Reading Assignments for Fourth Topic: Dartmouth College and the Contracts Clause

First assignment:

1. Richard N. Current, “The Dartmouth College Case,” chapter 2 in John Garraty, Quarrels that have Shaped the Constitution.

2. Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518, 624-654 (Marshall’s opinion), 4 L.Ed. 629 (1819). Excerpt.

Second assignment:

3. Home Building and Loan v. Blaisdell, 290 U.S. 398, 415-448 (Hughes’s opinion), 54 S. Ct. 231, 78 L. Ed. 413 (1934). Excerpt.

4. From Andrew C. McLaughlin’s A Constitutional History of the United States, first seven paragraphs of chapter 30:

CHAPTER XXX

CONSTITUTIONAL LAW UNDER CHIEF JUSTICE MARSHALL

In the period we are discussing, characterized on the whole by a sentiment of nationalism and of expansion, a number of disputes concerning national power came before the federal Court and gave to John Marshall and his colleagues the opportunity for laying down principles of immense importance. The opinions in these cases were based on reasoned and emphatic announcements of national authority or they marked with distinctness certain limits on the authority of the states. That these discussions and these opinions should have come in those formative days, before sectionalism and state sovereignty grew really menacing, is of much consequence; nationalism, appearing in various other ways, was thus buttressed by judicial decision; in the settlement of concrete controversies the very foundations of the constitutional system were exposed, as only Marshall could expose them.

If America was to live and grow as a nation, if conflicting sectional interests were to be reconciled, if natural forces, both geographic and economic, which were making for nationalism, were to prevail, then no trivial and constricted construction of the Constitution should stand in the way. One can easily see how a narrow-minded literalist with no comprehension of the magnitude of America might have fastened upon the basic law of the land a construction in harmony with localism and provincialism; how easy it would have been to place such legal obstacles in the way that the developing sense of national unity and of sectional interdependence would have been hampered. Any puny and pedantic construction would have held the young giant in legalistic swaddling-clothes. Natural facts would have been in conflict with the frame and form of the law. Neither Marshall nor anyone else created nationalism by means of constitutional construction; but by taking a broad, forward-looking view of realities, he and others maintained and built up a Constitution suitable for a nation, and a developing nation at that.^[1] "... a constitution", the Chief Justice said in one of his greatest decisions, "is framed for ages to come, and is designed to approach immortality as nearly as human institutions can approach it."

In 1810, Marshall delivered a significant opinion in the case of Fletcher v. Peck.^[2] The controversy arose out of the Yazoo land scandal of an earlier day (1795) which continued to thrust itself into the light. Some 35,000,000 acres of land claimed by Georgia were sold by the legislature of that state for $500,000. Every member of the legislature, save one, voting for the measure got a share of the plunder. The state was aroused, and the next legislature declared the act of cession to be unconstitutional and void.^[3] But could a legislature of a state, when once a grant was made, rescind it? Marshall said no, in the case under consideration. The Constitution of the United States declares that no state shall pass a "law impairing the obligation of contracts"; Marshall declared that contracts were of two kinds, executory and executed. "A contract executed is one in which the object of contract is performed; and this, says Blackstone, differs in nothing from a grant." This grant of land, then, was a contract, and the provision of the Constitution against invalidation of contracts applied not only to contracts made by individuals but to those made by the state itself.

Two years after the Fletcher case, the Supreme Court in New Jersey v. Wilson decided that a contract made by the state with an Indian tribe, in which it was provided that certain lands purchased for the Indians should not be taxed, was binding on the state; the state could not therefore repeal the original act exempting the lands from taxation ^[4] even when they had passed with the consent of the state into the hands of purchasers.

A controversy involving a question of somewhat similar nature was presented in the famous Dartmouth College case (1819).^[5] By a charter received from the Crown during colonial days, the trustees of Dartmouth College were created a body corporate. The state legislature in 1816 passed acts to amend the charter and to enlarge and improve the corporation; the number of trustees was increased, the governor of the state was empowered to appoint the additional members, and provision was made for a board of overseers to inspect and control the trustees in certain particulars. These legislative enactments were but one incident, though an important one, in a controversy which had long been waging, had awakened personal animosities, and had become entangled in state politics and stained with religious rancor. As might perhaps have been expected from Marshall's earlier decisions, the charter of incorporation was declared by Marshall to be a contract, and its obligations were in consequence protected by the contract clause of the Constitution. There were serious objections to be overcome before such a decision could be reached. Was not the college a public corporation, and should not such an institution be subject to legislative control in the public interest? "A corporation," the Chief Justice of the New Hampshire court had said, "all of whose franchises are exercised for public purposes, is a public corporation."^[6] But Marshall declared that Dartmouth College was "an eleemosynary institution, incorporated for the purpose of perpetuating the application of the bounty of the donors, to the specified objects of that bounty"; that the trustees or governors were "not public officers," nor was the college "a civil institution, participating in the administration of government...."

