
    The Trust Company of New York, Respondent, v. The Universal Talking Machine Company and Others, Appellants.
    
      Reformation of a written instrument — it must he based on mutual mistake or the mistake of one party induced by the misrepresentations of the other — mortgage by a corporation not conforming to a resolution authorizing it — a complaint not alleging knowledge by its stockholders of such resolution — a demand for the execution of assignments of patents under a covenant to 'execute instruments of further assurance — it must be made before suit —failure of the mortgagor to reJUe a chattel mortgage.
    
    A party seeking the reformation of a written instrument is bound to establish, either that it was executed under a mutual mistake of fact, or that it was executed under a mistake upon the one side induced by fraudulent representations upon the other side.
    The trustee designated in a trust mortgage brought an action to procure a reformation of the mortgage so that the provisions thereof should conform to certain resolutions passed by the directors of the mortgagor company directing the mortgage.
    The complaint alleged that, the officers of the mortgagor corporation fraudulently, and with intent to deprive the bondholders of their rights, caused the draftsman of the mortgage to omit therefrom certain provisions which the resolutions passed by the directors provided that it should contain; that one of the bondholders purchased such bonds in reliance upon the resolutions passed by the directors. ,
    The complaint further alleged that the holders of two-thirds of the stock of the • corporation assented to the execution of the mortgage, -but it did not allege that the consenting stockholders knew of the resolutions or were mistaken in regard to the terms of the mortgage.
    
      Held, that the plaintiff was1 not entitled to a reformation of the mortgage, as the element of mutual mistake was absent and as the allegation of fraud on the part of the officers of the mortgagor corporation meant nothing in view of the allegations regarding the consent of the stockholders;
    That the trustee was not entitled to maintain an action to compel the mortgagor corporation, under a covenant to execute' instruments of further assurance, to execute additional assignments and transfers of patent rights, covering applications for patents which had ripened into patent rights subsequent to the execution of the mortgage, where the complaint contained no allegation that any demand was ever made upon the mortgagor corporation for the execution of any instrument of further assurance.
    The failure of the mortgagor corporation to refile the trust mortgage as a chattel mortgage does not confer any right of action upon the trustee, where it does not appear that any creditor has acquired any rights superior to the mortgage as the result of the failure to refile it, or that it was the duty of the defendants to refile the mortgage.
    Appeal by the defendants, The Universal Talking Machine Company and others, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 10th day of July, 19.02, upon the decision of the court, rendered after a trial at the New York Special Term, overruling the defendants’ demurrer to the plaintiff’s complaint.
    
      Peter B. Olney, for the appellants.
    
      Henry T. Fay, for the respondent.
   Van Brunt, P. J.:

This action was, brought to reform a mortgage executed by the defendant, the Universal Talking Machine Company, to the plaintiff as trustee to secure certain bonds of the defendant,' the Universal Talking Machine Company; also to compel the defendants to execute certain additional assignments and transfers of certain patent rights and trade marks to the plaintiff as trustee under such mortgage ; and also that the defendant corporation might be required to execute and deliver a new mortgage assigning and transferring to the plaintiff as trustee for the security of the bonds aforesaid all of the property, patents, patent rights, trade marks and- contracts mentioned in the complaint, and embodying all the teirns, provisions and conditions contained in the resolutions in the amended complaint set forth.

The amended complaint, after alleging the incorporation of the plaintiff and of the defendant, the Universal Talking Machine Company, and that said company was the owner and possessor of certain personal property consisting of machinery, etc., and certain patents, inventions and discoveries, alleged that at a meeting of the board of directors of the defendant, the Universal Talking Machine Company, duly held on the 30th of October, 1900, the following resolutions were unanimously adopted, to wit:

