LIBRARY "

Michigan Stab:
University '11,

 

 

ABSTRACT
LAW AND EXPERIENCE IN THE EARLY REPUBLIC:

THE EVOLUTION OF THE DARTMOUTH COLLEGE DOCTRINE,
1780 - 1819

BY

Bruce Arthur Campbell

In 1819, the United States Supreme Court announced
its decision in the case of Trustees of Dartmouth College
v. Woodward. Chief Justice John Marshall set forth the

Dartmouth College doctrine, the rule that a charter of a

 

private corporation is a contract protected by the federal
constitution from arbitrary amendment or repeal.
This study seeks to discover in the first instance

why the Supreme Court announced the Dartmouth College

 

doctrine as a principal of constitutional law. On a higher
level of historical generality, since it represented a

consolidation of forty years of development, Dartmouth College

 

merely serves as a point of reference for a broad analysis
of the growth of an American system of political economy and
of a number of institutions of higher education, with par-
ticular attention to the relationship between government
and corporations in each field.

Since the American post-Revolutionary mind had a dual

aspect, at once legalistic and pragmatic, both law, in the

Bruce Arthur Campbell

sense of traditional legal thinking, and experience are
crucial elements in the development of the statutory and
case law of corporations after 1780.

This study is organized tOpically around a central
core, the Dartmouth College case. Chapter I describes the
case itself. Subsequent chapters discuss the various legal
and experiential elements which contributed to the decision,
including the English law of corporations, the American |
experience with charitable and business corporations, and
the doctrinal foundation for the decision in both consti-
tutional and non-constitutional law.

Various legal elements made significant contributions

to the formation of the Dartmouth College doctrine. Initially,

 

English law provided fundamental conceptions of the corpora-
tion which became the starting point of American analysis.
The British also had a well developed law of charitable
corporations, but American lawyers and judges disagreed as
to its interpretation and application. By 1819, a series
of decisions on public contracts had laid a doctrinal foun-
dation for the Dartmouth College decision in constitutional
law. Although the Supreme Court was originally split on the
reach of the contracts clause, a majority finally decided
to restrict the protection of the clause to contracts con-
cerning property.

American experience with both business and charitable
corporations likewise made significant contributions to the

formation of the Dartmouth College doctrine. Between 1780

Bruce Arthur Campbell

and 1819, the process of chartering business corporations
invited the conclusion that a charter represented a bargain

or contract between the corporators and the legislature, and
there was widespread agreement that the business corporation
charter was the measure of corporate rights. Moreover,
legislatures usually respected chartered rights. In contrast,
governmental treatment of educational corporations showed

no such theoretical or practical unity. From the late
colonial period to 1819, legislatures seriously threatened

or actually attacked seven colleges, including Dartmouth,
damaging each to some degree. It was obvious from the record
that neither government nor education would be well served

by allowing these legislative raids to continue. Consequently,
the Supreme Court used its constitutional power to restrict
state legislative control over private educational corporations.
Since there was, apart from prOperty, no developed law of
civil liberties on which to draw, the Court defined the

Dartmouth College issues in terms of private property, and

 

rationalized its decision in terms of those publicly accepted
operational principles which informed govermmental relations

with business corporations.

LAW AND EXPERIENCE IN THE EARLY REPUBLIC:
THE EVOLUTION OF THE DARTMOUTH COLLEGE DOCTRINE,

1780 - 1819

BY

Bruce Arthur Campbell

A THESIS

Submitted to
Michigan State University
in partial fulfillment of the requirements

for the degree of
DOCTOR OF PHILOSOPHY
Department of History

1973

C0pyright by
BRUCE ARTHUR CAMPBELL

1973

TABLE OF CONTENTS

INTRODUCTION . . . . . . . .

I. THE DARTMOUTH COLLEGE CASE

II. THE INHERITANCE . . .

III.
LAW AND EXPERIENCE . .

IV. BUSINESS CORPORATIONS:

THE POLITICAL ECONOMY OF MASSACHUSETTS

V. JOHN MARSHALL AND THE

VIRGINIA SYSTEM OF POLITICAL ECONOMY

VI. THE CHARTER:

MASSACHUSETTS AND VIRGINIA .

VII. DOCTRINAL BASES:

PUBLIC CONTRACTS AND CORPORATE CHARTERS

VIII. CONCLUSION:

BIBLIOGRAPHY . . . . . . . .

ii

THE SUPREME COURT
AND THE DARTMOUTH COLLEGE DOCTRINE

LEGISLATIVE POWER AND
CORPORATE RIGHTS IN STATES OTHER THAN

THE CHARITABLE CORPORATION IN AMERICA:

11

61

102

167

239

316

341

364
378

INTRODUCT ION

In 1819, the United States Supreme Court announced

its decision in the case of Trustees of Dartmouth College

 

v. Woodward. In his opinion for the Court, Chief Justice

 

John Marshall set forth what has come to be known as the

Dartmouth College doctrine, the rule that a charter of a

 

private corporation is a contract protected by the federal

constitution from arbitrary legislative amendment or repeal.
This study seeks to answer in the first instance two

closely related questions. The first is, Why did the Supreme

Court announce the Dartmouth College doctrine as a principle

 

of constitutional law? The second, What was the substance

and meaning of the Dartmouth College decision in the context

 

of the early national period? On a higher level of historical
generality, since it represented a consolidation of forty

years of deve10pment, Dartmouth College merely serves as a

 

point of reference for a broad analysis of the growth of

an American system of political economy and of a number of
institutions of higher education, with particular attention
to the relationship between government and corporations in
each field. Ultimately, the theme is the way in which in-
dividuals, special interest groups, political factions,
legislatures, and courts cooperated or, in the case of higher

education, failed to c00perate in the formation and definition
1

2

of the American constitutional order between 1780 and 1819.
The legal and historical method of analysis employed
in this study owes much to the instrumental theory of law
which has come into favor in the middle decades of the twen-
tieth century. All of those who subscribe to this theory
emphasize social factors and Operational results over tra-
ditional legal analysis as the most important elements of
the adjudicatory process. The most extreme commentators
treat all legal analysis in judicial Opinions as mere ration-
alization for decision reached on wholly non-legal grounds
of personal prejudice, political preference, or economic
self-interest. Others view the social and political factors
which influence a decision as of prime importance, but do
allow that formal analysis can have some impact on events
by influencing the direction of judicial thought.
The instrumental theory has had a beneficial effect
on the writing of American constitutional and legal history.
Although law reviews continue to publish useful research
into doctrinal development of particular points, SOphisticated
legal historians, both within and without the legal profession,
have moved far beyond the old legal history to emphasize the
interaction between the legal system as a whole and society
at large. The most successful exponent of this approach
has been James Willard Hurst. In some of his earlier
writings, Hurst took a broad over-view of the actual oper-
ation of major social insitutions in order to discover those

"'working principles,‘ principles defined and expressed

primarily by action" which moved society in the nineteenth

3
century. More recently, Hurst has applied his theory of legal

history to give a generally satisfactory account of the
relationship between legal institutions and economic develop-
ment in a single industry in the state of Wisconsin.1
Although the instrumentalist theory generally and
the example of Willard Hurst in particular pointed the way,
much evidence suggested that a modification of the general
approach was necessary for the period 1780-1819. Especially
after the turn of the nineteenth century, it is true, lawyers,
judges, and the public everywhere examined the economic and
social implications of important cases and legal problems.
However, unless a given problem was virtually unprecedented,
peOple also seriously discussed it in terms of received law
and general legal concepts. The mind of the early nineteenth
century, then, had a dual aspect, at once pragmatic and
legalistic. Accordingly, while recognizing the importance
of social factors as causal elements in legal deve10pment,

this study has given an independent status to traditional

 

lJames Willard Hurst, Law and the Conditions of Freedom
in the Nineteenth-Century United States (Madison: University
Sf’WiSConsin Press, 1956), 5. Law and Social Process in
United States History (Ann Arbor: University of Michigan
Law School, 1960), 1. Law and Economic Growth: The Legal
History of the Lumber Industry in Wisconsin, 1836-1915 (Cam-
bridge: Belknap Press of Harvard University Press, 1964).
For a competent summary and generally laudatory review of
Hurst's work to 1970, see Harry N. Scheiber, "At the Border—
land of Law and Economic History: The Contributions of
Willard Hurst," American Historical Review, LXXV (Feb.,
1970), 744-756. The best current discussion of the writing
of American legal history is Lawrence M. Friedman, "Some
Problems and Possibilities of American Legal History," in
Herbert J. Bass, ed., The State of American History (Chicago:
Quadrangle Books, 1970), 3-21.

 

 

 

 

 

 

4
legal and doctrinal analysis. Where legal argument figured

prominently in public debate and court-room discussion, an
attempt has been made to assess the quality of the argument
in its legal dimension, and to determine so far as possible
its impact on the course of events.

In order effectively to apply this scheme of analysis,
a number of special concepts had to be used. Some of these
require definition at the outset. Among the concepts peculiar
to the legal system which must be understood are "contract"
and the distinctions between judicial decisions and judicial
opinions, between law and experience, and between procedure
and substance. Finally, there are both legal and functional
differences between educational and business corporations
which must be explained.

A "contract" is a legally enforceable agreement between
two or more parties. Leaving aside special situations which
are irrelevant here, the only enforceable agreements are

bargains, in which each party makes a commitment or gives

 

up something in order to induce the promise or performance
of the other party. That which is promised or paid is
referred to as "consideration." Thus, in non-legal language,
A, a builder, might agree to build a small office building
for B. If B does not have the cash to pay for the construc-
tion, the builder might agree to accept B's promise to pay
in the future, with the further agreement that A may collect
the rents until the debt is paid off. In legal terms, A

and B have a contract, with A's consideration being the

promise to construct the building and B's consideration

5
being the promise to pay, additionally supported by the

agreement that A may collect the rents. In the normal
course of events, A would begin to spend money on the
building in reliance on B's promise to pay and the security
arrangement. When this has happened, modern commentators
refer to A as having a "reliance interest" in the contract.
The old law had no such neat and compact term for this
phenomenon, but referred to money Spent or action taken on
the "faith" Of the contract. The conception of a contract
as a bargain and the associated legal ideas of consideration
and reliance are important for the prOper interpretation of
the American system of political economy as it evolved from
1780 to 1819.

When commentators discuss an appellate judicial decision,
they often draw a distinction between the decision itself
and the supporting Opinion. The decision is what was actually
decided, in fairly explicit legal or operational terms. A
full Opinion, on the other hand, is an elaborate judicial
statement of the legal bases for the decision, of the limits
of the ruling, and of the reasons for reaching the decision.
Most Opinions are designed principally to justify the decision
to the legal profession and the public, and facilitate the
use of the decision in subsequent analogous cases. Of course,
they vary widely in quality. Some Opinions are frank declara-
tions of actual reasons why decisions were reached. Others
are deliverately ambiguous on important points, or are

artfully constructed rationales designed to justify decisions

6

reached on largely unstated non-legal grounds.

A related distinction is one between "law" and "experi-
ence." Law in this context is a special body of thought, an
ideational system with a special language in terms Of which
social reality is redefined and analyzed. Law is most con-
cretely embodied in judicial opinions, legal treatises,
statutes, and constitutions. "Experience" as a component
of judicial decision refers broadly to the judicial assess-
ment of the equities of the case at hand, of the larger
requirements of the economic, political, and social systems,
and of the lessons of history, apart from purely legal
considerations or the intellectual apparatus of the law.

The "experience" which judges bring to bear in the processes
of decision is an uncertain compound of both individual
value judgments based on personal interest and prior ex-
perience, and more objective social analysis.

