    to
    return
    what
    was
    received
    under
    the
    contract.
  • Interest:
    if
    the
    damages
    owed
    can
    be
    calculated
    with
    certainty,
    interest
    can
    be
    awarded
    as
    of
    the
    time
    of
    the
    breach.
  • Attorneys’
    fees:
    prevailing
    party’s
    attorneys’
    fees
    are
    recoverable
    if
    they’re
    provided
    for
    in
    the
    contract.

Note:
unfortunately,
punitive
damages
are

not

recoverable
under
a
breach
of
contract
claim,
no
matter
how
horrible
the
defendant’s
conduct
was.

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