Just as the Supreme Court’s opinions in Marbury and Martin ensured that there would be a uniform interpretation of the Constitution, Marshall’s decisions in McCulloch that interpreted the necessary and proper clause broadly and in Gibbons that expanded the scope of Congress’s power under the commerce clause ensured a uniform national system of regulation to facilitate economic growth.
CHAPTER TWENTY-NINE
PUBLIC AND PRIVATE
Corporations, both for-profit and nonprofit, were relatively scarce creatures in the eighteenth century. Until the dawn of the nineteenth century, most American corporations were municipal bodies created for a public purpose. Before the American Revolution, there were only seven private corporations in the entire country, and as late as 1790, there were only forty-two. After the Court’s 1810 decision in Fletcher v. Peck, that number had grown to around three hundred.1 Corporate charters were originally issued by royal decree either to enrich the king’s favorites or advance the public interest. The development of a national economy required that investors have some assurance that their corporate entities would be secure from excessive state interference. At the same time, the demand for higher education required the creation of privately funded schools and colleges chartered by the states.
The Marshall Court played a critical role in defining the relationship between government and private market actors. In particular, the Marshall Court protected corporations from excessive regulation by the states, making possible the modern economy. The first important case the Supreme Court faced on the rights of a corporation arose out of an obscure dispute concerning a small New England college.
In the 1760s, Reverend Eleazar Wheelock, a young Congregationalist pastor in Lebanon, Connecticut, sought to establish a college to teach Christianity to Indians. He raised funds from England and Scotland, and to assure his benefactors that their funds were spent properly, an English board of trustees was appointed under the direction of Lord Dartmouth, the secretary of state for the Colonies. An American board of trustees was also established to oversee the college’s day-to-day operations. In 1769, the royal governor of New Hampshire, John Wentworth, invited Wheelock to move his college to New Hampshire, and he issued a royal charter to establish Dartmouth College “for civilizing and Christianizing children of pagans . . . and also of English youth and any others.” The charter named a board of twelve trustees, including Reverend Wheelock, who was also named president. The trustees and Wheelock were empowered to appoint their successors “forever hereafter.”2
Wheelock ruled the college like a benevolent despot, and the trustees never questioned him. Before he died in 1779, he named his twenty-five-year-old son, John, as president. John possessed his father’s authoritarian tendency without his father’s erudition or judgment. The result was unfortunate. He filled faculty positions with friends who were unqualified, the college’s finances deteriorated, and his management style alienated the trustees. As the Second Great Awakening swept across New England in the first decade of the nineteenth century, Wheelock embraced the new Presbyterianism—to the chagrin of his old-line Congregationalist trustees. When the trustees named a professor of divinity over Wheelock’s objections, Wheelock asked the New Hampshire legislature to remove Dartmouth’s trustees. In retaliation, the board fired Wheelock in 1815 and appointed Reverend Francis Brown as Dartmouth’s president.3
The following year, Republicans won a majority in the New Hampshire legislature. The Republican legislature viewed Dartmouth College with hostility. The college’s royal charter and its self-perpetuating board were seen as a vestige of British aristocracy, and Congregationalism was practically synonymous with old-fashioned Federalism. Republicans believed that higher education should be open to all and opposed private colleges on principle. The Republican state legislature adopted a measure to give control over Dartmouth’s board to the Republican governor and reconstituted the college as Dartmouth University. The college trustees opposed these changes to Dartmouth’s royal charter. In 1817, the college treasurer, William Woodward, sided with the university, and the college trustees sued Woodward in the New Hampshire Superior Court for the college records and seal.
Daniel Webster, who happened to be a Dartmouth alumnus, represented the college trustees. Webster challenged the New Hampshire law under both the state and federal constitutions as well as general equitable principles. The New Hampshire court unanimously ruled that Dartmouth College was a public corporation chartered for a public purpose and that the legislature was free to reconstitute the board as it saw fit.
Webster appealed to the Supreme Court on the narrow question of whether the New Hampshire law violated the federal Constitution’s Contract Clause. As the Court held in Fletcher v. Peck, the Contract Clause prohibits any state law “impairing the Obligation of Contracts.”4 Webster was arguing that a college’s charter, or any corporation’s charter, was a form of contract protected by the federal Constitution. This was a novel argument. By 1820, there were only thirty-five colleges or universities in the United States.5 Colleges, like other corporations, were considered public entities chartered with a public mission.
The case reached the Supreme Court on March 10, 1818. The U.S. attorney general, William Wirt, and John Holmes appeared for the university. Webster addressed the Court in a fashionable blue coat with brass buttons, a white vest, a tie, and dark pants.6 He began three days of argument with a four-hour oration. His argument rested on the Court’s decision eight years earlier, in Fletcher v. Peck, that the state’s grant was a contract and that the subsequent law impaired the contract in violation of the Constitution’s Contract Clause. First, Webster argued that a charitable institution like a college was, in fact, a private corporation, not a public entity. If New Hampshire could take control of Dartmouth, then other private colleges were also at risk.
