Head & Amory v. Providence Insurance Company, 6 U.S. 127 (1804)

U.S. Supreme Court

Head & Amory v. Providence Insurance Company, 6 U.S. 2 Cranch 127 127 (1804) Head & Amory v. Providence Insurance Company

6 U.S. (2 Cranch) 127

ERROR TO THE CIRCUIT COURT OF THE FIRST

CIRCUIT, IN PROVIDENCE, RHODE ISLAND

Syllabus

If the insured make a proposition to the underwriters to cancel the policy, which proposition is rejected, and afterwards the underwriters assent thereto, but before the assured are informed thereof, they have notice of the loss of the vessel insured, the policy is not cancelled.

A corporation can act only in the manner prescribed by the act of incorporation which created it. When its agents do not clothe their proceedings with those solemnities which are required by the incorporating act to enable them to bind the company, the informality of the transaction is itself conducive to the opinion that such act was rather considered as manifesting the terms on which they were willing to bind the company, as negotiations preparatory to a conclusive agreement, than as a contract obligatory on both parties.

In its corporate capacity, a corporation is a mere creature of the act to which it awes its existence; it may correctly be said to be precisely what the incorporating act has made it, to derive all its powers from that act, and to be capable of exerting its faculties only in the manner that act authorizes.

Page 6 U. S. 128

This was a writ of error to the Circuit Court of the First Circuit, held at Providence, Rhode Island, under the Act of Congress of 13 February, 1801. In that court the plaintiffs in error brought their action on two policies of insurance, one policy being for $10,000 upon merchandise on board the Spanish brig Nueva Empressa, the other policy being upon the vessel the Nueva Empressa.

The vessel was chased into Havana by British cruisers, and after remaining there some time she sailed for her port of destination, on which voyage she was captured by a British cruiser and sent into St. John, Newfoundland, where both ship and cargo were condemned as prize.

The jury under the charge of the court found a verdict for the defendants, the underwriters, on the count claiming a loss on the policy on the cargo and for the plaintiffs on the count claiming a loss on the policy on the ship. A bill of exceptions was tendered to the charge of the court by the plaintiffs, and they brought this writ of error. The facts of the case are fully stated in the opinion of the Court.

Page 6 U. S. 131

"We have your favor under the 2d instant, handing us a copy of a note received from the president of the Providence Insurance Company. When we consented to their proposition of settling the policy by paying twenty-five percent, it was not because it was most agreeable to us. We wished to make it conditional, as has been done in this town, and we had a right to suppose when we consented to their terms, the business was settled. If we can succeed with the Spanish government, the policies

Page 6 U. S. 132

on vessel and freight will be withdrawn of course at the usual custom; but we do not think it right to make one the condition of the other. If we make this settlement, we shall make every effort by money and interest to have the adventure terminate at Havana, and the sooner we know, the better. By the last accounts, the vessel was very much eaten by the worms and wanted very great repairs. This, we hope, will induce them to grant us the permission. The terms we acceded to were very favorable to the company, as it was paying them at the rate of thirty-five percent for the outward premium."

September 6, 1800.

"As there appears to have been a misunderstanding in the business as it respects the first propositions of the company, the directors are willing to accede to Messrs. Head & Amory's proposition, viz., to settle the policy on the merchandise at twenty-five percent, although it was their intention and expectation to have both policies included in the settlement. Messrs. Head & Amory will please to forward the policy and have it cancelled immediately. Premium note due 12-15 September."

"You will please to govern yourself accordingly, and we will attend to your wishes. "

Page 6 U. S. 163

MR. CHIEF JUSTICE MARSHALL delivered the opinion of the Court.

This is a declaration on a policy of insurance, and the only question in the case is whether the policy was vacated by a subsequent agreement between the parties. This question depends entirely on the legal operation of certain written communications between them, which appear in the record.

Messrs. Head & Amory of Boston had obtained insurance through their correspondents, Messrs. Brown & Ives of Providence, on the cargo of the Spanish brig the Nueva Empressa at and from Malaga to Vera Cruz, and at and from thence to her port of discharge in Spain. An insurance was afterwards obtained on the brig at and from Cuba (she having been chased into Havana by British cruisers) to her port of delivery in Spain.