A final important analytical distinction is between
procedural and substantive law, and more particularly between
jurisdiction, a branch of procedure, and substance. Essen-
tially, procedure is a complicated framework of rules by
which the legal system itself operates, a sort of legal
means through which results are reached. Thus, procedure
applies within the legal system, and while it Often influences
or determines results, it does so only secondarily, through
its operation on the parties and the court inside the legal
process. Jurisdiction is merely that branch of procedure
which deals with the legal authority of a court to hear

a particular case and to grant a particular remedy. In

7

most cases involving two parties, jurisdiction is absolute.
Either the court can hear the case or it cannot, and if it
cannot the parties are sent on their way, regardless of
any considerations of justice. Substantive law, on the
other hand, is a set of rules by which society at large is
to conduct itself and by which the courts decide the merits
of cases brought to them for decision. Thus, in a typical
contract case, the court will apply one set of rules to
determine whether or not it has jurisdiction, and another
set of rules to determine whether a contract has been made,
what its terms are, and whether the contract has been breached.
It is fundamental to the legal system that jurisdiction and
other procedural matters are to be treated separately from
the substantive questions. To do otherwise would be absurdly
to confuse means with ends, to allow the means to determine
results in cases where there is no necessity for doing so.
Since Dartmouth College applied to both educational
and business corporations, a full analysis of the decision
requires an understanding of the important legal and func-
tional differences between the two types of corporations
in the early national period. Business corporations existed
almost exclusively as economic entities, invested in and
owned by individual stockholders, Operated in the market
for profit, and regulated by the state with economic matters
principally in mind. Educational corporations, on the other
hand, were in a much different sphere. They had neither
stocks, investors, profits, nor dividends. The corporations'

physical assets rarely had a productive capacity apart from

8
education itself, and if educational institutions could

be said to be selling services in a market, it was nonetheless
a highly restricted and peculiarly impoverished one. Although
education undoubtedly helped to increase economic activity

in the long run, the daily Operation of educational corpora—
tions had a negligible immediate impact beyond the locality

in which the school was situated. For these reasons, states
did not pay much attention to the economic aspects of
educational institutions, except where public property or
appropriations were directly involved. Rather, legislatures
were much more likely to be concerned with the political
ideology, religious persuasion, and partisan allegiance of
administrators and faculty, matters which were irrelevant

to the governmental regulation of business enterprise.

The subject matter and method of analysis has necessarily
influenced the selection and use of sources. Although
secondary sources Offered leads into the raw materials and
often provided necessary background information, the major
elements of the study were constructed from a number of
types of primary sources. State session laws were funda-
mental. In the period under consideration, nearly every
corporation received a special charter and many received
special charter amendments, so it was possible to determine
at the outset exactly what legislatures did and did not
do with regard to corporations. Of course, statutes alone
would not tell the full story and standard sources Of

political history, that is, newspapers, pamphlets, addresses,

9
and the like, had to be consulted in order to discover the

contours of debate and the economic and political interests
which actually prompted legislative action. Even more
significant, appellate court decisions in corporate and some
non-corporate cases at both the state and federal levels
revealed how the legal system thought about and resolved
important problems which had Often been the subject of
intense public debate. Finally, treatises by cOntemporary
British and American authors provided suggestive consoli-
dations and interpretations of existing law.

The study is organized topically around a central

core, the Dartmouth College case. Chapter I describes the

 

case itself. Subsequent chapters discuss the various legal
and experiential elements which contributed to the decision.
Chapter II briefly describes the British law of corporations
as it had evolved to the early nineteenth century. Chapter
III analyzes the American experience with charitable corpora—

tions, and relates this experience to the Dartmouth College

 

decision. Chapters IV through VI examine various aspects
of the growth of the business corporation and its relation-
ship to government between 1780 and 1819. Chapter IV
discusses the deve10pment of the Massachusetts political
economy in these years. Chapter V surveys the essential
features of Virginia's political economy, and adds an
examination of Chief Justice Marshall's continuing involve-
ment in his state's economic activity. Chapter VI offers a
survey of the essential features of the political economies

of other states. Moving away from state developments,

10
Chapter VII examines the Supreme Court's laying of the

doctrinal foundation for Dartmouth College, with special

 

attention to the area of public contract. In conclusion,
Chapter VIII draws the separate elements into a unified

summary analysis of the Dartmouth College decision.

 

THE DARTMOUTH COLLEGE CASE

Dartmouth College has its origins in the discovery
of the Indian and missionary education business by the Reverend
Eleazar Wheelock, an obscure, impecunious, and ambitious
pastor in colonial Lebanon, Connecticut. Wheelock had been
preparing Indians for college and missionary work for several
years when, in 1755, Colonel Joshua More granted about two
acres of land in Lebanon to Wheelock and three others as
trustees for an expanded Indian charity school. The grant
transformed Wheelock's school from a wholly personal operation
into something of a legal institution. 'The trusteeship created
in 1755 was the direct legal ancestor of the Dartmouth College
board which would successfully defend itself from attack by

the New Hampshire legislature sixty years later.1

 

1This account of Dartmouth College up to 1815 is taken
largely from the following: Frederick Chase, A History of
Dartmouth College and_the Town OfiHanover, New Hampshire,
ed. by John K. Lord (Cambridge: John WiISOn and Son, 1891).
Hereafter cited as Dartmouth Colleg_. John K. Lord, A His-
toryyof Dartmouth College: 1815-1909 (Concord, N. H.: Rum-
ford Press, I913). Hereafter cited as History of Dartmouth
College. John M. Shirley, The Dartmouth College Causes and
the Supreme Court of the United States (St. Louis: G. E.
Jones and Company, 1879.) Hereafter cited as Dartmouth
College Causes. Leon Burr Richardson, History of Dartmouth
Colle e. 2 vols. (Hanover, N. H.: Dartmouth College
Publications, 1932). Jere R. Daniell, II, "Eleazar Wheelock
and the Dartmouth College Charter," Historical New Hampshire,
(Winter, 1969), 3-31. Hereafter cited as!“Wheelock and the

11

 

 

 

 

 

 

 

 

12
Wheelock was a determined promoter, and the school

prospered. In the years after 1755, it received money and
expressions of support from the Connecticut, Massachusetts,
and New Hampshire colonial legislatures, from both Scottish
and English missionary societies -- a tribute to Wheelock's
political skill -- and from various individual patrons.
Although Wheelock petitioned the Connecticut legislature

for incorporation, the assembly refused, and as a consolation
granted an official legislative endorsement of the school and
formal authority to make a public appeal for funds in Con-
necticut. Even this Wheelock could put to good use. In
1765, he sent the Reverend Nathaniel Whitaker and Occom, one
of the first Indian graduates of the charity school, on a fund—
raising expedition to England. Armed with the legislative
testimonial and the preaching abilities of Occom the pair
were able to enlist the considerable promotional skills of
the Earl of Dartmouth and other prominent London figures.
Whitaker and Occom collected over 59000 in England alone,

including 5200 from the king, a large sum for such a small

 

Dartmouth College Charter." The most balanced and

by far the best short summary of the background of the Dart-
mouth College case is Maurice G. Baxter, Daniel Webster and
the Supreme Court (Amherst, Mass.: University of Massachu-
setts Press, 1966), ch. IV, and esp. 65-72. Hereafter cited
as Webster. On Eleazar Wheelock, see James D. McCallum,
Eleazar Wheelock, Founder of Dartmouth College (Hanover,

N. H.: Dartmouth College Publications, 1939). Hereafter
cited as Wheelock. For an assessment of Wheelock's
character and career, see Richardson, History of Dartmouth
Colle e, I, 189-193. On the early beginnings of Moor's
Charity School, see Chase, Dartmouth College, 8, 10-11, 16.

 

 

 

 

 

13
Operation as Wheelock's school.2

Wheelock would have been fully convinced that this
was the age of benevolence had the 59000 been turned over to
him directly, but for the moment the fund seemed a mixed
blessing. Dartmouth and the other major English contributors
made themselves trustees of the fund and insisted not only
that they retain possession and full control of its expen-
diture but also that Wheelock execute a deed of trust placing
his office and his school under their control. Faced with a
final choice, Wheelock probably would have sacrificed the fund
in order to keep his school, but he set out to keep the school
without losing the funds. Securing expert legal advice --
Wheelock seems always to have had expert legal advice -- he
prepared no less than ten drafts of the proposed trust. As
finally accepted by the English trustees, the deed provided
for two sets of trustees. An American board was essentially
an expanded version Of the trust created on paper in 1755,
and was to hold all donations received by the school in
America. The English board, led by Dartmouth, was to hold
all money granted to the Indian charity school in Europe.
Wheelock, according to the trust deed, was founder and

President, and was to have the power to name his successor,

 

2On early support for the school, see Chase, Dartmouth
College, 16, 23, 26, 28-29, 36. For attempts to secure a
charter and the receipt of the Connecticut legislative en-
dorsement, Ibid., 14—15, 37-38. On the English expedition,
see Ibid., 46-68 passim, and, generally, Leon Burr Richard-
son, ed., An Indian Preacher in England, Being Letters and
Diaries Relating to the Mission of the Reverend Nathaniel
Whitaker to Collect Funds in England for the Benefit of Eleazar
Wheelock's Indian Charity School, from Which Grew Dartmouth

___w

Colle e (Hanover, N. H.: Dartmouth College PublicatiOns,
1933).

 

 

 

 

 

14
subject to the approval of both boards. By choosing as American

trustees his friends and associates who understood that their
purpose was not to govern the school or to question the
president's decisions, Wheelock retained effective control
over his Indian school and its property. In practice, the
English board was too distant to exercise effective control
even over the expenditure of the English funds.3

With the English fund at his disposal, Wheelock's bar-
gaining position was strong as he set out to improve his sit-
uation in America. He let it be known that he was going to
move the school from Connecticut, and invited bids from
colonies and localities interested in attracting an endowed
charity school. One of the benefits Wheelock would try to
insist upon was a charter of incorporation for his enter-
prise. As early as 1755, Wheelock's friend and principal
legal advisor William Smith, Sr., of New York, a provincial
attorney general and later an associate justice of the su-
preme court, advised him to secure a charter. In March,
1767, Smith again strongly recommended incorporation.
"This is the only way," he wrote, "to render the project
permanent, to secure wisdom and council equal to the work,
to defend it against Opposition, and to encourage future

donations." However, only Governor John Wentworth of New

Hampshire offered incorporation as a part of his bid.

 

3On Wheelock's early troubles with the English, see
Richardson, History of Dartmouth College, I, 62; Chase,
Dartmouth College, 55-56, 67-68. The original deed of trust
is reprinted in Shirley, Dartmouth College Causes, 48-52.

 

 

 

15

Wheelock quickly accepted, and prepared to reorganize his
school once again.4
The problem of drafting a charter was similar to the
problem of drafting the English trust deed two years previously.

Wheelock wished to extend his enterprise as far as possible
while retaining at least a SE.£EEE2 control over the whole
operation. Thus he again sought legal advice, and himself
searched the charters of other incorporated educational in-
stitutions for ideas. The charter of the College of New Jer-
sey, which had been issued in revised form in 1748, proved
to be a suitable model.5
In August, 1769, Wheelock sent Governor Wentworth a
draft charter for an "academy." He included a cover letter
containing the following postscript: "If prOper, to use the
word 'College' instead of 'Academy' in the charter, I shall
be well pleased with it." Wheelock had considered expanding
his school to a college for white missionaries as early as

1763. New Hampshire seemed a likely place. The province

had not incorporated schools to interpose Objections, and

 

4Daniell, "Wheelock and the Dartmouth College Charter,"
6-10, 21-22. Shirley, Dartmouth College Causes, 21. Smith
to Alexander Phelps, March 30, 1767,'in Ibid., 24. Chase,
Dartmouth College, 12, 95. For the various Offers to Wheelock,
see Ibid., 90-91, 95-96, 98, 100-102. Richardson, Histomy
of Dartmouth College, 79-84.

