The Encyclopedia Americana (1920)/Dartmouth College Case, The
DARTMOUTH COLLEGE CASE, The. The Dartmouth College Case is the name by which is commonly known the action entitled Trustees of Dartmouth College v. Woodward, which is repeated in volume four of Wheaton's ‘United States Supreme Court Reports.’ Perhaps no decision ever rendered in any tribunal has attracted more attention or exerted a greater influence over the legislative and judicial history of our land than has the decision in this case, which arose as follows:
In the year 1769 the Rev. Eleazar Wheelock, aided financially and politically by friends in England and America, conspicuous among whom was the Earl of Dartmouth, and with the assistance of the Province of New Hampshire given in the form of extensive land grants, founded Dartmouth College under a charter from King George III of England. This charter vested the control of the institution in a board of trustees, who were designated by Dr. Wheelock to manage the same, and under the management of those trustees so incorporated and their successors the college grew and prospered until the year 1816, when the State legislature passed an act amending its charter by which they curtailed the power of its trustees, changed its name to Dartmouth University and made it a State institution subject to State control. For protection against this infringement of their powers the trustees had recourse to the courts in the now famous case above named.
In the State tribunals the decision went against the college trustees and an appeal was taken to the Supreme Court of the United States, the appeal being based upon the theory that the charter granting the control of the college to the trustees was a contract, that under Section X of Article 1 of the Federal Constitution no State can pass an act impairing the obligation of any contract, and that the said act of the New Hampshire legislature violated the contract of the charter of Dartmouth College.
It should be remembered that in 1819 when the case came up for final hearing, the popular views of the scope and effect of the National Constitution were far from harmonious. All then regarded that instrument as the greatest existing governmental compact, but the Republican party then in power demanded that it be so strictly construed as to preserve unimpaired the rights and powers of the individual States. On the other hand, there then presided over the Federal Supreme Bench, in the person of John Marshall, one of the “midnight appointees” of John Adams, the last President of that Federalist party which demanded so liberal a construction of the instrument as to give the country a strong national government. Of the section of the Constitution invoked, we may safely say with Ordronaux that “Drafted at a time when commerce was in its infancy; when public credit was depreciated to the lowest ebb; and confidence in monetary transactions almost destroyed, it was manifestly introduced as a barrier against the tide of repudiation which threatened to overwhelm both public and private credit.” The framers of the Constitution never intended that clause to be given the interpretation urged in this case. But the case was up before a court presided over by the jurist who has been truthfully said to have “found the Constitution a skeleton and clothed it with flesh and blood.” Therefore, when it was clearly shown, as it was in the celebrated argument of Daniel Webster for the college trustees, that this case came fairly within the provisions of that section, in principle, the court, guided by John Marshall, held that the act of the New Hampshire legislature was void because it impaired the obligation of a contract. Justice Duvall alone dissented.
This decision has perhaps been more severely criticized and has perhaps given rise to more strenuous efforts to escape its consequences than has any other decision of the tribunal which rendered it, and the reasons are obvious. While it gave assurance that capital invested in chartered business and charitable ventures would be forever protected from legislative interference, it also invited political corruption by saying in effect to promoters of corporations that the courts would protect them in the possession of every concession or right which they beguiled from pliant legislative bodies. It made possible the mechanical and industrial achievements of the 19th century in this country, but it also made profitable the limitless corruption which has attended those achievements and which has frequently, by virtue of this dedsion, stripped the government of very important powers.
But the correctness of a judicial decision is not to be gauged by its influence for weal or woe. Rather should that be determined by its conformity to the Constitution, the statutes and the judicial precedents upon which it rests and the approval given it by later decisions. Judged by this test we must hold that Marshall and his colleagues decided well in the Dartmouth College Case. The Supreme Court of the United States had early laid down the rule that there are certain vital principles of republican government which will overrule a flagrant and apparent abuse of legislative power. It had in the year 1810 declared a law granting land to private companies to be in effect a contract which could not be so repealed as to impair the obligation of that contract. If the passage of the law were procured by fraud the court there doubted its power to declare it void for those reasons, but if that power existed it could be exercised only under those rules of law and equity which govern private transactions. Two years later there came before the same court a case involving a somewhat similar question. The State of New Jersey had traded land with an Indian tribe and had, by legislative enactment, provided that the Indians should forever hold the lands received by them free from taxation. With the consent of the State they sold their lands and, the question being properly presented, the court held that the law granting the exemption was a contract, that the exemption ran with the land and that the purchasers from the Indians enjoyed the same exemption.
