Trustees of Dartmouth College v. Woodward
The decision helped establish the principle that corporations, such as Dartmouth College, were protected from alteration by states for public reasons.
In 1769, Dartmouth College had received a charter from the King of England, establishing it as a college. Over the years, the state of New Hampshire had granted lands to the college, and the college had taken on the function of providing higher education in the state. On 27 June 1816, New Hampshire amended the charter of Dartmouth College, reconstituting it as Dartmouth University, with a new board of trustees, incorporating some of the older board, and establishing the power of the state to name future board members. William Woodward, the secretary-treasurer of the College, was reappointed as secretary-treasurer of the newly-chartered university.
In five separate lawsuits that were later combined into one, trustees of the original college sued the state of New Hampshire, claiming that under the U.S. Constitution the state had no authority to pass laws impairing the obligations of contracts. The original charter, they claimed, was such a contract.
Daniel Webster, arguing for the appellant, pointed out that to take property away from an institution is an act of forfeiture, and should be the action of the judiciary, not of the legislature. The charter which the King had issued was such that not even Parliament could have annulled it, and it was thus improper for the state of New Hampshire to believe that it could. The corporation established was a lay corporation, not a civil corporation, and therefore it did not belong to the public. Rather, it belonged to the trustees and to those they appointed to succeed them.
John Holmes, arguing for the state of New Hampshire, pointed out that the charter was not to a private institution, but was a grant of a public nature.
Chief Justice Marshall, who wrote the opinion of the court, noted that states did have the power to change contracts. No one doubted that states had the power, for example, to allow for divorce, which is the breaking of marriage contracts. However, in the case of corporate charters, Chief Justice Marshall suggested that if a charter was to a public corporation, the state would have the power to alter such a charter. But if a charter was to a private corporation, then the federal government had an obligation under the Constitution to protect the corporation from the state. A corporation, Chief Justice Marshall pointed out, is an artificial being--immortal, but it may act as an individual. However, it does not have a political character, in that it cannot vote or run for office. Ultimately, he held that the charter to the college was a contract in the letter and spirit of the Constitution and it could not be violated or impaired without violation of the Constitution. The ruling of the state court was reversed.
One of the consequences of the case was that in the future, when states chartered colleges or other institutions of a semi-public nature, the states reserved in the chartering legislation the right to amend the charter in later years. In later years, the distinction between a civil institution employed in the administration of the government and a teaching institution beca-me increasingly blurred, and the sharp distinction once made by Chief Justice Marshall has come increasingly hard to apply.