5Shirley, Dartmeuth College Causes, 34-35. Chase,
Dartmouth College, 115. Daniell,“Wheelock and the Dartmouth
College Charter," 23. The Charter of the College of New
Jersey, issued Sept. 14, 1748, is reprinted in Thomas Jef-
ferson Wertenbaker, Princeton, 1746-1896 (Princeton, N. J.:
Princeton University Press, 1946), 396-404.

 

 

 

 

 

 

 

16

local Congregational ministers were sympathetic to the

proposal. Fortunately, the Governor accepted Wheelock's

suggestion, and the academy was advanced to the status of

a college.6
The document that finally issued in the name of George

III on December 13, 1769, provided for the establishment

of "Dartmouth college for the education of the Indian tribes

. . . and also of English youth and others." The preamble

labelled Wheelock the founder of the Indian charity school.

The charter itself specifically named him "founder" of the

college, and made him first president with the power to appoint

his successor, whom the trustees could reject by a majority

vote. Twelve trustees of Dartmouth College were incorporated

"forever, with "perpetual succession and continuance." The
board would be self-perpetuating, filling its own vacancies.

The original trustees included five Officers Of the New Hampshire

 

6Daniell, "Wheelock and the Dartmouth College Charter,"
6, 10, l3-l4, 21-22. Wheelock to Wentworth, Aug. 22, 1769,
in Shirley, Dartmouth College Causes, 29. Wentworth was
anxious to have the new institution located in his province,
so he usually conceded to Wheelock on disputed charter pro-
visions. On Oct. 18, 1769, the Governor wrote to Wheelock
that he wished "to serve the public Charity under your care."
The next day, Wheelock's agent in New Hampshire, Alexander
Phelps, wrote that the Governor had "given up almost every
thing I asked." On Oct. 28, Wentworth's chief legal advisor,
Judge William Parker, wrote Wheelock that he had "spent
considerable time with the governor . . . to prevail on him
to make such concessions as would suit the gentlemen with
you." Ibid., 29, 33, 35. The independence of Dartmouth
College from both church and state was thus in large part
Wheelock's doing. Later, as the institution got under way,
Wentworth tried unsuccessfully to dominate Wheelock.
Lawrence Shaw Mayo, John Wentworth: Governor of New Hampshire,
1767-1775 (Cambridge: Harvard University Press, 1921), 116-
118.

 

 

17
government, the Governor, three Council members, and the

Speaker of the House. Significantly, however, these men were
not made trustees e§_officio, but became members of the board
as individuals, thus being subject to replacement according
to the same rules as the other original trustees. At Gover-
nor Wentworth's insistence and with Wheelock's apparent ap-
proval Dartmouth College was placed on a partially non-
sectarian basis. The charter forbade the college to exclude
"any Person of any religious denomination whatsoever from
free and equal liberty and advantage of Education . . . on
account of his . . . speculative sentiments in Religion and
his . . . being of a religious profession different from the
. . . Trustees."7
Initially, the new educational institution was well-
supported by the New Hampshire establishment. Many prominent
citizens helped with grants of land, much of which had been
pledged even before the charter had been issued. In January,
1770, about a month after Dartmouth was chartered, Governor
Wentworth fulfilled an earlier promise by granting Landaff
township to the college. (Unfortunately, the Landaff grant
subsequently failed, and the legislature had to substitute

another tract.) On December 19, 1771, Wentworth made a second

 

7Daniell, "Wheelock and the Dartmouth College Charter,"
3, 23-31. The charter is reprinted as part of the special
verdict in Trustees of Dartmouth College v. Woodward, 4 Wheaton
518, 519-537 (1819). Hereafter cited as Dartmouth College.

 

l8
grant to the college.8

The New Hampshire legislature was less generous than
the governor and many private citizens. It had no Official
connection with the founding and endowment of the college,
and gave only occasional financial help after 1769. For
example, the legislature granted the college a township to
substitute for the failed Landaff grant on February 5, 1789.
Other grants of land were made in 1792 and 1807. In 1795,
the legislature gave permission for the college to raise
$15,000 by lottery, but this, of course, required no state
expenditures. According to Shirley, the legislature also
gave the college $900 in 1805, but published laws and
resolutions of the New Hampshire legislature contain no record

of this particular grant.9

 

8Daniell, "Wheelock and the Dartmouth College Charter,"
15-16. Chase, Dartmouth College, 121. Charter recital,
Dartmouth College, 4 Wheaton, 522. Shirley, Dartmouth College
Causes, 8, 26, 53-58, 361. The language Of Wentworth's 1770
grant, reprinted Ibid., 53-55, is not that of a public official
founding a public institution, but reflects an assumption that
the grant is merely one among many already made to a worth-
while enterprise.

9Act of Feb. 5, 1789, Nov. Sess., 1789, ch. 46, Laws
of New Hampshire, 10 vols. (Various imprints: 1904-1922),
V, 396-397. Resolution of Dec. 20, 1792, Nov. Sess., 1792,
Ibid., VI, 96. Act of June 18, 1807, June Sess., 1807, ch.
54, Ibid., VII, 601-602. Act of Dec. 31, 1795, Dec. Sess.,
1795, ch. 26, Ibid., VI, 294-295. Shirley, Dartmouth College
Causes, 8. Lynn W. Turner, William Plumer of New Hampshire,
I759-I850 (Chapel Hill: UniverSity of North Carolina Press,
1962), 247, n. 29, hereafter cited as Plumer, states that
in addition to land and the 1805 $900 grant, the legislature
granted Dartmouth $3450 in 1809 for the construction of a
medical school building. However, the grant was not made
to Dartmouth. The building was constructed with public funds
on land donated to the state and it remained the property
of the state. Act of June 23, 1809, ch. 18, Laws of N. H.
VII, 813-814. Resolution of June 24, 1813, June Sess., 1813,
Ibid., VIII, 265. Resolution of Dec. 27, 1816, Nov. Sess.,
1816, Ibid., VIII, 590.

 

 

 

 

 

 

 

19
The acts of 1789, 1795, and 1807 made certain govern-

mental officials em officio members Of the Dartmouth board of
trustees for the limited purpose of administering the state
grants and lottery proceeds. This had important negative
implications for the state's later contention that Dartmouth
was a public, not a private, institution. If the legislature
thought the college was public, subject to the full control
of the government at all times and for all purposes, such an
intrusion into the Dartmouth administrative machinery for
the purposes of regulation would seem awkward and unnecessary.
More significantly, the limitation of the authority of the
state's representatives to the administration of state grants
and lottery funds was an implicit acknowledgment that in
practice Dartmouth functioned as an autonomous institution,
with a private endowment managed only by the trustees.
Finally, although the governor occasionally sat with the
Dartmouth board, there is no evidence that the eligible New
Hampshire Officials sat regularly.lo Even the limited regu-
latory authority of the state was thus practically unexercised,
and Dartmouth operated for nearly half a century, from 1769
until 1816, with no permanent and functional connection
with the state.

Shortly after receiving the charter, Wheelock moved his
charity school to Hanover, New Hampshire, and began to build
Dartmouth College. Although Lord Dartmouth and the other con-

tributors to the English fund had given money only for an

 

loRichardson, History of Dartmouth College, I, 223.

 

20
Indian charity school, and not at all for the founding of
a college for white students, Wheelock carefully mixed the
accounts of the school and the college so the latter could
benefit from the English largess. The English trustees objected
mildly to Wheelock's actions, but allowed him to draw on both
principal and interest so that the whole fund was expended
by 1775. Thereafter, the charity school continued to exist
as a satellite enterprise, but the major institution was
Dartmouth College, attended almost exclusively by whites.ll
Eleazar Wheelock ran Dartmouth as a personal enterprise
until his death in 1779. In his will, the elder Wheelock
exercised his charter Option by appointing his son John to
succeed him as president of the college. It was an unfor-
tunate choice. As one author describes the younger Wheelock,
He lacked generosity and breadth of view,
and regarded all matters as they affected him per-
sonally. All with whom he had to do were considered
either as friends or foes, as supporters or Oppo-
nents.. . . He inherited from his father an intense
will . . ., but what in his father had been relieved
by wide sympathies and far-reaching plans was in
him narrowed to personal and private affairs.

The narrowness of his purpose was not offset by
scholarship or learning.

 

llOn Wheelock's questionable use of the English funds
in aid of the college, see Chase, Dartmouth College, 117,
239-240. McCallum, Wheelock, 193-194. RiOhardson, Histo
of Dartmouth College, I, II5-116, 144, 219. The relation-
ship between the charity school and the college was ambiguous
from the beginning, and never was satisfactorily straightened
out. See Chase, Dartmouth College, 155, 239-243, 279, 281,
588-600, 618-626, 634. At the request of the President and
the Board of Trustees, the New Hampshire legislature tried
to assign definite responsibility for the charity school within
the Dartmouth organization. Act of June 10, 1807, June Sess.,
1807, ch. 10, Laws of N. H., VII, 556-557. Act of Dec. 21,
1808, Nov. Sess., 1808, ch. 48, Ibid., 736.

 

 

 

21

After taking over as President, John Wheelock came to regard

the college as his personal property over which his word

should be law. And the younger Wheelock did have his way

for about a quarter of a century.12
After 1800, however, the situation changed. As Old

trustees who had been associated with the elder Wheelock

died or resigned, they were replaced by younger men who had

little sense of Dartmouth as a family enterprise and no

personal loyalty at all to John Wheelock. On the contrary,

the newer trustees saw Dartmouth as an important part Of the

educational system and intellectual life of upper New England,

and they began to act in accordance with this vision, rather

than as rubber stamps for the president. By 1810, those holding

the more cosmopolitan view of the college were a majority

of the board. New faculty appointments made over the

Objections of the president soon resulted in an informal

faculty-trustee alliance. Wheelock, of course, fought des-

perately first to retain and later to regain the control of

"his" institution, as the independent and powerful board of

trustees continued to override the president on point after

point. By late 1814, the conflict between Wheelock had

passed the point where compromise was possible, with the

president being the Obvious loser.13

 

12Chase, Dartmouth College, 561-562. Lord, History of
Dartmouth College, 6-7, 116, and the quote, 118. Richard-
son, History Of Dartmouth College, I, 288.

13Lord, History Of Dartmouth_§ollege, 7, 60-61.
Richardson, History of Dartmouth COIIege, I, 296-299, 301-
303. See, generally, William G. North, "The Political

 

 

22
Wheelock, unwilling to admit defeat, appealed to the

public against the trustees. In the spring of 1815, he
circulated a pamphlet entitled, "Sketches of the History

of Dartmouth College and Moor's Charity School with a
Particular Account of Some Remarkable Proceedings Of the
Board of Trustees from the Year 1779 to the Year 1815." Most
of it was either false or irrelevant. He next collected his
allegations in a "Memorial" to the New Hampshire legislature.
He accused the trustees of, among other things, misappropri-
ating college funds and promoting "party views." In a sum—
mary, he declared that all the actions of the trustees

tended

to one end; to complete the destruction of the
original principles of the College and School,

and to establish a new modified system to strengthen
the interests of a party or sect, which, by ex-
tending its influence, under the fairest professions,
will eventually affect the political independence

of the peOple, AND MOVE THE SPRINGS OF THEIR
GOVERNMENT .

The legislature provided for a fact-finding commission.
The exasperated trustees at last removed Wheelock from the

presidency of Dartmouth.14

 

Background of the Dartmouth College Case," New England
Quarterl , XVIII (June, 1945), 181-203. Hereafter cited
as "POIitical Background." Wheelock and the trustees
originally clashed over who should be the pastor of the
Church of Christ at Dartmouth College. This phase of the

controversy is traced in Lord, History Of Dartmouth College,
1-61.