But if the college was not owned by private shareholders, who was really harmed by changes in the structure of the college? The original donors and incorporators were gone. The students were transitory. Webster insisted that academic freedom itself would be threatened. “No description of private property has been regarded as more sacred” than academic freedom, he declared. The faculty’s rights must be protected by the Constitution, for academics are the estates and freeholds of “a most deserving class of men . . . who have consented to forego the advantages of professional and public employments, and to devote themselves to science and literature, and the instruction of youth in the quiet retreats of academic life.” Webster admonished the court that it would be “indefensible” for the government to threaten a college’s academic freedom.7
Then Webster moved to his principal argument that New Hampshire had violated the Contract Clause. He asserted that a grant of a corporate charter was as much a contract as the grant of land in Fletcher. The grant bound the state like a contract, and the benefactors contributed to the college with the expectation that the college would endure in perpetuity.8 The college did not need a change in its structure. “That which it did need was the kindness, the patronage, the bounty of the legislature; not a mock elevation to the character of a university, without the solid benefit of a shilling’s donation to sustain the character,” Webster declared with his dark eyes flashing.9 New Hampshire had clearly impaired the contract by reconstituting the board of trustees and changing the name and character of the college.
Webster concluded his argument with a stem-winding peroration that has seldom been equaled in the Supreme Court. He reminded the court what was at stake: “The case before the Court . . . affects not this college only, but every college, and all the literary institutions of the country . . . They have all a common principle of existence, the inviolability of their charters.” Webster argued that if colleges lost their independence from state legislatures, benefactors would be less inclined to contribute and that scholars would be discouraged from devoting themselves to such institutions. “Colleges and halls will be deserted by all better spirits,
and become a theater for the contention of politics. Party and faction will be cherished in the places consecrated to piety and learning.”10 Webster had reached an emotional crescendo. People in the courtroom had begun to weep.
Webster turned to face the chief justice: “Sir, you may destroy this little institution; it is weak, it is in your hands! . . . But, if you do so, you must carry through your work! You must extinguish, one after another, all those greater lights of science which, for more than a century, have thrown their radiance over our land!” The chief justice, who rarely showed any emotion, struggled to hold back tears as Webster concluded: “It is, sir, as I have said, a small college. And yet there are those who love it.”11
The Court was divided, and Marshall announced the next day that the Court would reconsider the case the following year. Webster believed that Justices Marshall and Washington would support the college trustees while Justices Todd and Duvall were opposed. He thought that Justice Story might be undecided.12 While the justices mulled over their decision, Harvard appointed Story to its board of overseers, and both Harvard and Princeton awarded doctors of law degrees to Justices Johnson and Livingston. Whether or not these events had any effect on the justices’ ruling, Republicans later accused the Court of improper influence.13
The case was scheduled for rehearing on February 2, 1819. The Court met for the first time in its new courtroom, the fifth since Marshall had joined the Court. It was located underneath the north wing of the Capitol in an obscure corner of the basement at the end of a long hallway. The chamber was a cramped, oddly shaped triangular room with three windows and a profusion of arches supporting the ceiling. On one wall was a marble bas-relief of Fame gesturing at the Constitution and Justice balancing a scale. The justices sat on a long bench on a raised platform.14 Webster was prepared to resume the argument but no doubt wondered what more he could possibly add after his heroic performance the previous winter. William Pinkney, who represented New Hampshire, had not yet arrived when to Webster’s astonishment—and relief—Marshall pulled a stack of pages from the sleeve of his black cloak and began reading the Court’s majority opinion.15 Justices Washington and Story wrote concurring opinions in which Livingston also concurred. Justice Todd had missed the entire term due to “indisposition,” and Justice Duvall dissented without writing an opinion.
First, Marshall described the history of Dartmouth College. The fact that it was chartered for the purpose of propagating Christianity among the Indians did not transform Dartmouth into a public entity. “A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law.” As such, corporations possess only the characteristics conferred by their charter. “But nothing confers on a private corporation the status of being a public entity. It does not have any political power, or a political character . . . It is no more a State instrument, than a natural person exercising the same powers would be.”16
Was the 1769 charter a contract with the trustees that bound the state not to interfere? Marshall found that it was a contract that the donors had relied on when making contributions to the college.17 Marshall conceded that the rights of a corporation were “not particularly in the view of the Framers of the constitution” when they drafted the clause prohibiting states from impairing contracts. But the Framers’ intentions were not necessarily controlling where the Constitution’s words appear to govern.18 Marshall left no doubt that private corporations were protected by the Constitution. And to the New Hampshire attorneys’ argument that there was no way to remove incompetent or malevolent trustees, Marshall responded that the mere chance that the college could be badly governed did not justify violating the Contract Clause.19
Marshall then addressed the question of whether the contract had been impaired by New Hampshire’s legislation. The New Hampshire legislature had tried to impose the “will of the State” over “the will of the donors, in every essential operation of the college.” Therefore the state’s law violated the Constitution’s protection for contracts. For the first time, the Supreme Court had declared a state law unconstitutional.
