Hamilton v. Park & McKay Co.

Grant, J. (after stating the facts). 1. It is insisted that the plaintiff cannot maintain an action before the issuing of the patent, and that no liability was intended to be incurred until a valid patent had been granted. This was a matter of contract between the parties. The inventor of an unpatented device may make a valid contract for its manufacture, use, or sale. It is no objection to the validity of such a contract that any person may manufacture it until a patent is issued. The vendee or licensee, in the absence of fraud or mistake, must abide by his contract. It was understood by these parties at the time the contract was made that no patent had been issued, and the contract was made with reference to that fact. If, therefore, the defendant contracted to pay a royalty before the patent was issued, the plaintiff is entitled to recover. Ingraham v. Schaum, 157 Pa. St. 88; Hall Manfg. Co. v. American Ry. Supply Co., 48 Mich. 331; — 142 — Forncrook Manfg. Co. v. Barnum Wire & Iron Works, 54 Mich. 552; Brush Electric Co. v. California Electric Light Co., 52 Fed. 945, 962. 2. Does the contract obligate the defendant to pay a royalty before the issuing of the patent? Upon the answer to this question depends the plaintiff’s right of recovery. We think the question must be answered in the affirmative. Plaintiff bound himself by the contract not to make, manufacture, sell, or to transfer the right to others. The time when the royalty should begin is definitely fixed by the contract at one year from the date when the closet is modeled and ready to be put in the market. It does not depend upon the date of the issue of the patent. It was also contemplated that the patent might not be granted, or, if granted, that it might be decided to be invalid, in which case the defendant was entitled to declare the contract ended. This language is inconsistent with the position that the royalty should begin at the date of the patent. Previous manufacture was plainly contemplated, and the date is averred in the declaration and fixed by the proofs. 3. Did the notice of forfeiture destroy the right to recover for royalties accruing prior thereto ? In support of the ruling of. the court below counsel cites Jewett v. Petit, 4 Mich. 508; Goodspeed v. Dean, 12 Mich. 352; Hubbardston Lumber Co. v. Bates, 31 Mich. 158, 169; Curt. Pat. § 218; Woodworth v. Weed, 1 Blatchf. 165; Woodworth v. Cook, 2 Blatchf. 151. Jewett v. Petit states the familiar rule that when one enters into a contract induced by fraud he must affirm or disaffirm on discovery of the fraud, and that he cannot adopt that which is for his own interest and reject the residue. Hubbardston Lumber Co. v. Bates is a similar case. Goodspeed v. Dean involved the rights of parties to a land contract. Plaintiff, the vendor, after electing to treat the contract as void, sought to recover the amount then due upon the contract. The basis of that decision is the familiar principle, legal as well as equitable, that a party cannot keep — 143 — his land and have the purchase price too. The citation in Curtis on Patents is based upon Woodworth v. Weed, 1 Blatchf. 165. In that case plaintiff had granted to defendant a license to construct and use one of his machines, for which the defendant gave him promissory notes amounting to |400, payable at different times. Upon failure to pay the first note, plaintiff filed a bill in equity charging that the license and permission to use the machine had become void, and praying for an injunction to restrain its use. A provisional injunction was applied for, which was opposed by the defendant, who filed an affidavit as to his financial responsibility. It was held that the plaintiff might resort to his remedy at law to enforce the collection of the notes, or treat the rights of the defendant as forfeited, and enjoin him from the use of the machine. If it be conceded that that case determined that plaintiff could not maintain an action at law after his election to rescind and enjoin the use, the reason is obvious, viz., the consideration to be paid was an entirety, indivisible into past and future payments. Woodworth v. Cook is a similar case. None of these decisions are applicable to cases where the licensee agrees to pay a royalty for every machine manufactured and sold, or a specific sum at stated periods. The obligation to pay becomes fixed in such cases the moment the machine is manufactured and sold, or at the time fixed by the contract for the payment of the amounts due for past use or sale. The licensee refuses to pay. The licensor, as he has the right to do, rescinds the contract. Upon what principle of law or logic should the licensor be held thereby to. lose what is honestly his due, and of which the licensee has had the benefit ? The effect of such a rescission must be determined in view of all the surrounding circumstances. Plaintiff is not seeking his property and its price too. He has performed his agreement. Defendant is in default, and indebted for accrued royalties. This case is rather in the nature of a lease — 144 — where the lessee is in default of his rent. He may Be ousted for nonpayment, but this does not bar an action to recover the rent due. We think the authorities sustain the plaintiff’s right of action. Hurst v. Bookbinding Co., (Com. Pl.) 22 N. Y. Supp. 371; Mayor, etc., of New York v. New York Refrigerating Construction Co., 146 N. Y. 210. The true rule is this: The rescission of a contract as against the party in default does not, in the absence of an agreement, destroy the right to recover royalty or rent which has already been earned. The past-due payments are separable from future payments, and the rescission is neither ab initio nor in toto, but solely in futuro. 4. By the terms of this contract the defendant was under obligation to pay a royalty of at least $1,000 a year, regardless of the number of closets sold. Preston v. Smith, 156 Ill. 359; Beecher v. Stein, 139 Pa. St. 570. The judgment is reversed, and a new trial ordered. The other Justices concurred.