Are Cannabis Contracts Void?

Allen Matkins
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Allen Matkins

Section 1608 of the California Civil Code has been on the books since 1872.  It provides:

"If any part of a single consideration for one or more objects, or of several considerations for a single object, is unlawful, the entire contract is void."

What does this mean for contracts involving marijuana?  The Controlled Substances Act makes it illegal under federal law to manufacture, distribute, or dispense marijuana (Cannabis).  21 U.S.C. Sec. 801 et seq.  The situation is different in California because the voters have largely legalized Cannabis related businesses through the passage of Proposition 215 (The Compassionate Use Act of 1996) and Proposition 64 (the Control, Regulate, and Tax Adult Use of Marijuana Act of 2016).  In addition the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), Cal. Bus. & Prof. Code Sec. 26000 et seq. impose a comprehensive system of control and regulation of the cultivation, distribution, transportation, storage, manufacturing, processing and sale of medicinal and adult-use Cannabis.

The Civil Code does not specify whether the unlawfulness must be under California law.  At one time, the possession, use and transport of Cannabis was illegal under California law.  In Bovard v. American Horse Enterprises, Inc., 201 Cal.App.3d 832 (1988), the Court of Appeal considered the enforceability of a contract for the sale of a business engaged in the manufacture of marijuana paraphernalia:

"Moreover, it is immaterial that the business conducted by American Horse Enterprises was not expressly prohibited by law when Bovard and Ralph made their agreement since both parties knew that the corporation's products would be used primarily for purposes which were expressly illegal.  We conclude the trial court correctly declared the contract contrary to the policy of express law and therefore illegal and void."

Now that the legal status of marijuana has changed, the question will unlawfulness under federal law be sufficient to void contracts?  

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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