Affirmative Defenses to Breach of Cannabis Contract Claims

In almost every cannabis litigation webinar we’ve done, and in many of our past posts discussing breach of cannabis contracts (the general breakdown of this claim is here), we’ve stressed the importance of memorializing good cannabis business agreements – in writing – to save yourself from potential or protracted litigation down the line.

Still, even the best cannabis contracts can become the subject of breach of contract claims depending on the surrounding circumstances. In today’s post, we’re going to discuss the most common affirmative defenses to a breach of contract claim that might be applicable to a defendant’s situation.

Mistake

A mistake of fact or law can be an affirmative defense to a breach of contract claim. This falls into two separate categories: unilateral mistake and bilateral mistake. To win on a unilateral mistake defense, the defendant must prove the plaintiff (a) knew the defendant was mistaken, and (b) plaintiff used that mistake to take advantage of the defendant. Note that the defendant does have a duty to make a “reasonable inquiry” to understand the contract (meaning, you can’t just bury your head in the sand and later claim mistake). To win on a bilateral mistake defense, the defendant must prove that (a) both parties were mistaken about a material fact, and (b) defendant wouldn’t have agreed to enter into the contract if they knew about the mistake.

Duress

In limited situations, duress can also be argued as an affirmative defense in cannabis litigation. I say limited because this is not as easy to prove as some people believe. In order to win on a duress defense, the defendant would need to prove that (a) plaintiff used a wrongful act or wrongful threat to pressure defendant into consenting to the contract, (b) defendant was afraid/intimidated and did not have the free will to refuse, and (c) defendant wouldn’t have consented to the contract without the wrongful act or threat. Note that the wrongful act or threat can be something like criminal action (physical harm) or what’s known as “economic duress” (for example, threatening a bad-faith breach of contract lawsuit).

Fraud

Fraud is arguably the most common and most dismissed cannabis litigation claim. The defendant must prove that (a) plaintiff represented fraudulent statements to defendant, (b) plaintiff knew the representation wasn’t true, (c) plaintiff made the representation to persuade defendant to agree to the contract, (d) defendant reasonably relied on this representation (again, you can’t just bury your head in the sand!), and (e) defendant wouldn’t have agreed to the contract if they had known the representation wasn’t true. The fraudulent representation can be both a misstatement or concealment of fact. Obviously, this is a fact-intensive defense and is also commonly used in tandem with fraud-esque counterclaims by defendant.

Waiver

Waiver embodies the concept that the defendant doesn’t need to perform the contract because plaintiff gave up their right to have defendant perform. A waiver can be oral, written, or even inferred from the plaintiff’s conduct – whatever can be used to show that plaintiff gave up their right. Perhaps most commonly, this comes up when a defendant knows the plaintiff has breached the contract, but continues to abide by the contract or receive the benefit of the contract.

Novation

Finally, novation relates to when the defendant claims there was no breach of contract because the original contract with plaintiff was substituted by a new and different one. While this again can be inferred from the parties’ conduct, the same rules of contract construction apply – novation requires a showing that (a) there’s an intent to discharge the old contract, (b) mutual assent, and (c) consideration. This is also highly fact-intensive and the defendant has the burden to prove it.

Re-published with the permission of Harris Bricken and The Canna Law Blog