 

14The pamphlet was published with a second polemic
of equal quality, "A Candid Analytical Review of the
'Sketches,'" by Elisha Parish, a conservative Federalist
minister from Byfield, Massachusetts, whom Wheelock had
nominated but the trustees had failed to appoint professor
of languages five years earlier. North, "Political

23
The public controversy engendered by Wheelock's charges

quickly became political. Some of the college trustees were
Federalist lawyer-politicians who could expect the support

of the Federalist party. Although Wheelock himself was
nominally a Federalist, he was known to the public as an
educator, not as an active politician. This enabled Wheelock
to appeal to the Republican party for support against the
trustees, and allowed the party to make his cause its own
without embarrassment. On May 23, 1815, Isaac Hill, a strong
Republican and supporter of religious liberty, took Wheelock's

side in his newspaper, the New Hampshire Patriot. Wheelock

 

was presented as a martyred religious liberal unjustly attacked
by Federalist trustees who were reactionary in politics and
religion alike. By taking Wheelock's pretentions at face
value, and by persistently distorting the facts, Hill succeeded
in transforming Dartmouth's internecine struggle into an

openly partisan contest between Republican religious liberalism
and Federalist conservative orthodoxy. From the summer of

1815 until Wheelock's death in 1817, there was a powerful
Wheelock faction within the Republican party, a faction deter-
mined to punish the trustees and to restore the martyr to his
former position within Dartmouth College. Wheelock and his
faction were given hope when the Republicans swept the state

in the 1816 spring elections on a platform which included the

 

Background," 184, 187, 192, 193. Richardson, History of
Dartmouth College, I, 305. Lord, History of Dartmouth College,
64-65, 75-77. Wheelock's "MemoriaIfiVis reprinted Ibid., App. A,
671-674, the quote from 673. The trustees' resolution Of
removal is in Ibid., 75-76.

 

 

 

24

"reform" Of Dartmouth.15

In his inaugural address, the new Republican Governor,
William Plumer, invited the legislature to consider "the
state and condition of Dartmouth." The trouble lay in the
charter of 1769. "As it emanated from royalty, it contained
principles congenial to monarchy" and "hostile to the Spirit
and genius of a free government." The most odious provision
was that providing for a self-perpetuating board of trustees.
"Sound policy therefore requires," continued Plumer, "that
the mode of election should be changed, and that trustees,
in the future, should be elected by some other body of men."
He further suggested that the number of trustees be increased
and that the president make annual reports to the Governor.16

The scope Of Plumer's recommendationsshow that the
Governor had broader aims than the mere restoration of the
deposed Wheelock. Basically, he wanted to reorganize Dart-
mouth into a secular, state-controlled, and state-supported
university. This involved several specific actions. First,
he had to eliminate any strictly denominational influence
at Dartmouth, and reform and expand the curriculum. Second,
he wanted, in his own words, "to establish the authority of

the legislature over the institution, so far as to secure

 

15North, "Political Background," 191, 193-194, 193-201.
Richardson, History of Dartmouth_College, I, 287-288. Lord,
History of Dartmouth College, 65-66. On the 1816 campaign
and Republican victory, see Turner, Plumer, 236-239. Late
in 1815, the Wheelock faction had apparently made a political
deal with Plumer. Ibid., 235-236.

16The relevant portions of Plumer's address are reprinted
in Shirley, Dartmouth College Causes, 105-107.

 

 

25
to the people the Objects for which it was founded, and to

form a useful connection between the government and the
college." Third, it was, according to his son and biographer,
"an essential part of his plan that the state should extend
a liberal patronage to the University, and make it, what
it had never been, a well-endowed institution." Finally,
in order to fulfill his political commitments, the Governor
would also restore Wheelock to the presidency, but he
Obviously could not restore all of Wheelock's lost authority
if the institution were to be placed under state control.17
The June 27, 1816, "Act to Amend the Charter and
Enlarge and Improve the Corporation of Dartmouth College"
passed the Senate by a straight party vote, 8-4, and passed
the House 96-86, with all the Federalists and only two
Republicans voting against the bill. The terms of the act
reflected the areas of agreement as well as the strains and
compromises between Plumer, who wanted a state university,
and the Wheelock faction in the Republican party, which wanted
primarily to restore the president to his former autocratic
position. The two could agree, for example, that the college
ought to be expanded into a "university," complete with several
colleges and a new "institute." Likewise, they could agree
that the power of the old college trustees had to be checked.

This was easily accomplished by increasing the number Of

 

17Turner, Plumer, 245-246, 250, 303. William Plumer,
Jr., Life of WilIiam Plumer, ed. by A. P. Peabody (Boston:
Phillips, Sampson and Company, 1857), 439, 440. Hereafter
cited as Life of Plumer.

 

 

26

trustees from the twelve provided for in the Old charter to
twenty-one. A further check was provided by the addition
of a board of twenty-five overseers which could veto certain
important acts of the trustees. 18

The Wheelock faction would not, however, concede Plumer
full state control over Dartmouth University. Although the
Governor and Council could appoint the original nine new
members of the Board of Trustees, after that the board was
to become self-perpetuating as under the old charter. This
provision was embarrassing to Plumer, who had publicly objected
that self-perpetuation emanated from royalty, and was hostile
to free government. He even threatened to veto the whole
charter amendment on these grounds, but in the end he
acknowledged defeat on the issue and signed the bill. At
least the Governor and Council could fill vacancies on the
Board of Overseers.19

The college trustees' refusal to surrender control
of Dartmouth to the state proved the final undoing Of the
reorganization scheme. That the trustees resisted at all
surprised Plumer, because there were several good reasons
for their immediate capitulation. For one thing, a majority
of the trustees were strictly volunteers. They derived no

material benefit whatsoever from their positions, and

economically had nothing to lose. (Three trustees, a minority,

 

18Act of June 27, 1816, ch. 32, Laws of N. H., VIII,
505-508. The best account of the negotiations and‘final
passage of the bill is Turner, Plumer, 249-253. Lord,
History of Dartmouth College, 89.

19

 

 

Turner, Plumer, 250-253.

27

were also faculty members. 'Their teaching positions were
jeopardized by the reorganization, as a new Republican
majority would probably not tolerate a politically hostile
faculty.) Furthermore, if the trustees took their case to
court, they had no assurance of victory at either the state

or federal level. The Republican legislature had changed the
New Hampshire judiciary the same day that it had remodeled
Dartmouth.20 The college lawyers would face Plumer appointees.
The United States Supreme Court offered little more hOpe.

Five of the seven members were Republican appointees --
Brockholst Livingston, Joseph Story, William Johnson, Thomas
Todd, and Gabriel Duvall. Only two, Chief Justice John
Marshall and Bushrod Washington, were Federalists. Even if
partisanship were not a factor in the Supreme Court, the case
could go to Washington from the state courts only on the
narrow question of whether the charter amendment violated

the obligation of contracts clause of the federal constitution.
A case could be made that this was what happened, but it
certainly was not the strongest of arguments.

None of these reasons, however, was sufficient to induce
the trustees to abandon the college to the state. All of the
trustees had been touched personally by Wheelock's charges
that the board had mismanaged the college funds. As the charter
amendment had grown out of these charges, ready assent might
be interpreted as confession of their validity, while determined

resistance might lead to ultimate vindication. Moreover,

 

20Ibid., 254-256, 259, 269-270.

28

five of the trustees were active lawyer-politicians, Three
of these had served on the supreme courts of New Hampshire
and Vermont. One of the leaders of the trustees, Charles
Marsh, reputed to be the best lawyer in Vermont, was a Con-
gressman when the charter amendments were passed. The other
leader, Thomas Thompson, had studied law in Massachusetts
under Chief Justice Theophilus Parsons, had himself taught
Daniel Webster, and was representing New Hampshire in the
United States Senate when the controversy with Wheelock
spilled into politics. Each of these men had a personal
sense of office, a love of power, and respect for organization,
all Of which were violated by the acts of the state. The
instinct to react was fortified by partisan considerations.
The charter amendment was a strictly Republican measure,
while all but one of the trustees were Federalists. The

fact that the Federalist party had committed itself to repeal
the Dartmouth charter amendments as soon as it regained
control of the government encouraged the trustees to main-
tain their organization. Finally, the trustees thought the
Republican seizure Of Dartmouth wrong in principle. They were
willing to concede a legitimate interest of the state in the
college, and even prOposed that the state establish a Board
Of Overseers with a veto over the acts of the trustees. But
the tendency of the acts as passed, they thought, was to con-

vert the college "into a field for party warfare,’ which

could do the cause of higher education in New Hampshire no

29
good at all.21

Principle, then, combined with personal honor, political
instinct, and party interest to lead eight trustees to Oppose
the state's takeover of Dartmouth. On August 28, 1816, the
trustees formally refused to accept the charter amendment.22
Thereafter, they struggled to maintain the college as a
going concern in the face of the state's determined assault.

Plumer was forced to inaugurate the new Dartmouth
University without the OOOperation of the college trustees.

He was considerably aided when William H. Woodward, who had
been the secretary of the college, joined the university
trustees and became their secretary and treasurer E£2.EEE'
Woodward brought with him the college records, books, seal

and other paraphernalia which would tend to establish the
university as the legitimate legal successor of the college.
Unfortunately, the legislature was not so eager to help the
new institution. Although willing to expropriate the property
and income of the college, the Republican majority balked at
supporting their "state" university, preferring adherence

to the platform of governmental austerity over expensive

aid to higher education. Despite many urgent requests from

 

21For brief biographies of the twelve Dartmouth trus-
tees, see Lord, History of Dartmouth College, 62, n. 2, 63.
On the trustees' willingness to compromise, see Turner,
Plumer, 251. Shirley, Dartmouth College Causes, 9-10.
"Remonstrance" of the college trustees to the legislature,
June 19, 1816, in Lord, History of Dartmouth College, App. B,
679-680.

 

 

 

22Lord, History of Dartmouth College, App. D, 687-694.

 

30
Plumer, the only aid the legislature ever gave the university

was a loan of $4000, and this payable in one year with

interest.23
Governor Plumer was the first to appeal to the courts

for assistance. Because the newly reorganized New Hampshire

supreme court was composed entirely of his own appointees,

the Governor was not afraid of a rebuff. In September, 1816,

he requested the Opinion of the court as to whether the

act amending the Dartmouth charter was within the state's

legislative authority. Chief Justice William Richardson and

Justice Samuel Bell (the third member of the three-man court

had not yet been appointed) replied on November 25. They could

think of only one possible ground upon which to challenge

the authority of the legislature. Such charter alterations,

they wrote, might be "construed to be a violation of private

vested rights" which were protected by the state and federal

constitutions if the alterations were made "without the

consent of the corporation." The justices refused to proceed

further because they did not wish to prejudge the "question

of right between the legislature and individuals" which was

24

likely to arise in a case before the court. Nonetheless,

 

23Shirley, Dartmouth College Causes, 114, 116-118.
Lord, History of Dartmouth College, 155-156, and a full re-
view of’the university's finances, 169-174. Turner, Plumer,
243-244, 299. Resolution of June 19, 1818, June Sess., I8I8,
Laws of N. H., VII, 744.

24Opinion of the Court, 62 N.H. 704, 705. While the
controversy was still before the public and the legislature,
both sides mingled legal arguments with appeals to ex-
pediency and justice, so that the basic outlines of the legal
controversy were clear even before the parties went into
court. For the state's approach, see Plumer's address of

 

 

31
the court had isolated one issue which was to be central

to all the arguments and Opinions in the Dartmouth College

 

case, and had forecast the grounds on which its Opinion
would rest.