This is the most famous of Marshall's decisions ^[7] though not the most far-reaching in its constitutional effects. It has not escaped criticism, but it has stood from that day to this. It is an accepted principle, therefore, that a charter of a private corporation is a contract as that word is used in the Constitution. The decision, announcing limitation on a state's authority, was of importance in industrial history; for it gave assurance of the inviolability of corporation charters and gave stability to those great industrial agencies.

Had Marshall's decision stood unmodified, or, let us say, had it stood in all its apparent strength, the corporation, with its untouchable charter, might have been beyond the reach of legislative regulation or control. The principle, as we have said, still stands; but it has not prevented the state from exercising reasonable control over corporations. This result is due (1) to the recognition of the right of a state in granting charters to reserve, by constitutional provision or in some other legal manner, the right to amend or recall; ^[8] (2) to a principle later announced by the Court, that charters are not to be construed as giving by implication more than the plain terms indicate;^[9] (3) to a principle laid down, fifty years and more after the Dartmouth College case, that a business "affected with a public interest", whether it be carried on by a corporation or by an individual, is subject to legislative control in certain particulars;^[10] (4) to the principle that a state cannot by charter, or otherwise, devest itself of the power and the duty to preserve the public health and safety; in other words, it cannot surrender the exercise of the police power.^[11] Of all this we shall have something to say hereafter; but it is well to point out here that with the increase of corporations in number and in scope of activity, and with the development of complex social and industrial order, the need of controlling corporations and subjecting them in very large degree to the authority of the state in the course of time was fully recognized.

Footnotes

^[1] It is difficult to measure exactly the influence of able lawyers like Webster and Pinkney on constitutional development, but it must have been very great. If we wish a written rule of law binding on government, that end is attained by the presentation to courts of actual and concrete controversies; and in reaching decisions, the courts are aided by the arguments of lawyers who have laboriously examined the law and legal precedent. Marshall did not need to traverse unknown territory with no direction from guides who knew the terrain at least as thoroughly as he did. "The arguments in M'Culloch vs. Maryland occupied nine days." A. J. Beveridge, The Life of John Marshall, IV, p. 288. Marshall is said to have declared Pinkney to be the greatest man he had ever seen in a court of justice. Pinkney was connected with the Dartmouth College case and for a time with Gibbons v. Ogden; he made great and impressive arguments in McCulloch v. Maryland and in Cohens v. Virginia. His arguments in the Maryland case and in Cohens v. Virginia were masterly expositions of the authority of Congress and the Court. In the latter case he pointed out the permanent importance of the right of the courts of the union to entertain appeals from state tribunals on questions involving constitutional construction. If this appellate power were taken away, he declared, "... every other branch of federal authority might as well be surrendered. To part with this, leaves the Union a mere league or confederacy." Webster was counsel in the Dartmouth College case, McCulloch v. Maryland, Cohens v. Virginia, Osborn v. the Bank, and Gibbons v. Ogden. Arguments for the rights of the states were made by attorneys of brilliance and ability. Ibid., passim.

^[2] 6 Cranch 87.

^[3] U. B. Phillips, Georgia and State Rights, Am. Hist. Asso. Report for 1901, II, pp. 31-32.

^[4] 7 Cranch 164 (1812). See also Terrett v. Taylor, 9 Cranch 43 (1815). Notice the remark of the Court in Stone v. Mississippi, 101 U. S. 814, 820 (1880): "While taxation is in general necessary for the support of government, it is not part of the government itself.... No government dependent on taxation for support can bargain away its whole power of taxation...."

^[5] Trustees of Dartmouth College v. Woodward, 4 Wheaton 518 (1819).

^[6] 1 New Hampshire Reports 111, 117 (1817).

^[7] "This is one of Marshall's most celebrated decisions. It is often cited as the one which established the inviolability of contracts under the Constitution. But the actual controversy, as the Chief-Justice remarked, turned, not so much upon the true construction of the Constitution, in the abstract, as upon its application to the case, and upon the true construction of the charter of Dartmouth College; whether that was a grant of political power which the State could resume or modify at pleasure, or a contract for the security and disposition of property bestowed in trust...." Henry Hitchcock, "Constitutional Development in the United States as Influenced by Chief-Justice Marshall," Constitutional History of the United States as Seen in the Development of American Law, p. 104.

^[8] The amendment or revocation, however, is not held to be totally without limitation.

