Dartmouth College v. Woodward
DARTMOUTH COLLEGE V. WOODWARD
Dartmouth College was founded in 1754 to train missionaries and educate Indians in New England. The supporters of this public charity, including Lord Dartmouth, obtained a royal charter for the college and then became its trustees. After the Revolution the new state of New Hampshire recognized the validity of the college and the old charter, and Dartmouth continued to operate as a private college. By 1816 Dartmouth was a Federalist bastion in a state dominated by Jeffersonian Republicans. In that year the state amended the old charter, removed the existing trustees, and created Dartmouth University. In 1817 the old trustees and most of the faculty operated the college, which had ninety-five students, while the new Dartmouth University functioned as a state institution with only fourteen students. The old trustees (Dartmouth College) then sued William H. Woodward, the secretary of the new university, to recover the college's records, charter, and seal. Woodward had been the secretary of Dartmouth College before 1816, but had taken all these things with him when he began to help run the new state-sponsored university. The college hired its most famous alumnus, Daniel Webster, to argue its case. Webster accepted a hefty fee for his efforts.
Relying on the contract clause of the U.S. Constitution, in Dartmouth College v. Woodward (1819) the Supreme Court upheld Dartmouth College's claims. Chief Justice John Marshall construed the charter to be a contract between the donors and the government. Thus New Hampshire could not amend the charter without violating Article I, section 10 of the Constitution, which declared that "No State shall … pass any … Law impairing the Obligation of Contracts."
The decision was a victory for the college, but more important, it made clear that state-chartered businesses or institutions could not be destroyed when changing political circumstances made the business or its owners unpopular. In a separate opinion, Justice Joseph Story anticipated state hostility to such a sweeping opinion. He suggested that when granting charters of incorporation states simply reserve the right to regulate the corporations in the future, or even revoke the corporate charter. The states would do this in the future. Thus Dartmouth College set the stage for future economic development in which business interests knew how their investments would be protected and how the state might regulate them. In that sense, this case can be seen as a key to the transition from the economy of the early national period, with few corporations or large economic players, to the economy of antebellum America, when corporations would form to build railroads and huge factories in the nation.
Stites, Francis N. Private Interest and Public Gain: The Dartmouth College Case, 1819. Amherst: University of Massachusetts Press, 1972.