On February 8, 1817, the college trustees instituted
an action of trover in the Common Pleas of Grafton County
to recover the college records, books, and seal, and $50,000
damages from Woodward, the secretary who had defected to the
university. As Woodward was also presiding judge of the Com-
mon Pleas for the county, the prOper pleas were filed and by
agreement the case was carried directly to the Superior
Court to be heard on an agreed set of facts. The case was
argued in May by Jeremiah Mason and Jeremiah Smith for the
college and by Ichabod Bartlett and New Hampshire's attorney
general, George Sullivan, for the university. In September,
the case was reargued at Exeter by the same attorneys, except

that Daniel Webster closed for the college.25

 

June 16, 1816, reprinted in Shirley, Dartmouth College Causes,
105-107, and the preamble to the first charter amendment,

Act of June 27, 1816, Laws of N. H., VIII, 505. For the

case of the college, see "Remonstrance," June 19, 1816, in
Shirley, Dartmouth College Causes, 88-89, and the trustees'
formal refusal to accept charter alterations, Aug. 28, 1816,
reprinted in Lord, History Of Dartmouth College, App. D,
687-694.

 

25Trustees of Dartmouth College v. Woodward, l N. H.
111 (1817). This report contained only Chief Justice William
Richardson's Opinion. The arguments as well as Opinions
were collected in Timothy Farrar, Report of the Case of the
Trustees of Dartmouth College against WOodward (Portsmouth,
N. H.: John W. Foster, 1819). Hereafter cited as Re ort.
The arguments delivered in the state court were reprinted
from Farrar's Report in 65 N. H. 473 ff. On the dates of the
argument, see Lord, History of Dartmouth College, 123-124, 130.

 

32
Both Mason and Smith opened their arguments for the

college with a consideration of the legal effect of the
legislative acts in question. At most, Dartmouth College was
totally abolished, and a new corporation, Dartmouth Univer-
sity, was created in its place. At the very least, the
charter amendments represented a substantial reduction and
infringement of the corporate and individual rights of the
college trustees.26
Whether considering the case in light Of general prin-
ciples, or with regard to particular provisions of the state
and federal constitutions, it was essential, said the college
attorneys, to discuss the nature of corporations and their
relationship to the government, because the degree of govern-
mental control varied with the type of corporation involved.
Combining English categories and American experience, Smith
found three types of corporations. Civil corporations for
government were, of course, subject to governmental control.
"Private civil corporations," on the other hand, were "created
for special purposes," such as banking, writing insurance,
or building canals, bridges, and turnpikes. Although these
corporations were beneficial to the state, their prOperty
and their privileges remained private. The legislature could
control "everything not relinquished by the state," but could
not infringe its grant by reorganizing the corporation.

Finally, the state created "eleemosynary" corporations, such

 

6

2 Mason's argument, 65 N. H., 473-502. Smith's
argument, Ibid., 524-563. The summary that follows is a
composite of the arguments made by the individual attorneys.

33
as Dartmouth College, for the perpetual distribution of

charitable gifts. The essence Of these corporations was the
preperty dedicated to charitable uses, and because of the
property element, private eleemosynary corporations were no
more subject to control by the legislature than private
civil (business) corporations.

That the prOperty of Dartmouth was private and that
this placed the college beyond legislative control were
propositions unlikely to gain easy acceptance by the court.
Mason and Smith constructed from the English common law an
elaborate and truly ingenious argument to establish their
point. They focused on the power of "visitation," the power,
by their definition at least, to govern Dartmouth, to deter-
mine the organization, to exercise discretionary authority
over all its Operations. At common law, the right of visi-
tation originally resided in the founder Of the charity,
the person who made the first gift of lands or funds.
"Visitation" sprang from the endowment, from the prOperty
committed to the new charity, and had as its primary function
the perpetuation of the charity according to the will of the
founder. Where the founder was a private citizen, the
charity could be legally "private." When the charity was
incorporated, the founder would determine the plan or orga-
nization, and his will would be embodied in the corporate
charter. Although other types of organization were possible,
and much used in England, Dartmouth College was typical of the

American practice: the charity's trustees were themselves

34

incorporated, and they took, according to the college attorneys,
not only full legal and equitable title to all the property
granted to the charity, but also the full power to visit,
to govern, the institution.27

The vesting of the property and the visitatorial power
in the trustees necessarily limited the power of the state
over the college. Although charities in England and the
United States were always subject to the general superinten-
dence of the courts, private charities in England were not
subject to the control of the king, notwithstanding his grant
of a charter, and notwithstanding any benefit the public might
receive from the founder's bounty. The king, without the aid
of the courts, could neither abolish a corporation, nor give
it a new organization, nor amend the charter, without the
corporation's consent, for this would illegally interfere
with the property and the right of visitation vested in the

corporate trustees. The New Hampshire legislature succeeded

 

27In a letter to Mason dated only "Boston, Sunday
Evening," Webster wrote, "There is one point on which I have
suspected that my Opinion differs from Judge Smith's; I think
that the trustees are most clearly visitors, and that this
lies at the bottom of our case, and as visitors, I think
they are not answerable in any court, while acting within
the scope of their visitatorial power." Fletcher Webster,
ed., The Writings and Speeches of Daniel Webster. 18 vols.
(Boston: Little, Brown and Company, 1903), XVII, 311-312.
Hereafter cited as Writings of Webster. (Fletcher Webster
gives "1819" as the date of this letter. However, internal
evidence indicates late April or early May, 1818. Compare,
Webster to Mason, Boston, April 23, 1818, Ibid., 280-281.)
According to the published report of the arguments to the
New Hampshire court, Smith contended that the "whole power
Of visitation" was vested in the Dartmouth trustees. 65
N. H., 536. It may be that Smith did not make this argument
at all, but that the report was tailored afterwards to show
a non-existent consistency among the college attorneys' ar-
guments.

 

 

35

to the crown in this regard, and it therefore could not alter
the charter of Dartmouth College. Although they admitted
the "omnipotent" power of Parliament, the college attorneys
denied that the analogy to Parliament was applicable where
legislatures were limited and restrained by written consti-
tutions.

Turning to the New Hampshire constitution, Mason and
Smith contended that the charter amendments violated Articles
2, 12, 14, 15, 20, 23, 35, and 37 of the state's Bill of
Rights. However, no one of these seemed to cover the case.
The real heart of the argument was the contention that the
trustees had been unconstitutionally deprived of due process
of law. The essential premise, of course, was that the trus-
tees possessed some private rights violated by the charter
amendments. Otherwise, the argument was a rather conventional
statement of the "separation of powers" theory of the con-
stitution. The constitution had divided the total governmental
power among legislative, executive, and judicial branches.
The legislature could grant charters and special privileges
to individuals, and could make general laws by which private
rights and privileges might be forfeited upon trial according
to due process of law. But the legislature could not pass
special laws declaring forfeitures or directly infringing
private rights. Article 15 of the Bill of Rights prohibited

the deprivation of rights, privileges, or immunities except

36

by a trial by jury or by "the law of the land."28 The

amendment of a charter without the corporation's consent was
a special law infringing private rights, and thus was not
the law of the land within this provision.

The college attorneys likewise contended that the char-
ter amendments impaired the obligation of contracts contrary
to Art. 1., sec. 10 of the United States Constitution. Once
again, the essential premise was that the trustees held
private property and private rights. Mason and Smith found
a triangular series of commitments amounting to contracts
within the meaning of the constitutional provision. The
king contracted with the founders of the charity that the
prOperty given would be forever applied according to the
founder's plan. The trustees became the personal represen-
tatives of the founder, taking the prOperty and the right
of visitation. The trustees themselves also stood in direct
contractual relation to the king, as he contracted with the
trustees that they would forever be a corporation. The
trustees and the founders made similar commitments based
on contract. And all these contracts were explicitly or im-
plicitly embodied in the original corporate charter, the Ob-
ligations of which New Hampshire necessarily impaired by her

amendment.

 

28N. H. Const. of 1792, Part I, Bill of Rights, in

Francis Newton Thorpe, ed., The Federal and State Constitu-
tions, Colonial Charters, and Other Organic Laws of the States,
Territories, and Colonies Now or Heretofore Formingethe United
States of America. *7'vols. (Washington: Government Printing
Office, 1909), IV, 2471-2475. Hereafter cited as Constitutions.

 

37
Finally, the college attorneys stated the public policy

bases of their argument. First, the legislature was generally
ill-designed and unfit to exercise direct control over
institutions of higher education. Educational policy would
not be constant or consistent, but would tend to fluctuate
with changes in the composition of the legislature. Positions
that should be academic were likely to become "jobs," Objects
of patronage, which would drive out competent scholars.

In addition, the policy of English and American law
was designed to encourage the founding of charities. Allowing
founders to form charitable institutions according to their
own plans, and then guaranteeing the perpetual existence of
these institutions encouraged vain and wealthy individuals
to create new institutions as monuments to themselves and
their benevolent concern for society. If the rich thought
their foundations were always subject to legislative direction,
if they thought their charitable donations were mere gifts
to the public, argued the college attorneys, then the wealthy
would cease to create new charitable foundations. The whole
burden of providing higher education and other social services
would then fall on the state, to the great detriment of
society in the long run.

New Hampshire Attorney General George Sullivan and
Ichabod Bartlett, representing the university, could meet
the college attorneys head on, and Offer a strong argument
that the legislature did have the power to alter the charter
of Dartmouth College. They rejected, first of all, their

opponents' contention that Dartmouth College had been

38
destroyed by the legislature. Charter amendment and corporate

reorganization were not in fact or in law the same as de-

struction of the corporation.29
Sullivan and Bartlett accepted the contention that there

were at least two types of corporations, public and private,

but rejected the Opposition's tests. The trustees had

argued that a corporation, whether business or charitable,

was private if its capital or endowment came from private

sources. The university attorneys contended that a corporation

was public or private according to the end for which it was

created and, more technically, according to the location of

the "beneficial interest" in the corporate property. Thus,

private (business) corporations were established for the benefit

of individuals, who retained a personal economic and thus

legally beneficial interest in the corporate property. These

were in some degree free from legislative control. Public

corporations, such as Dartmouth College, on the other hand,

were established to promote the welfare of the whole community.

Although the corporate prOperty might be committed for the

time being to a group of trustees, no individuals had any

legally enforceable beneficial interest in the corporate

property or franchises. Because the whole beneficial interest

in Dartmouth resided in the public, the legislature could

 

29Sullivan's argument, 65 N. H., 502-524. Bartlett's
argument, Ibid., 563-593. The idea that the charter amend-
ment did not actually destroy Dartmouth was supportable in
law. But in reality, full power over Dartmouth had been
transferred from the existing trustees to two new boards ap-
pointed by the state, a reorganization so radical as to justify
the contention that the college corporation had been destroyed.

39
modify the college charter in the public interest without

infringing any private rights.

The trustees, according to Sullivan and Bartlett, had
no private or personal interest in the college -- indeed,
if they had a material interest, they would be in breach of
trust. Insofar as they had a right of office -- the right
to be trustees -- the charter amendments did not affect them.
Furthermore, because they were merely public agents and had
no private rights in the corporation, the trustees could not
possibly be parties or beneficiaries to a contract of the
type protected by the federal constitution. In short, where
the college attorneys had emphasized the element of private
property and advanced the trustees as the legal holders and
appropriate defenders of the prOperty, the university's
attorneys found only a public trust and a corresponding absence
of a prOprietary interest in the trustees.