The vessel having been detained in port, closely watched by cruisers till she was worm-eaten, Head & Amory became desirous of terminating their risk at Havana,

Page 6 U. S. 164

which could only be effected by permission of the government at that place, which was not to be obtained but with considerable expense. They therefore applied to the insurance company, through their correspondents, Brown & Ives, by a letter dated Boston, 21 August, 1800, to know whether a conditional permission could be obtained from the underwriters to terminate the voyage at Havana, provided the consent of the government could be obtained, and if so in what terms that conditional permission would be granted. The underwriters refused to make any conditional agreement, but offered to vacate both policies on terms mentioned in a letter signed by their president.

Misunderstanding the letter as a proposition for vacating the policy on the cargo only, the terms proposed were acceded to and a letter was written from Head & Amory to Brown & Ives, declaring their acceptance of the proposition understood to be made by the insurance company, in such a manner as very clearly to show the mistake under which it was written. On seeing this letter, the misapprehension of the parties was discovered and explained, and the agreement considered as not being made; at the same time a new proposition was made for settling both policies. To this letter declining absolutely any agreement respecting either policy singly, and proposing specific terms on which they would settle both, Head & Amory returned an answer dated 3 September, 1800, which was addressed to Brown & Ives, and is in these words: "This letter was laid by Brown & Ives before the company, and their secretary returned the following note without a signature."

This note was forwarded by Brown & Ives to Messrs. Head & Amory, but before they received it, intelligence came to hand that the Nueva Empressa had sailed from Havana and had been captured, and was condemned as a prize late in the month of August. Head & Amory therefore insisted on their policy.

Page 6 U. S. 165

Everything respecting the delays in the communications is laid out of the case because they do not appear to the Court in any manner to affect it.

Richard Jackson, the president of another marine Insurance Company, was also examined and testified that in effecting insurance or settling a policy or making any adjustment or agreement about insurance, the assent of the parties to doing a thing was in all respects as binding on the parties as the thing done, according to the usage and practice among underwriters.

Upon this testimony, the court instructed the jury that the agreement to cancel the policy for the cargo was fully proved, and it ought to find for the defendants on that count. The jury accordingly found for the defendants, and the plaintiffs have sued out a writ of error to bring the cause into this Court.

The opinion and instructions of the judges of the circuit court to the jury are said to be erroneous because

The communications which have been cited do not import a contract. They were negotiations preparatory to an agreement, but not an agreement itself.

The letter of 3 September certainly manifests some degree of disappointment at finding that the agreement supposed to have been concluded had not really been made, and also proves its opinion that the negotiation was not absolutely broken off, but was yet pending. "If we make this settlement," say they,

"we shall make every effort by money and interest to have the adventure terminated at Havana, and the sooner we know the better. . . . The terms we acceded to were very favorable to the company, as it was paying them at the rate of thirty-five percent for the outward premium."

Yet the letter contains no direction to make any specific proposition to the company, and may be construed either as a mere inquiry whether the company would cancel the policy for the insurance on the cargo singly on the terms which had before been understood to have been offered or as a new and positive proposition, the acceptance of which would complete the contract.

Page 6 U. S. 166

It is also very questionable whether the unsigned note delivered by the secretary is such an acceptance as to form, when taken with the letter of the 3d of September, an absolute agreement obligatory on the company.

It is a general rule that a corporation can only act in the manner prescribed by law. When its agents do not clothe their proceedings with those solemnities which are required by the incorporating act to enable them to bind the company, the informality of the transaction, as has been very properly urged at the bar, is itself conducive to the opinion that such act was rather considered as manifesting the terms on which they were willing to bind the company, as negotiations preparatory to a conclusive agreement, than as a contract obligatory on both parties.

The communications stated in the record lead to an event which might have been so readily completed that it might have been and probably was supposed unnecessary to pass through the previous solemnities of a contract binding themselves to do that which, if really the wish of both parties, might so speedily be accomplished; so short a space of time was requisite to have the policy delivered up and cancelled that the forms of completing a contract to cancel it might have been deemed useless. On this account and on account of the known incapacities of a body corporate to act or speak but in the manner prescribed by law, it may well be doubted whether communications which between individuals would really constitute an agreement were viewed by the parties before the court in any other light than as ascertaining the terms on which a contract might be formed.

This course of reasoning relative to the intent of the parties is plainly founded on the idea that the note of 6 September is in its legal operation a mere informal paper, which may perhaps amount to notice of an act, if such act was really performed, but which is not in itself an act of any legal obligation on the company. That if the proposition contained in the letter of 3 September had been regularly accepted, this note might possibly have been considered as notice

Page 6 U. S. 167

of that acceptance, but is not in itself an acceptance. If this idea be incorrect, so is the reasoning founded on it. If it be correct, then it follows that no contract was made, because the proposition of 3 September, if it really was one, was not accepted by the company before it was withdrawn by Head & Amory. This leads us to inquire

Whether the unsigned note of 6 September be a corporate act obligatory on the company.