“ Resolved, That this company make its mortgage, assignment or deed of trust covering its patents, patent rights, machinery, trademarks, fixtures and property; other than goods, wares and merchandise, and current bills and accounts receivable; and that it likewise execute and deliver all necessary or proper assignments and transfers, separate and distinct from such mortgage or deed of trust, suitable to be recorded for the purpose of giving record title or filed for the purpose of giving notice .of the transfer, and change of possession or either, the same to be given as a part of and in connection with such mortgage or deed of trust. That such mortgage or deed of trust be executed to The Trust Company of New York, as Trustee, upon condition that it secure the payment of thirty thousand dollars ($30,000) first mortgage, five per cent, gold bonds, payable in five (5). years from the date thereof, with interest semi-annually; that such bonds be in the issue form and substantially as follows, viz.” (Here follows in the resolution a full copy of the said bond, coupon, and trustee’s certificate thereon.) '
“ That the mortgage or deed of trust, so as aforesaid to secure such bonds, be executed in the usual form, with authority to the trustee therein named to take possession of the property therein described or any portion thereof, should such trustee at any time deem the security of such bonds inadequate or unsafe and with power in such trustee likewise to conduct the business of the Company by or through the use of said property in its discretion.
“ That the officers of the Company be authorized and directed to execute such mortgage or deed of trust and the bonds aforesaid, and such additional or supplemental documents and instruments as may be requisite or advised by counsel, for the purpose of effectuating this resolution; all of the aforesaid matters and things to be and become operative and effectual upon the consent, authorization and ratification of the same by the stockholders of the Company, as the same by statute or by law may be required.”

The plaintiff alleged that thereupon the said defendant, the Universal Talking Machine Company, with the consent of the stockholders owning at least two-thirds of the stock of the corporation, exécuted and delivered to the plaintiff a certain mortgage of said property., p'atents and patent rights, etc., then owned by it to secure the bonds aforesaid, which mortgage was on the 15th of -December, 1900, duly filed in the office of the city clerk of the city of Yonkers, that being the defendant’s principal place of business; that thereupon bonds were issued, $20,000 of which were purchased by one Lillie H. Seaman and the remaining $10,000 were held by one George H. Robinson as trustee; that the coupons on said bonds had been paid, but no part of the principal had ever been paid.

The complaint further alleged upon information and belief that said Lillie H. Seaman, the owner and holder of $20,000 of said bonds secured by said mortgage, agreed to and did purchase the same, with full knowledge of and relying upon the resolutions adopted by the defendant, the Universal Talking Machine Company, and understanding and believing that said mortgage, contained all the terms and conditions and was drawn in accordance with the agreement and plan contained and set forth in said resolutions; but that in fact said mortgage was not so drawn, but, without the knowledge or consent of said Lillie H. Seaman, the defendant George H. Robinson or some one or more of the officers of said defendant, the. said .Universal Talking Machine Company, fraudulently and intentionally, and with intent to deprive the purchasers of the bonds of the fights intended, to be conferred upon them in accordance with said resolutions, and in violation of the 'power and instructions conferred upon them by said resolutions, caused the draftsman who drew said mbrtgage to omit from said mortgage and not to embody therein any provision authorizing the trustee therein named to take possession of the property therein described or- any portion thereof should said trustee at any time deem the security of such bonds inadequate or unsafe.

The complaint further alleged that the plaintiff accepted the trusteeship under said mortgage upon the belief and understanding that the same had been drawn in accordance with the agreement between the mortgagor company and the purchaser of the bonds and was satisfactory to them, and without any knowledge that its terms did not correspond to said resolutions. ,

The complaint further alleged that at the time said mortgage was executed the various patent rights which it was intended to convey as security were many of them in the shape of applications for patents; and that they had subsequently ripened into patents, and that under the covenants for further assurance the plaintiff is entitled to a formal assignment of the patents to it; and that no assignment or other instruments transferring to the plaintiff as trustee any such patent rights and trade marks had ever been executed and delivered to the plaintiff by said defendant company save and except the mortgage aforesaid.

The complaint further alleged a certain reorganization agreement, and that certain judgments had been obtained against»the said Universal Talking Machine Company, and that while the said mortgage was in full force the sheriff sold all the personal property of said defendant including the patents, patent rights and trade marks aforesaid to the defendant Edward S. Innet; and that said Innet in purchasing the property aforesaid acted in pursuance of said plan of reorganization, and that the Universal Talking Machine Company has executed assignments and transfers of said patents, patent rights and trade marks to said Innet.