With regard to the power of the government of New
Hampshire, Sullivan and Bartlett quickly rejected the Oppo-
sition's idea that the New Hampshire legislature was limited
to the same extent as the crown. The correct theory was that
all the power of Parliament had devolved upon the legislature,
and this power remained, except as expressly limited by the
state or federal constitution. But no particular state
constitutional provision could be found to prevent the
legislature from amending charters of public corporations.
And as to Article 15 (prohibiting the deprivation of rights,
privileges, and immunities except by trial by jury or by

the law of the land) so relied upon by the college, the New

40

Hampshire Superior Court had recently declared that any statute
enacted in due form which did not conflict with any other
constitutional provision was the law of the land.30

In rebuttal, the university attorneys offered a series
of "even if" arguments designed to show that acceptance of
some of the Opposition's contentions would not necessarily
alter the case. Thus, even if the court accepted the idea
that the corporation was public or private according to the
source Of the funds, this did not make Dartmouth private.
Although Wheelock had founded the charity school, he did not
found the college, which was an entirely separate institution.
Indeed, it appeared that Governor Wentworth was a founder
by his grant of lands in January, 1770, and, as Blackstone
said, a charity founded jointly by the king and a private
man would be public, not private.

Similarly, even if Wheelock was the founder of Dart-
mouth, he did not transfer his power of visitation, relied
upon by the Opposition, to the college trustees. The charter
itself did not assign any visitation rights to the trustees.
Moreover, it was absurd to give the trustees the power of
visitation, the power to investigate the affairs of the
college and to correct abuses. The trustees as visitors
would examine their eye proceedings as trustees in order to

correct their own misapplication of the funds.

 

3°Mayo v. Wils_o_n_, 1 N. H. 53 (1817). According to the
decision, Article 15 of the state's Bill of Rights "was not
intended to abridge the power of the legislature, but to
assert the right of every citizen to be secure from all arrests
not warranted by law." Ibid., 57.

41
Furthermore, even if Dartmouth were private, Sullivan

and Bartlett argued, the legislature had a right to alter
its charter so far as the public good required. They cited
the numerous New Hampshire and Massachusetts acts imposing
additional duties or new restrictions on banking corporations,
which were admittedly private, to show that legislatures
habitually restricted vested rights and privileges when the
community welfare required it. Indeed, to hold otherwise
would be "to sacrifice . . . the interest of the publick
to that of every little corporation."31
Finally, the university attorneys Offered policy reasons
why the state should have the power to amend the Dartmouth
College charter. Education was a matter of deep public con-
cern, and the legislature had not only a right but a duty
to oversee the educational institutions within the state.
The corporate form was merely a means to promote the end
of education, and to grant Dartmouth immunity from legis-
lative control would be absurdly to elevate means over ends.
Moreover, to free Dartmouth from governmental control would
be to subordinate the public nature and design Of the insti-
tution to the private and personal interests of the trustees.
Ultimately, the government must control educational insti-
tutions, or the institutions would control the government.
A review of the arguments of the two sides in light
Of the facts which gave rise to and lay behind the case

reveals a superlatively hard constitutional problem.

 

31Sullivan's argument, 65 N. H., 506.

42

Dartmouth College involved the general problem of govern-

 

mental control of education and educational institutions.
More specifically, the true issue was political, whether
the government, possibly for the public good but certainly
for the partisan advantage of those temporarily in power,
could take full control of a basically private institution,
an institution which had been originally sanctioned by the
government, but which had been functionally independent,
except for occasional legal and financial aid, for nearly
half a century. In 1817, however, neither the received law
nor the applicable institutions provided a conceptual or
precedential framework for treating the case purely in terms
of the freedom Of educational institutions from direction
by the political authorities. Except for criminal law,
where individual rights were largely procedural, only in the
area of property had the Anglo-American law a fairly well-
develOped concept of individual and organizational freedom
from arbitrary governmental control. Thus, the college
attorneys found their strongest arguments in prOperty law,
and argued strenuously that the main issue in the case was
legislative infringement of the founders' property rights.
The university attorneys were forced to respond in similar
terms, and to add a general plea of overriding public interest
in education to justify the state's action.

Chief Justice William Richardson wrote the Opinion
for the New Hampshire Court. He defined the "real question"

as whether or not "these acts constitutionally infringe any

43
private right of these trustees." In deciding for the

state, he accepted the general frame of analysis suggested
by Sullivan and Bartlett. In order to determine whether the
trustees had any private rights, it was necessary to deter-
mine whether the trustees had any beneficial interest in
either the property or franchises of Dartmouth, or whether
all such beneficial interest was vested in the public at
large, as represented by the state. The Chief Justice
specifically rejected the contention that the source of the
funds was the relevant test of whether a corporation was
public or private.32
Richardson readily conceded that there were private
corporations "created for the immediate benefit and advan-
tage of individuals." The property of private canal, turn-
pike, bridge, banking, insurance, and manufacturing cor-
porations belonged to individuals, and was shielded from
legislative interference as ordinary private prOperty. In-
deed, the contracts clause of the federal constitution,
Richardson indicated, would extend to protect "particular
grants, by the legislature, of property or privileges to
individuals, for their own benefit." In this, at least,

Richardson agreed with the decision later handed down by

 

32Richardson's Opinion, 1 N. H. 111 ff. Richardson
wrote for himself and Justice Samuel Bell. Newly appointed
Justice Levi Woodbury, Jr., did not sit in the case, if the
docket listings can be believed. He was, however, present
when the decision was handed down. Cf., 65 N. H., 624, n. l.
Webster referred to Richardson's Opinion as "able, ingenious,
and plausible." Webster to Joseph Story, Sept. 9, 1818,
in Webster, ed., Writings of Webster, XVII, 287.

 

44
the United States Supreme Court.

33
Dartmouth College, however, was a public corporation,
subject to the full control of the legislature. It had
been created solely for public purposes. The founders had
no interest remaining in the property, and even if they did,
the present trustees had no standing to represent the founders
in court. The trustees had no private interest in the cor-
porate prOperty, for this was legally vested in the corpora-
tion itself, a fictional person quite apart from the individual
trustees. Apart from the right Of office, the mere right to
be trustees, which was not at issue in this case, the
trustees had no legally defensible interest in the corporation.
In any case, a mere changing of the number of members was
not dissolution of the old corporation, and the creation of
a new one, nor was there any apparent contract with the king
that the number of trustees would not be increased.34
Richardson merely put aside the questions of foundation
and visitation raised by the college attorneys. The original

donations to Dartmouth were "absolute." He suggested the

case might be different if the founders had expressly re-

 

served a right to visit and control Dartmouth, because then
the corporation might be private. However, since no such right
had been reserved, Dartmouth would be classed as "public,"

fully subject to governmental control.35

 

33Richardson's Opinion, 1 N. H., 115, 120, 122, 134-135.

3432;93’ 119-121, 122, 125, 134.

35Ibid., 117-118, 121.

45
Finally, the Chief Justice stated the policy reasons

for his decision. It was apprOpriate, he said, to "weigh
the conveniences and inconveniences which would result from
a particular construction" of the constitution in order to
get a better idea of the intentions of the framers. Courts
could prevent some abuses of trust, but their power was
inadequate in some respects, as they lacked a power to legis-
late. Because education was such a great public concern,
public policy and the interests of "literature" itself re-
quired that trustees not be completely independent, but sub-
ject to legislative control. Otherwise, the trustees might
use their power and independence for private ends, or to
promote the "narrow purposes of a sect or a party." Such
an eventuality would prejudice the public against literary
institutions, and the public support so necessary for their
survival and growth would collapse. And although he conceded
that the tendency of his decision was to discourage donations
to charitable institutions, Richardson said simply that this
consideration was "entitled to no weight in this decision."36
The college forces were disappointed by Richardson's
decision, but it was not really unexpected. They quickly
prepared a statement of facts in the form of a special ver-
dict and, with the agreement of the university, the case
went to the Supreme Court in Washington on a writ of error.
In March, 1818, Daniel Webster and Joseph HOpkinson of

Philadelphia appeared for the college. United States Attorney

 

36Ibid., 114, 122, 135-137.

46

General William Wirt and John Holmes argued for the
university.37

Although the Supreme Court was technically confined
to a consideration Of whether the New Hampshire acts violated
the contract clause of the federal constitution, Webster
and HOpkinson moved beyond this restricted area to re-es-
tablish the general points made by Mason and Smith in the
state court. The strategy was sound. By extensive examination
of the questions of foundation and visitation, the college
attorneys hoped to convince the Supreme Court that the general
principles upon which Richardson's Opinion rested were
erroneous, and that the New Hampshire acts had, by a correct
view of the case, violated the state constitution. More-
over, the establishment of private rights vested in the trus-
tees at common law would facilitate the finding of a contract
under the federal constitution. Certainly there was no di-
rect indication that the framers of the federal constitution
intended the contracts clause to protect charitable corpora-
tions. And any argument directly to the contract clause would
require begging the essential questions of whether kings and

legislatures could contract and whether they actually intended

 

37Dartmouth College, 4 Wheaton 518. The special verdict
containing a brief statement of the facts of the case is
found at Ibid., 519-551. See Lord, History of Dartmouth
Colle e, 141. At Webster's suggestion, the special verdict
was arawn to show that the state did not found and endow
the college. Webster to Smith, Dec. 8, 1817, in Webster, ed.,
Writings of webster, XVII, 267. Since the state did not
found and endow Dartmouth, this was not a difficult thing
to do. Cf., Maurice G. Baxter, "Should the Dartmouth College
Case Have Been Reargued?" New England Quarterly, XXXIII
(March, 1960), 32.

 

 

 

 

47
to contract. Basically, the college attorneys reasoned that

because the trustees had private rights at common law, there
must have been an original contract which gave rise to these
rights, and which was protected by the constitution. In
addition, Webster argued that the New Hampshire legislative
act constituted a deprivation of due process of law inasmuch
as only the judiciary could declare a forfeiture of a cor-
porate charter.38

Wirt and Holmes largely confined themselves to restating
Richardson's Opinion, and even this they did not do very
well.39 Had they known the law, they might have effectively
challenged although not completely overthrown the college
attorneys' analysis of the English cases. Had they known
the facts, they could have questioned more effectively their
Opposition's contention that Dartmouth was founded and had
existed as a private institution. The two attorneys did
both their clients and the court a disservice by their weak
and unsatisfactory presentation.

In spite of the disparity in quality between the college

and university arguments, the court could not reach an

immediate decision. Marshall announced at the close of the

 

38Webster's argument, 4 Wheaton, 551-600. Hopkinson's
argument, Ibid., 615-624. Webster's closing "peroration" is
not included in Wheaton's Re orts. An approximation of what
Webster said will be found in Rufus Choate's eulogy of
Webster, in Samuel Gilman Brown, ed., The Works of Rufus
Choate, with a Memoir of His Life. 2 vols. (Boston: Little,
Brown and Company, 1862), I, 516-517. Baxter, Webster, 84-85.

 

 

39Holmes's argument, 4 Wheaton, 600-606. Wirt's ar-

48
argument that the case would have to be continued until the

next term, because some of the judges held differing opinions

and others had reached no Opinion at all. Webster's guess

as to the Split was probably correct. Marshall and Bushrod

Washington were for the college; Gabriel Duvall and Thomas

Todd, for the university; Joseph Story, William Johnson,

and Brockholst Livingston, undecided. But whatever the

Split, the indecision inaugurated a long period of unseemly

attempts to influence the undecided justices. Webster com-

municated privately with Story. The college forces convinced

Chancellor James Kent of New York that the college's view

of the case was correct, and Kent helped to persuade Johnson

to vote for the college.40
By the beginning of the 1819 term, the court had reached

a decision for the college. On February 2, Marshall read

the Opinion of the court. However, only he and Justice

 

4°Webster to Smith, March 14, 1818, in Webster, ed.,
Writings of Webster, XVII, 276, 277. Story, by his own
account, was undecided at the close of the argument. Story
to Henry Wheaton, Dec. 30, 1818, quoted in Gerald T. Dunne,
Justice JosephStory and the Rise of the Supreme Court
(New York: Simon and SOhuster, 1970),‘l74. Hereafter cited
as Stomy. For Webster's contact with Story, see Webster to
Story, Aug. 16, 1818, and Sept. 9, 1818, in Webster, ed.,
Writings of Webster, XVII, 286-287. On the efforts to bring
Justice Johnson to vote for the college, see Shirley, Dartmouth
Collegegauses, 253-254, 264-265. Donald G. Morgan, Justice
William Johnson: The First Dissenter: The Career an
ConstitutiOnal Philosophy of a Jeffereenian Judge (CO1umbia:
Uhiversity of South Carolina Press, 1954), 214-215. For a
collection of much of the correspondence relating to the Kent-
Johnson meeting, see Charles Grove Haines, The Role gf the
Supreme Court in American Government and Politics, 1789-1835
(Berkeley: University of California Press, 1944), 420-422.
Hereafter cited as Role of the Supreme Court. Livingston's
relation to all this is conjectural.