Without ascribing to this body, which in its corporate capacity is the mere creature of the act to which it owes its existence, all the qualities and disabilities annexed by the common law to ancient institutions of this sort, it may correctly be said to be precisely what the incorporating act has made it, to derive all its powers from that act and to be capable of exerting its faculties only in the manner which that act authorizes.

To this source of its being then we must recur to ascertain its powers and to determine whether it can complete a contract by such communications as are in this record.

The act, after incorporating the stockholders by the name of the Providence Insurance Company and enabling them to perform by that name those things which are necessary for a corporate body, proceeds to define the manner in which those things are to be performed. Their manner of acting is thus defined.

"Be it further enacted that all policies of assurance and other instruments made and signed by the president of the said company or any other officer thereof according to the ordinances, bylaws, and regulations of the said company or of their board of directors, shall be good and effectual in law to bind and oblige the said company to the performance thereof in manner as set forth in the constitution of the said company hereinafter recited and ratified."

An instrument then, to bind the company must be signed by the president or some other officer according to the ordinances, bylaws, and regulations of the company or board of directors.

Page 6 U. S. 168

A contract varying a policy is as much an instrument as the policy itself, and therefore can only be executed in the manner prescribed by law. The force of the policy might indeed have been terminated by actually canceling it, but a contract to cancel it is as solemn an act as a contract to make it, and to become the act of the company must be executed according to the forms in which by law they are enabled to act.

The original constitution of the company, which is engrafted into the act of incorporation, does not aid the defendants. That agreement does not appear to dispense with the solemnities which the law is supposed to require. It demands the additional circumstance that a policy should be countersigned by the secretary.

It appears to the Court that an act not performed according to the requisites of the law cannot be considered as the act of the company in a case relating to the formation or dissolution of a policy.

If the testimony of Mr. Jackson is to be understood as stating that an assent to the formation or dissolution of a policy, if manifested according to the forms required by law, is as binding as the actual performance of the act agreed to be done, it is probable that the practice he alludes to is correct. But if he means to say that this assent may be manifested by parol, the practice cannot receive the sanction of this Court. It would be to dispense with the formalities required by law for valuable purposes, and to enable these artificial bodies to act and to contract in a manner essentially different from that prescribed for them by the legislature.

Nor do the cases which have been cited by the gentlemen of the bar appear to the Court to apply in principle to this.

An individual has an original capacity to contract and bind himself in such manner as he pleases. For the general security of society, however, from frauds and perjuries, this general power is restricted, and he is disabled from making certain contracts by parol. This disabling act has received constructions which take

Page 6 U. S. 169

out of its operation several cases not within the mischief, but which might very possibly be deemed within the strict letter of the law. He who acts by another acts for himself; he who authorizes another to make a writing for him makes it himself. But with these bodies which have only a legal existence it is otherwise. The act of incorporation is to them an enabling act; it gives them all the power they possess; it enables them to contract, and when it prescribes to them a mode of contracting, they must observe that mode or the instrument no more creates a contract than if the body had never been incorporated.

It is then the opinion of this Court that the circuit court erred in directing the jury that the communications contained in the record in this case amounted to a contract obligatory on the parties, and therefore the judgment must be

Reversed and the cause remanded for a new trial.

CHASE, JUSTICE. I concur with my brethren as to the operation of the testimony given by the Providence Insurance Company in evidence to the jury and that it created no legal obligation on the company, but I am also of opinion that the testimony given by them in evidence was inadmissible, and that the circuit court ought not to have permitted the same to have been given in evidence to the jury.

The judgment of reversal was as follows, viz.:

This cause came on to be heard on the transcript of the record of the circuit court and was argued by counsel, on consideration whereof the Court is of opinion that there is error in the proceedings and judgment of the said circuit court in this, that the court gave it in charge to the jury that the several written papers in the record contained and the testimony of Richard Jackson in the said record also stated did in law amount to full proof of a contract entered into between the plaintiffs and defendants which was obligatory on both parties, whereas it is the opinion of this Court that the instruments of writing and testimony aforesaid do not in law amount to a contract. It is therefore considered

Page 6 U. S. 170

by the Court that the judgment aforesaid be for this cause reversed and annulled and that the cause be remanded to the said circuit court to be again tried, with direction that the testimony in the said record contained does not amount to evidence of a contract concluded between the parties, and that the defendants do pay to the plaintiffs their costs.