The public response to the Court’s holding was surprisingly muted after such a long public battle. One Vermont newspaper hailed the Court’s decision as promising to prevent “much evil” in the future.20 Of course, many New England Republicans criticized the decision, echoing the complaints of southern Republicans that Marshall had changed the “original compact between the general and state governments” by infringing on the state’s sovereignty. One New Hampshire newspaper charged that the Supreme Court’s decision was “not the only ‘novel principle’ that has been advanced” by the Marshall Court and warned that the Court’s decision would lead to “wide destruction.”21 New Hampshire Republicans threatened to put Dartmouth College out of business by imposing heavy taxes. But the nation’s colleges and other charitable institutions breathed a sigh of relief. The trustees resumed control of Dartmouth College, and Dartmouth University was disbanded.22
The Dartmouth College opinion created the underpinnings for modern corporate law. Marshall shattered the lingering concept that corporations were merely instruments of the state intended to serve a public mission. Marshall’s opinion recognized that corporate charters were contracts protected by the Constitution and that corporations were private persons with many of the same powers as natural persons. So a corporation like Dartmouth could have an interest in property that was protected by the Constitution. As a consequence of Dartmouth College, corporations began to proliferate throughout the nineteenth century, and dozens more religiously affiliated private colleges sprung up throughout New England. Over the next four decades following the Dartmouth College decision, the number of U.S. for-profit corporations surged from three hundred to more than twenty thousand with a total authorized capital of six to seven billion dollars.23
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A FEW WEEKS LATER, the Marshall Court issued another significant decision expanding the Constitution’s protection for property and contract rights. Republicans had long voiced concerns that it would be difficult to defend republican values in a country with a growing class of workers without property. Madison worried that demagogues would appeal to the working poor by promising to take from the rich. The Republican solution was to appropriate more land for settlers by pushing Indians farther west if necessary. Nevertheless, the disparity of wealth was becoming more apparent by the 1820s. Rhode Island, New York, Pennsylvania, and Connecticut had adopted laws to help debtors by allowing them to declare bankruptcy or insolvency.24 The question arose whether such laws impaired the contract rights of creditors.
In March 1811, Josiah Sturges lent Richard Crowninshield $1,543.74 (about $27,000 today) to be paid the following August. Crowninshield was the dissolute son of George Crowninshield Jr., a wealthy and powerful Massachusetts merchant. He was living in New York City at the time, and he had squandered his fortune and flirted with debtors’ prison. In April, the New York legislature passed a bill for the relief of insolvent debtors, and shortly thereafter, Crowninshield declared bankruptcy and was relieved from his debt to Sturges. Then he returned to his family in Massachusetts and began a profitable textile company. Crowninshield’s success attracted the attention of his former creditor. Sturges sued Crowninshield on the promissory notes in the federal circuit court in Massachusetts. Sturges challenged the New York law as unconstitutional on two grounds: First, he claimed that the Constitution gave Congress an exclusive right to adopt a nationwide bankruptcy law and that the states had no such power. Second, he argued that the state law impaired his contract with Crowninshield in violation of the Contract Clause.25
The circuit court included Justice Story, who had represented the Crowninshield family and who owed much of his success to their support.26 But despite his personal loyalty to the Crowninshields, Story had pushed for Congress to adopt a national bankruptcy code. He thought that the Constitution precluded states from legislati
ng on bankruptcy. Story believed that laws regulating commerce should be made uniform throughout the nation by Congress.27 The other judge on the circuit court was District Judge John Davis. In order to ensure that the case would eventually be settled by the Supreme Court, Story and Davis agreed to issue conflicting opinions so the Supreme Court would have no choice but to accept the case.28
Sturges v. Crowninshield was a more complex case involving contract or property rights than the Marshall Court had previously considered. In Fletcher and Dartmouth College, the Marshall Court had defended the rights of property holders, but bankruptcy cases were not so simple. Both creditors and debtors possessed property interests, and the issue for a court was how to allocate the property that remained.29
Marshall personally disfavored laws for the relief of debtors, and he thought that such laws had contributed to the failure of the Articles of Confederation.30 Initially, the other Supreme Court justices were divided on whether to uphold the New York bankruptcy law. Justices Story, Washington, and possibly Todd questioned the validity of any state bankruptcy law. Justices Johnson, Livingston, and Duvall thought that the states should be free to pass bankruptcy laws concurrent with the federal power.31 Nevertheless, just days after the oral argument ended, Marshall cobbled together a unanimous opinion that papered over their differences.
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