Hammer v. Today’s Healthy Care II, Co.

CitationNos. CV2011-051310 & 0051311 (Super. Ct. Maricopa Cty., Ariz., Apr. 17, 2012)

Brief Fact Summary.

Defendants defaulted on a loan agreement with the Plaintiffs. The loan agreement was to assist in the financing of a retail medical marijuana sale and growth center. Plaintiffs’ initiated suit alleging Defendant breach the loan agreement.

Synopsis of Rule of Law.

If the purpose of the contract or actions sought to be performed under the contract are in violation of federal law, the contract is unenforceable and void.

Plaintiffs got a loan agreement with Defendant, Today’s Health Care II (THC) in which Plaintiffs loaned THC $250,000 for “financing a ‘retail medical marijuana sales and growth center.’” Each loan agreement also contained a promissory note (loan documents). The loan documents indicated that THC would repay Plaintiffs at a 12% interest rate. In the event of a default, THC would have five days cure its default and pay Plaintiffs. If THC failed to timely cure the default, THC was required to pay the principal loan amount at an interest rate of 21%, plus attorney’s fees and any cost associated with the enforcement and collection. On March 12, 2011, THC failed to pay Plaintiffs. March 17, 2011, THC defaulted on the loan agreements to Plaintiffs. Plaintiffs sued THC for breach of contract and filed a motion for summary judgment.

Issue.

Whether the loan documents are enforceable, or whether the loan documents are void due to illegality.

Held.

The loan agreements are void due to illegality.

Discussion.

The loan agreement specifically states that the loan proceeds will be used to finance a retail medical marijuana sale and growth center. Although Colorado has developed schemes by which a patient may obtain medical marijuana, the under federal law, it “is illegal to manufacture, distribute, or dispense or posses with the intent to manufacture, distribute, or dispense a controlled substance,” marijuana. In Gozalez v. Raich, 545 U.S. 1 (2005), the Supreme Court held that Congress has the authority to prohibit such sales of marijuana. Here, the court noted that this loan agreement is unenforceable if the acts to be performed, the consideration, is illegal or would violate public policy. Because the purpose of the loan agreement, to finance the sale and distribution of marijuana, is a violation of federal law, the contract is void and unenforceable. Further, Plaintiffs did not seek equitable relief, however, even if they did seek equitable relief, it would be unavailable because the contract is against public policy.