 

 

 

 

 

 

 

49
Johnson subscribed to this Opinion alone. Washington and

Story each wrote separate concurring Opinions, and Living-
ston managed to concur in all three Opinions. Duvall
entered a Silent dissent, and Todd recorded no opinion.41

Marshall began his Opinion by finding a "complete and
legitimate contract" in the transactions surrounding the
grant of a charter to the college. The only questions were
whether the constitution would protect contracts of this
type and whether the New Hampshire acts had impaired the
contract.

The Chief Justice conceded that the contracts clause
would not protect all charters. New Hampshire's legislature
could control Dartmouth if the act of incorporation granted
"political power," or created a "civil institution" for the
"administration of the government," or if the funds of the
college were "public prOperty" or if "the state . . ., as

were "alone interested" in the transactions
43

a government,

of the college.
An examination of the charter revealed that none of

these conditiOnS were met in the Dartmouth College case.

The "funds" of the college "consisted entirely of private

donations," which made the corporation "private." The funds

were granted for the charitable purpose of education, which

 

41Marshall's Opinion, 4 Wheaton, 624-654. Washington's
Opinion, Ibid., 654-666. Story's Opinion, Ibid., 666-713.
Johnson's and Livingston's concurrence, Ibid., 666. Duvall's
dissent, Ibid., 713.

 

43

42Marshall's opinion, Ibid., 628. Ibid., 629-630.

50
made the corporation "eleemosynary." The mere fact that

the endowment was used for a matter of public concern,
education, could not alone enable the legislature to control
the institution. Nor did the act of incorporation confer on
the legislature any additional power over the college.
Charters were granted to charitable institutions chiefly to
enable them to hold their prOperty in perpetuity and to manage
it more effectively. This legislative grant of power to
take and hold prOperty in a particular form for a particular
purpose could change neither the private nature of the pro-
perty, nor the private nature of the institution.44

But the most difficult problem in the case, the one,
according to Marshall, "on which more doubt has been enter-
tained, than on all that have been discussed," was raised by
the fact that the college trustees alone complained of the
New Hampshire acts, and these trustees had no beneficial
interest to be protected. How could the contracts clause,
designed to protect only vested beneficial interest, be
extended to the case?45

Marshall solved the problem by finding that the ori-
ginal donors' property right in their gifts to Dartmouth
was the determinative legal element. At the time the college
was founded, the donors agreed with the Crown that their
gifts were in "consideration . . . for the perpetual ap-
plication of the fund to its object in the mode prescribed

by themselves." When the Crown issued a charter which was

 

44Ibid., 632-639. 45Ibid., 641.

51
accepted by the Dartmouth trustees, a binding legal contract

was created, a "contract to which the donors, the trustees
and the crown (to whose rights and obligations New Hampshire
succeeds) were the original parties." According to the terms
of the contract, the "mode prescribed" for the perpetual
application of the funds was through the Dartmouth College
corporation. The corporation, that is, the trustees collec-
tively, became by Operation of law the assignee of all the
rights of the original donors. As such, the trustees stood
in the place of the donors, and could in this capacity defend
the corporation from assault by the state of New Hampshire.46
The Dartmouth charter was a "contract made on a
valuable consideration . . . for the security and disposition
of prOperty . . ., on the faith of which, real and personal
estate" had been "conveyed to the corporation." The contract,
then, was within the letter and spirit of the constitutional
provision.47
Although Marshall admitted that the framers of the con-
stitution probably did not intend the contracts clause to
protect the rights of founders of charitable corporations,
he thought that "contracts made for the advancement of
literature" ought to be within the SCOpe of the clause
unless some compelling reasons of public policy could be found

for excluding them. But the policy reasons seemed all the

other way. These educational institutions did "not fill the

 

47

461bid., 642-644. Ibid., 644-645.

52

place which would otherwise be occupied by government, but
that which would otherwise remain vacant." As these donations
were "complete acquisitions to literature," "any government"
ought "rather to encourage than to discountenance" them.
Yet "one great inducement to these gifts is the conviction
felt by the giver, that the disposition which he makes of them
is immutable." Probably no man would found a college believing
that the acquisition of a charter made the college a "public
institution" subject to "the will of the legislature." More-
over, historically, legislative bodies had been characterized
by "fluctuating policy, and repeated interferences" which
had "produced the most perplexing and injurious embarrassments"
with regard to all types of contracts. The Dartmouth charter
was a contract, and both law and policy compelled the con-
clusion that it was within the constitutional provision
forbidding states to impair the obligation of contracts.48
Finally, Marshall diSposed quickly of the question of
whether the New Hampshire acts had actually impaired the
obligation of the state's contract. The original donors,
said the Chief Justice, "contracted for a system" which in-
cluded a self-perpetuating board of trustees. That system
was "totally changed," as the "will of the state" was
"substituted for the will of the donors, in every essential
operation of the college." Judgment was entered for the

college trustees.49

 

481bid., 644, 646-648.

49gggg., 650-653. Judgment, Ibid., 714-715.

53

The course of Marshall's reasoning reveals that he,
and the Court, had accepted Webster's basic contention that
Dartmouth College could be treated for legal and constitu-
tional purposes as one involving prOperty. By focusing
on the property and contract rights of the college founders,
and by confining its statement and formal assessment of the
policy issues largely to matters related to prOperty, the
Court obscured the crucial political aSpectS of the case,
but, at the same time, it shrewdly avoided the appearance
of substituting its political judgment for that of the New
Hampshire legislature.

The Opinion which Marshall read on February 2 contained
important statements which were subsequently deleted. On
April 16, Story wrote to Marshall complaining of the latter's
express dismissal of Webster's argument that the New Hampshire
act deprived the college trustees of due process of law.

On April 28, Marshall replied. He graciously consented to

omit his reference to this part of Webster's argument, and

went on to explain the basis of his original objection:
The expression that a legislature might

perform some judicial functions was carelessly

introduced, but was introduced with a view to

the prohibitions on the states contained in the

constitution of the United States, not with a

view to the interior regulations made by state

constitutions. My idea was that it was entirely

a subject for state regulation with which the

courts of the United States could have no concern.

I had understood that in Rhode Island & Connecticut

the legislature or some branch of it exercised

certain judicial powers, & I knew that in New

York their Senate was like the House g5 Lords
in England a court of Dernier resort.

 

5°John Marshall to Joseph Story, April 28, 1819. MS.
Berg Collection, New York Public Library. Quoted with the

54
Washington's Opinion was brief and to the point. He

was not as quick as Marshall to find a contract in the
Dartmouth charter (Marshall had taken four sentences), but
concluded nonetheless that a corporate charter was a "fran-
chise" in English law, which amounted to a contract under
the American constitution. He further concluded, on the
strength of a few English and American precedents, that
Dartmouth was a private eleemosynary corporation whose char-
ter was not subject to legislative alteration.51

Story's Opinion was the most elaborate of all. He
accepted Richardson's premise that business corporation char-
ters were contracts protected by the constitution, but added,
citing an early Massachusetts case, that the legislature
might expressly reserve a power to alter or repeal a charter.
An extensive examination of the English law led to the con-
clusion that charters of charitable corporations, such as
Dartmouth, were also constitutionally protected contracts.

Story went beyond his colleagues, however, in suggesting

 

permission of the Henry W. and Albert A. Berg Collection,

The New York Public Library, Astor, Lenox and Tilden
Foundations. In Satterlee v. Matthewson, the Supreme Court
adopted Marshall's view, holding that there was nothing in

the federal constitution which prohibited the legislature

of a state from exercising "judicial functions." 2 Peters
380, 413 (1829). Washington delivered the Opinion of the
court. However, in his dissent in Inglis v. Trustees of
Sailors' Snug Harbor, Story said that the Dartmouth ColIege
case I'iin its principles" forbade a legislature from devesting
the legal title of charitable trustees in an effort to enforce
a testamentary charitable trust. Only the judiciary, declared
Story, could enforce the trust. 3 Peters 99, 153 (1830).

Cf., Story's opinion, Wilkinson v. Leland, 2 Peters 627, 657
(1829).

51Washington's Opinion, 4 Wheaton, 654-666.

 

 

55
that the contracts clause might protect grants of franchises

and authorities which were not valuable to the holders.

Story thus thought that the constitutional protection of

the contracts clause ought to be extended to some public
52

as well as to private corporations.

Dartmouth College v. Woodward was not the only court

 

case raising the question of the validity of New Hampshire's
charter amendments. Shortly after Richardson handed down

his opinion adverse to the college, and while the college
attorneys were preparing to file a writ of error in the United
States Supreme Court, Webster, perhaps acting on a suggestion
made to him by Story, recommended that the college bring
additional actions against the university in the United

States Circuit Court. The problem was that the writ of error
would allow the Supreme Court to handle the case only on
relatively narrow constitutional grounds. Webster apparently
thought that a federal court which had jurisdiction based

on diversity of citizenship could overthrow Richardson's
constitutionally-based opinion on the strength of such general
principles as due process of law. Today, Of course, this
would be unthinkable. But in 1817 the etiquette of the
federal system had not been fully worked out. Section 34

of the Judiciary Act of 1789, which said that state laws

would apply in diversity suits, had received no definitive

 

52Story's Opinion, Ibid., 666-713, and esp., on the
reservation clause, 675, 680, 708, 712. Cf., Marshall's
opinion, Ibid., 638.

 

56
interpretation. In 1815, the Supreme Court had heard two

non-constitutional cases over which the federal courts had
subject-matter jurisdiction, and had decided them on the basis

of general principles. In one, Town of Pawlet v. Clark,

 

Webster had been an attorney on the winning side, so he,
at least, would have some faith in this approach. The other,

Terrett v. Taylor, had been decided in the face of contrary

 

state court interpretation of applicable Virginia law.

Story, who Often tried to extend the boundaries of federal

court jurisdiction, apparently wanted a test case for the

proposition that a federal court having subject-matter

jurisdiction could override on general principles a state

court's constitutional decision. The college attorneys, who

had little faith in their contract clause argument, hOped

to oblige him.53
The college trustees took Webster's suggestion. In

February and March of 1818, they made several conveyances

of college land to vermont citizens, who promptly initiated

actions for possession in the United States Circuit Court

at Portsmouth, New Hampshire. In May, the cases were continued

until fall, at which time the college and university agreed

to take the actions to the Supreme Court by a pro forma

 

certificate of division of Opinion. The actions were to

 

53Baxter, "Should the Dartmouth College Case Have Been
Reargued?" 24, 26-27, 35. On the "cognate cases," see,
generally, Lord, History of Darpmouth College, 141-167, passim.
webster to Mason, April 28, 1818, in Webster, ed., Writings
of Webster, XVII, 282-283. Act of Sept. 24, 1789, sec. 34,
I Statutes at Large (U.S.) 73, 92. Town ijPawlet v. Clark,
9 Cranch 292 (1815). Terrett v. Teler, 9 Cranch 43 (1815).
Hereafter cited as Terrett. Cf., Story to Mason, Oct. 6,
1819, in Shirley, Dartmouth College Causes, 246.

