Brief Fact Summary. One party contracted to buy all rights to another party's product. The selling party was to begin the process of obtaining a patent on the product, and transfer that application to the buyer. The selling party's attorney never filed the requisite paperwork to begin the process of obtaining a patent.
Synopsis of Rule of Law. If a party does not substantially perform their obligations under a contract, they do not have a right to bring an action pursuant to the contract.
Issue. Is there a valid contract under which the Defendant is liable for past and present royalties?
Held. No. The court first observed that as a prerequisite to bringing a breach of contract action, it is necessary for a plaintiff to demonstrate they substantially performed their obligations under the contract. A contract will be deemed substantially performed only if the deviations are "relatively minor and unimportant." Even if there is substantial performance, it must be shown that the defendant was not prejudiced. As to the attorney client relationship, the court observed "omissions and commissions of an attorney are to be regarded as the acts of the client whom the attorney represents, and the attorney's neglect is equivalent to the neglect of the client." Further, the court observed about the transaction here "that the very essence of the transaction was to enable Dutton-Lainson to manufacture, market, and distribute the improvements which were the subject of the patent application. While Dutton-Lainson took the risk that, for reasons beyond the control of the parties, a patent might not issue, Dutton-Lainson did not bargain for the certainty that a patent would not issue because, contrary to the representation made to it, no application had been filed." As such, the court concluded that the Plaintiff's failure to undertake the process to obtain a patent was a substantial divergence from their responsibilities. The court then equated the Plaintiff's lack of good faith with a failure to substantially perform their obligation and disallowed their action for royalties.
Discussion. There was a condition in the parties' contract requiring the Plaintiff to file the patent application prior to when the contract was signed. The Plaintiff did not satisfy this condition.