DARTMOUTH COLLEGE v. WOODWARD 4 Wheaton 518 (1819)

The most famous and influential contract clause case in our history, Dartmouth College was a boon to higher education and to corporate capitalism. The case established the doctrine, never overruled, that a corporation charter or the grant by a state of corporate rights to private interests comes within the protection of the contract clause. Although the case involved a small college in New Hampshire rather than a manufacturing concern, a bank, or a transportation company, the Court seized an opportunity to broaden the contract clause by making all private corporations its beneficiaries. daniel webster, counsel for the college, said that the judgment was a "defense of vested rights against Courts and Sovereignties," and his co-counsel, Joseph Hopkinson, asserted that it would "secure corporations … from legislative despotism.…" Corporations were still a recent innovation; james kent, inhis Commentaries on American Law (1826), remarked that their rapid multiplication and the avidity with which they were sought by charter from the states arose as a result of the power that large, consolidated capital gave them over business of every sort. The Court's decision in the Dartmouth College case, Kent said, more than any other act proceeding from the authority of the United States, threw "an impregnable barrier around all rights and franchises derived from the grant of government; and [gave] solidity and inviolability to the literary, charitable, religious, and commercial institutions of our country." Actually, fletcher v. peck (1810) had made the crucial and original extension of the contract clause, construing it to cover public and executed contracts as well as private executory ones. The Dartmouth College doctrine was a logical implication.

The college case was a strange vehicle for the doctrine that emerged from it. Dartmouth, having been chartered in 1769 in the name of the crown to christianize and educate Indians, had become a Christian college for whites and a stronghold of the Congregationalist Church, which had benefited most from the laws establishing the Protestant religion in New Hampshire. The college had become embroiled in state politics on the side of the Federalists, who supported the establishment. When in 1815 the trustees removed the president of the college, they loosed a controversy that drew to the ousted president a coalition of Jeffersonians and religious denominations demanding separation of church and state. The reformers having swept the state elections in 1816, the legislature sought to democratize the college by a series of statutes that converted it into a state university under public control, rather than a private college as provided by the original charter. The state supreme court sustained the state acts, reasoning that the institution had been established with public aid for public purposes of an educational and religious nature. The state court held that the contract clause did not limit the state's power over its own public corporations.

On appeal, the Supreme Court held that Dartmouth was a private eleemosynary corporation whose vested rights could not be divested without infringing a continuing obligation to respect inviolably the trustees' control of property given to the corporation for the advancement of its objectives. The Court held unconstitutional the state acts subjecting Dartmouth to state control and ordered Woodward, the treasurer of the institution who had sided with the state, to return to the trustees the records, corporate seal, and other corporate property which he held.

At every step of his opinion Chief Justice john marshall misstated the facts about the history of the original charter in order to prove that it established a purely private corporation. That, perhaps, was a matter primarily of interest to the college, which, contrary to Marshall, had received its charter not from George III but from the governor of the colony; moreover, the private donations, which Marshall said had been given to Dartmouth on condition of receiving the charter, had been given unconditionally to an entirely different institution, Moor's Charity School for Indians, and had been transferred to Dartmouth over the donors' objections. Also, the funds of the college, contrary to Marshall, did not consist "entirely of private donations," because the endowment of the college at the time of the issuance of the chapter derived mainly from grants of public lands. Even if the grant of the charter were a contract, as Marshall said it "plainly" was, Parliament could have repealed it at will. The Chief Justice conceded the fact but added that a repeal would have been morally perfidious. If, however, the charter were subject to revocation at the will of the sovereign authority, or the grantor, the "contract" did not bind that party and created no obligation that could be impaired.

Marshall conceded that at the time of Independence, the state suceeded to the power of Parliament and might have repealed or altered the charter at any time before the adoption of the Constitution. The provision in Article I, section 10, preventing states from impairing the obligation of a contract, altered the situation. That clause, Marshall conceded, was not specifically intended to protect charters of incorporation: "It is," he said boldly, "more than possible that the preservation of rights of this description was not particularly in the view of the framers of the constitution," but the clause admitted no exceptions as far as private rights were concerned. "It is not enough to say that this particular case was not in the mind of the convention when the article was framed, nor of the American people when it was adopted." In the absence of proof that the language of the Constitution would have been altered had charters of incorporation been considered, the case came within its injunction against state acts impairing the obligation of contracts.

Although Marshall can be doubted when he said, "It can require no argument to prove that the circumstances of this case constitute a contract," his general doctrine, that any state charter for a private corporation is a constitutionally protected contract, was not far-fetched. The Court must construe the text, not the minds of its framers, and, as he said, "There is no exception in the constitution, no sentiment delivered by its contemporaneous expounders, which would justify us in making it." If a state granted a charter of incorporation to private interests, the charter has "every ingredient of a complete and legitimate contract," should it be made on a valuable consideration for the security and disposition of the property conveyed to the corporation for management by its trustees in perpetuity. Unless, as Justice joseph story stressed in his concurring opinion, the government should reserve, in the grant of the charter, a power to alter, modify, or repeal, the rights vested cannot be divested, except by the consent of the incorporators, assuming they have not defaulted. Whether, however, a modification of the charter, as in this case, impairs an obligation, if the charter be executed and by its terms should not specify a term of years for the corporation's existence, is another question. In Fletcher v. Peck, however, the Court had brought executed as well as public contracts within the meaning of the contract clause. Marshall construed contract rights sweepingly, state powers narrowly.

Max Lerner's comment on the case, referring to Webster's peroration, is provocative. "Every schoolboy," he wrote, "knows Webster's eloquent plea and how Marshall, whom the Yazoo land scandals had left cold, found his own eyes suffused with tears, as Webster, overcome by the emotion of his words, wept. But few schoolboys know that the case had ultimately less to do with colleges than with business corporations; that sanctity of contract was invoked to give them immunity against legislative control, and that business enterprise in America never had more useful mercenaries than the tears Daniel Webster and John Marshall are reputed to have shed so devotedly that March day in Washington.…" In fact, the reserved power to alter or repeal, of which Story spoke, limited corporate immunity from legislative control. Moreover, the protection given by the Court to corporate charters came into play after the legislatures, not the Court, issued these charters, often recklessly and corruptly, without consideration of the public good; Marshall's opinion should have put the legislatures and the public on guard. Finally, the case had a great deal to do with higher education as well as business. Dartmouth College is the magna carta of private colleges and universities, and, by putting them beyond state control, provided a powerful stimulus, not only to business corporations but also to the chartering of state institutions of higher learning. Unable to make private institutions public ones, the states established state universities.

Leonard W. Levy
(1986)

Bibliography

Beveridge, Albert J. 1916–1919 The Life of John Marshall, 4 vols. Vol. IV:220–281. Boston: Little, Brown.

Haines, Charles Grove 1944 The Role of the Supreme Court in American Government and Politics, 1789–1835. Pages 378–419. Berkeley: University of California Press.

Shirley, John M. (1879) 1971 The Dartmouth College Causes and the Supreme Court. New York: Da Capo Press.

Stites, Francis N. 1972 Private Interest and Public Gain: The Dartmouth College Case, 1819. Amherst: University of Massachusetts Press.