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.