By the decision in the Dartmouth College Case the rules laid down in the foregoing cases were followed and their application extended to contracts in charters of incorporation, but their force when so applied had already been limited by another line of decisions. In 1804 Chief Justice Marshall, speaking for the court, had said that the charter gives to a corporation all of the powers it possesses and no powers not granted can be exercised. A little later he had decided that there is a difference between a grant of corporate existence and a grant of peculiar remedies. The first is general. The second can only be exercised in those courts which the power bestowing the privilege can regulate. Moreover, as the bank charter involved in that case contained a clause making it a felony to counterfeit its notes, the court believed it to be a public act and subject to repeat by succeeding legislatures. And in the year 1819 the same court had decided that the right to use a peculiar form of attachment granted in its charter to a bank could be taken away at any time because “The forms of administering justice and the duties and powers of the courts as incident to the exercise of a branch of the sovereign power must ever be subject to the legislative will and the power over them is inalienable so as to bind subsequent legislatures.”
It is thus made fully apparent that the Dartmouth College Case decided only that if a legislative grant, whether made in the form of a charter of incorporation or in any other form, conveyed to private citizens that which the legislature had power to contract away, the grant so made was a contract and no succeeding legislature could rescind the same without following the same rules which govern the rescission of private contracts. But if there is any doubt that such was the understanding of the chief justice who wrote the opinion of the court in that case, the same will be removed by a consideration of certain later decisions in which he participated. In the year 1821 the court over which he presided decided that Congress had power to incorporate a lottery to do business beyond the limits of the District of Columbia, yet, where no mention was made thereof in the charter, it would not be presumed that Congress had done so and had thereby deprived the States of their power to regulate lotteries by preventing the sale of tickets within their boundaries. In the same year the same court decided that a town government cannot contract away its legislative power. And in the case of Providence Bank v. Billings, the court presided over by Marshall decided that while a State might, through its legislature, grant immunity from taxation, it could not be presumed to have done so, and that, in the absence of any agreement to the contrary, it might tax to death a franchise which it had itself granted.
Bnt the effect of the Dartmouth College decision was not fully understood at the time of its rendition and the States eagerly availed themselves of a suggestion found in the decision itself to the effect that if they wished the right to amend, alter or repeal charters granted by them they must expressly reserve that power. Such a reservation, whether expressed in the charter itself, the Constitution or the general laws of the State, has been held to have the effect of “placing the State legislature back on the same platform of power and control over the charter containing it, as it would have occupied had the constitutioiul restriction never existed.” Yet the later decisions hold that this reserve power must be reasonably exercised. The alterations must be made in good faith and consistent with the objects and scope of the act of incorporation. Sheer oppression and fraud cannot be inflicted under the guise of amendment or alteration. The power cannot be so employed as to defeat or substantially impair the object of the grant or any right which has become vested under it. Where this power has been reserved, a State may tax property which it has forever exempted from taxation, but the taxes must not be greater than those imposed upon other property. It can regulate the charges of common carriers, but no such legislation must amount to the taking of private property for public purposes without due process of law. We thus see that not only was the Dartmouth College decision as moderate as any of the later cases which have been said to have practically overruled it, but that even where reservations in charters have obviated the effect of that decision the later courts have reached a similar conclusion by a different chain of logic.
Bibliography.— Cook, ‘The Corporation Problem’; Cooley, ‘Constitutional Limitations’; Curtis, ‘Life of Daniel Webster’; Hitchcock, ‘Constitutional Development of the United States as Influenced by Chief Justice Marshall’; Morawetz, ‘Private Corporations’; Kent, ‘Commentaries on American Law’ (Boston 1884); Maine, ‘Popular Government’ (London 1885); Pomeroy, ‘Introduction to the Constitutional Law of the United States’ (Boston 1886); Shirley, ‘The Dartmouth College Causes and the Supreme Court’ (Saint Louis 1879); Story, ‘On the Constitution’ (Boston 1891); Tiedeman, ‘The Unwritten Constitution of the United States’; Von Holst, ‘Constitutional Law of the United States’; Walker, ‘The Dartmouth College Case.’