The complaint further alleged that the plaintiff duly demanded of said Innet the possession 'of said property and an assignment and transfer of said patents, patent rights and trade marks, but that he refused to comply with said demand ; also that a demand has been duly made upon the officers of the Universal TalkingMaehine Manufacturing Company and of the Universal Talking Machine Company that a new and proper mortgage in accordance with the resolutions aforesaid be executed and delivered to plaintiff to secure said issue of bonds, but that they have failed and refused to do so.

The complaint further alleges that the Universal Talking Machine Company has failed to refile the mortgage within thirty days prior to the expiration of a period of one year from the date of its filing, whereby said mortgage has ceased to be a valid and subsisting lien against any parties purchasing said properties or any parts thereof without the knowledge of said mortgage.

Thereupon the plaintiff prayed for the relief above stated.

It is claimed upon the part of the plaintiff that it has made out a case coming within the principle laid down in Haack v. Weicken (118 N. Y. 67). But we fail to find that it has in any way complied with the rule illustrated by the case cited. In order that there may be a reformation of an instrument the plaintiff is bound to establish either that it was executed under a mutual mistake of fact or that it was executed under a mistake upon the one side induced by fraudulent representations upon the other. There is no allegation whatever in the amended complaint bringing the case within the rule above cited." The only allegation in the complaint is that Lillie H. Seaman, the owner of $20,000 of these bonds, knew of the resolutions and, relying upon the resolutions, purchased the Same. There is no allegation that the stockholders, who consented to the execution of the mortgage, consented to the execution of any mortgage except that which was executed. It is perfectly clear that the board of directors could resolve as much as they pleased, but, until the stockholders assented to the mortgage drawn in accordance with the terms contained in the resolutions, the officers would have no power whatever to execute the same. Under the allegations of the complaint the only mortgage to which the stockholders assented was the mortgage which was executed. There is no allegation that they were mistaken in regard to the terms of the mortgage ; neither was there any allegation that they knew anything about the resolutions. Hence, the one element of mutual mistake is absent, and the prior allegation of fraud means nothing in view of the positive allegation in regard to the consent of- the stockholders.

In regard to the claim that the defendant, the Universal Talking Machine Company, was required under its covenant, for further assurance, to execute additional assignments and transfers of patent rights where applications for patents had ripened into patent rights subsequent to the execution of the mortgage, the allegations are insufficient to justify any such relief. There is no allegation whatever that any demand has been made upon the Universal Talking Machine Company for the execution of any instrument of further assurance. It is true that it is alleged that the plaintiff has demanded of Innet, who was in possession of the property, that he should assign the same, and of his refusal to comply with such demand. But it is clear that this demand was not one founded upon the covenant of further assurance, but was founded upon the claim that, in consequence of the resolutions, the plaintiff was entitled to the possession of the property and to an assignment of the patent rights. The same is true with regard to the Universal Talking Machine Manufacturing Company and the Universal Talking Machine Company. The allegations in regard to the demand upon them was that they should execute a new and proper mortgage in accordance with the resolutions aforesaid, clearly referring to the alleged right to a reformation of the mortgage in question.

It is difficult to see what cause of action the plaintiff had by reason of the failure upon the part of the defendants to retile the mortgage. There is no allegation whatever, in the first place, that any creditor has acquired any rights superior to the mortgage as a, result of its want of filing. All those persons who, it is alleged, became creditors of the company became such while the mortgage was in full force under the proper filing, and Innet’s title was. acquired under similar circumstances. Besides, nothing is shown making it the duty of the defendants to refile this mortgage.

It does not appear, therefore, that any facts have been set forth in the complaint which would entitle the plaintiff to the relief demanded.

The judgment should be reversed, with costs, and the demurrer sustained, with costs, with leave to amend upon payment of costs in this court and in the court below.

O’Brien, Ingraham, McLaughlin and Laughlin, JJ., concurred.

Judgment reversed, with costs, and demurrer sustained, with costs, with leave to amend on payment of costs in this court and in the court below.  