^[9] Charles River Bridge v. Warren Bridge, 11 Peters 420 (1837).

^[10] Munn v. Illinois, 94 U. S. 113 (1877).

^[11] In Boston Beer Co. v. Massachusetts, 97 U. S. 25, 32 (1878) the Court held that, though a corporation was chartered for the manufacture of malt liquors and "although this right or capacity was thus granted in the most unqualified form, it cannot be construed as conferring any greater or more sacred right than any citizen had to manufacture malt liquor; nor as exempting the corporation from any control therein to which a citizen would be subject, if the interests of the community should require it.... All rights are held subject to the police power of the State." "No Legislature can bargain away the public health or the public morals." Stone v. Mississippi, 101 U. S. 814, 819 (1880). "The rule of construction in this class of cases is that it shall be most strongly against the corporation." Northwestern Fertilizing Co. v. Hyde Park, 97 U. S. 659, 666 (1878). It should be noticed that Marshall in the Dartmouth College case said that "the framers of the constitution did not intend to restrain the states in the regulation of their civil institutions, adopted for internal government...." 4 Wheaton 518, 629.

Discussion Questions:

1. In two cases decided in 1815 by the Supreme Court, Terrett v. Taylor and Town of Pawlett v. Clark, Justice Story drew a distinction between public corporations, chartered by governments to perform government-related tasks, and private corporations, chartered to provide protection of individual property. Story argued that state governments may amend or revoke charters of public corporations, but not private corporations, which are protected by the constitution and by natural law. How does Marshall attempt to apply this distinction to the college charters in the Dartmouth College case? Do you find Marshall’s argument finding that a chartered college is a private corporation, and thus protected by the Contract Clause, persuasive? In the larger sense, do you think the distinction between private corporations and public corporations a sound one? Can a clear distinction between the two be maintained?

2. In Home Building and Loan v. Blaisdell the Court considered the argument that emergency situations may justify state interference with private contracts (mortgage agreements). The recent Great Recession also provoked calls for state (and federal) legislation that would provide relief to individuals who were parties to burdensome contracts. Do you think state governments have the authority to provide relief to debtors in emergency times; that is, would such legislation violate the Contract Clause under the Fletcher and Dartmouth College holdings? Should such legislation be constitutional in dire times?

Related Cases and Recommended Readings

Fletcher v. Peck, 10 U.S. (6 Cr.) 87, 3 L.Ed. 162 (1810). Statute repealing state land grants found unconstitutional.

New Jersey v. Wilson, 11 U.S. (7 Cranch) 164, 3 L.Ed. 303 (1812). Statute repealing a state tax exemption found unconstitutional.

Terrett v. Taylor, 13 U.S. (9 Cranch) 43, 3 L.Ed. 650 (1815). “Public” corporations distinguished from “private” corporations. Property a natural right.

Town of Pawlet v. Clark, 13 U.S. (9 Cranch) 292, 3 L.Ed. 735 (1815).

Sturges v. Crowninshield, 17 U.S. (4 Wheat.) 122, 4 L.Ed. 529 (1819). State bankruptcy law discharging debtor’s debts to private individual found unconstitutional.

Ogden v. Saunders, 25 U.S. (12 Wheat.) 213, 6 L.Ed. 606 (1827). Sturges rule modified to apply only to retroactive legislation; prospective debtor statute upheld.

Charles River Bridge v. Warren Bridge, 36 U.S. 420, 9 L.Ed. 773 (1837). A different take on the Contracts Clause by the Taney Court.

Home Building and Loan v. Blaisdell, 290 U.S. 398, 54 S. Ct. 231, 78 L. Ed. 413 (1934). Full opinion with dissent.

United States Trust Co. v. New Jersey, 431 U.S. 1, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977). State law amending its legal commitment to bondholders found unconstitutional.

Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978). Statute requiring in-state companies to increase employee benefits found unconstitutional.

Henry F. Graff, “The Charles River Bridge Case,” chapter 5 in John Garraty, Quarrels that have Shaped the Constitution.

C. Peter McGrath. Yazoo: Land and Politics in the New Republic, the Case of Fletcher v. Peck. Brown University Press, 1966.

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

R. Kent Newmyer. Supreme Court Justice Joseph Story: Statesman of the Old Republic. University of North Carolina Press, 1986. 978-0807841648

Melvin Urofsky and Paul Finkelman. A March of Liberty: A Constitutional History of the United States. 2d ed. Vol. 1. Oxford University Press, 2002. Especially chapter 12.

Benjamin F. Wright. The Contract Clause of the Constitution. Harvard University Press, 1938.

© William S Miller