 

 

 

 

 

57

go up on a narrow special verdict, with the stipulation that
additional facts could be added later by mutual agreement
of the attorneys. These "cognate cases“ were before the
Supreme Court in February, 1819, when Marshall announced
the court's decision for the college in the principal case.54

At this point, the cognate cases took on a new sig-
nificance. The university had understandably been dissatis-
fied with the performance of Wirt and Holmes, and wanted
to have the case reargued. Moreover, University President
William Allen became convinced that even by the college's
theory of the law in the case, the unmistakable tendency
of the facts was to show that Dartmouth had been founded
and had existed as a public university, not a private college.
Late in 1818, the university hired William Pinkney, one
of the best lawyers in the country, to reargue the case
before the Supreme Court. The university forces also prepared
a series of "new facts" justifying the reargument and, of
course, a decision for the university.55

These plans could not be carried out. Although
Pinkney attempted to enter a motion for reargument on the
morning of February 2, 1819, Marshall turned his "blind ear"
to the attorney, announced quickly that the court had

reached a decision in the cause, and proceeded to read his

 

54Lord, History of Dartmouth College, 145, 154, 159.
Baxter, "Should the Dartmouth College Case Have Been Reargued?"
26-27, 28.

55Baxter, "Should the Dartmouth College Case Have Been
Reargued?" 21-22, 27. Shirley, Dartmouth College Causes,

58
Opinion. The cognate cases were remanded to the circuit

court for further proceedings.56

Probably, as Baxter concludes, a full reargument would
not have changed the result of the Dartmouth College case,

unless the court changed its Opinion as to the law.57 As

 

interpreted by the court, the contracts clause focused on
individual initiative and private property as the legally
operative elements, and did not require the complete absence
of state involvement or public funds from corporations in
order to be applicable. Moreover, realistically, the great
weight of the evidence favored the college's view that
Dartmouth had been in a non-legal sense a private institu-
tion. No amount of argument could change the fact that the
New Hampshire government had had no substantial permanent
connection with Dartmouth and had given only occasional,

ad hgg financial assistance. Ultimately, the university's
contention that Dartmouth College had been founded and had
existed for half a century as a public institution rested on
a doubtful interpretation of past events and a few shabby
legal technicalities. Thus, a reargument before the Supreme
Court would have been largely a waste of time.

The last act in the Dartmouth College case took place

 

in Story's Circuit Court in Portsmouth, which had the duty

of making a final disposition of the cognate cases. Late

 

56Shirley, Dartmouth College Causes, 203. Baxter,
"Should the Dartmouth College Case Have Been Reargued?" 28.

57Baxter, "Should the Dartmouth College Case Have Been
Reargued?“ 35.

59
in May, 1819, the university attorneys submitted their new
facts for Story's consideration. He said he found nothing
in the new documents to vary the charter recitals (apparently
referring to the naming of Wheelock as founder), and entered
58

final judgment for the college trustees.

The Dartmouth College decision became a permanent

 

part of American constitutional law. Even though the Court's
Opinion was couched narrowly in terms of property rights and
property-related contracts, the crucial issue in the case
was the extent of governmental power over educational insti-
tutions, and the effect of the decision was to limit severely
the direct power of state governments over education by
guaranteeing the organizational integrity and political
independence of privately-founded schools. Dartmouth College
thus laid a firm constitutional foundation for the deve10p-
ment of a dual system of education, in which a public sector
would be governmentally financed and publicly controlled,
and an alternative private sector would be largely free from
political interference. Both the English law and the American
experience which prompted the decision will be analyzed in
greater detail in Chapters II and III below.

Apart from educational institutions, Marshall's Opinion

left little doubt that the Dartmouth College decision would

 

have the collateral effect of protecting business corporations
from unwarranted governmental interference with their chartered

privileges. Marshall's definitions of private corporation

 

58Lord, History of Dartmouth College, 165-167.

60

and constitutionally protected contract focused on individual
initiative and private property as the legally Operative
elements. If these elements were present in the case of
Dartmouth College, surely they were present in the case of

a profit-making joint stock corporation. Indeed, the logical
structure of Marshall's Opinion indicates that the Court
simply assumed that the contracts clause reached business

corporations.59

The legal and experiential bases of this
assumption will be examined in Chapters II, IV, V, VI, and

VII.

 

59Some analysts contend that the Dartmouth College
decision was not intended to extend to business corporations.
Robert Sprague Hall, "The Dartmouth College Case," Green
Beg, XX (May, 1908), 244-245. Dunne, Sto , 179-180. In
addition to the terms and logic of the opinions, much evidence
suggests that the Court had business corporations at least
in mind when it decided Dartmouth College. This evidence

is presented and analyzed in subsequent chapters.

 

 

 

II
THE INHERITANCE

Although the Declaration of Independence in 1776 severed
America's formal connection with Great Britain the new country‘s
political values and legal institutions remained primarily
those inherited from the British past. For this reason,
American legal analysis in the Confederation and early national
periods began with an inquiry into British constitutional
arrangements and the statutory and common law.

What was true generally was also true of corporations.
Americans started with English conceptions of the corporation,
and then shaped the legal institution to fit American needs.
It is the purpose of this chapter tO‘survey the base point,
the English law of corporations, as it had developed to the
early nineteenth century. The account is not intended to be
an evenly-balanced summary. Rather, primary emphasis is
placed on what Americans found useful to them in the long
English experience with corporations. Thus, with an eye
to subsequent American deve10pments, this chapter surveys
the creation and control of corporations by the Parliament
and Crown, the various social functions of corporations,
and the legal characteristics and categorization of corpora-
tions at common law. Finally the chapter surveys in some

detail the deve10pment of the law of charitable corporations

61

62

from the late sixteenth to the early nineteenth centuries,

an area of Special relevance to the Dartmouth College case.

 

By the end of the eighteenth century, the relationship
between the British government and most types of corporations
was well settled. Parliament, of course, was omnipotent.

It could authorize the chartering of corporations and grant
such Special privileges as legal monOpoly. Perhaps more impor-
tant, it could modify or destroy a corporation as easily as
create it. Even Edmund Burke, who conceded that a charter

was a "contract" between Parliament and the incorporated

East India Company, insisted that Parliament alone was the
judge of whether the company so abused its privileges that

the contract was broken. In practice, however, Parliament
usually heeded pleas to respect corporate "vested rights,"

and seldom took away economically valuable privileges without
providing compensation.l

As a matter of practice, the Crown rather than Parlia-

ment was usually reSponsible for the creation and superin-

tendence of corporations. However, the royal prerogative

 

1Sir William Blackstone, Commentaries on the Laws of
England. 4 vols. Ed. by William Carey Jones (San FranciSco:
Bancroft-Whitney Company, 1915), I, 473, 485. Hereafter cited
as Commentaries. The power of parliament to dissolve a cor-
poration eliminated the idea that a corporation was necessarily
immortal. Stewart Kyd, A Treatise on the Law of Corperations.
2 vols. (London: J. Butterworth, 1793-1794), I, 17; II,
446. Hereafter cited as Corporations. Edmund Burke, Speech
On Fox's East India Bill, House of Commons, Dec. 1, 1783,
in T. C. Hansard, ed., The Parliamentary History Of England,
from the EarliesEPeriod to the Year 1803 (London: 1814),
XXIII, cols. 1317, 1318. On parliamentary respect for vested
rights, see Armand B. DuBois, The English Business Company
after the Bubble Act, 1720-1800 (New York: The Commonwealth
Fund, 1938), 120, 196, n. 251, 197, n. 252. Hereafter cited
as English Business Company.

 

 

 

 

 

 

 

 

 

63

was hedged with all sorts of substantive and procedural
limitations. To be sure, it was a long-standing rule that
the King's consent, whether express or implied, was absolutely
necessary to the creation of a corporation. Initially, too,
the Crown could frame the charter as it wished. But the
Crown could not impose a corporation on unwilling individuals.
A majority of those intended to be incorporated had to accept
the charter before it could go into Operation. A corpora-
tion could thus be framed to serve the private purposes of
the corporators at least as much as the public purposes of
the Crown. Moreover, no particular individual could be made
a member of a corporation without his consent. Even more
important, once a charter had been accepted and a corpora-
tion erected, the King could neither vary nor take away any
charter rights, nor modify or repeal the charter itself by
virtue of his prerogative alone.2 The charter had become
the measure of corporate rights against the Crown.

Although the Crown could correct corporate abuses of

chartered privileges through writs of mandamus or informations

 

in the nature of quo warranto in the King's Bench, these

 

 

2Blackstone, Commentaries, I, 472. Kyd, Corporations,
1, 39, 41, 44, 65, 66, 67; II, 447. ~Joseph Chitty, A.
Treatise on the Law of the Prerogatives of the_§rown; and
the Relative Duties andRights of’the Sub ect (London:
Joseph Butterworth and Son, 1820), 124, 126. Hereafter
cited as Prerogatives. William S. Holdsworth, A History of
En lish Law. 16 vols. (London: Methuen and CO., Ltd.,
1903-1965), IX, 48. Hereafter cited as English Law.
Rex v. Vice-Chanceller of Cambridge, 3 Burrow 1647, 1656,
166I (1765). S. .(1 Blackstone Reports 547, 549. Rex v.
Doctor Askew, 4 Burrow 2186, 2199, 2200, 2201 (1768).

An existing corporation might voluntarily accept changes
in corporate rights, or even a whole new charter.

 

 

 

 

 

 

 

 

 

 

64
procedures were unwieldy, and inoperative when corporations

were within their chartered rights. Consequently, the Crown
began to retain substantial control over many corporations
by inserting reservation clauses and other restrictions in
original charters. As they necessarily assented to this
reserved governmental authority when they accepted the char-
ter, corporators could hardly complain later that regulation
by the Crown exceeded the bounds of the Crown's legal power.
Several types of restrictions and reservations were promi-
nent in trading corporation charters. Often, the Crown would
simply limit the duration of the corporation, so, after the
time period expired, the corporators would have to seek a
new charter and the Crown would have the Opportunity to impose
new restrictions or conditions. In many other charters,

from the reign of Elizabeth through the Glorious Revolution
and into the eighteenth century, the Crown reserved the power
to revoke the corporate charter after a stated period of

time if the Crown and Privy Council found that the continued
existence of the corporation would be contrary to the public
interest. Occasionally, when Parliament would order the
chartering of a corporation, it would direct the King to
reserve to himself a power to revoke the charter when he
found it expedient to do so. For example, the Bubble Act,
which, among other things, authorized the Crown to charter
two marine insurance corporations, provided that the Crown
would reserve a power to terminate the charters if the Crown

found the "continuance of the . . . two corporations to be

65
hurtful or inconvenient to the public" at any time after

thirty-one years from the issuance of the charter.3

 

3On the king's power to superintend corporations, see,
generally, Roscoe Pound, "Visitatorial Jurisdiction over
Corporations in Equity," Harvard Law Review, XLIX (Jan.,
1936), 369-395, and esp. 370-372. Kyd, Corporations, II,
174, 291-395, 403-445. Blackstone, Commentaries, I, 480-481.
Richard Wooddeson, A Systematical View of the Laws of
England; As Treated in a Course of Vinerian Lectures, Read
at Oxford, Dufing a Series of Years, Commencing ih’Michael-
mas Term, 1777. 3 vols. (Dublin: 1792-1794), I, 472-473.
Hereafter cited as Lectures. Holdsworth, English Law, IX,
65-67. Chitty, Prerogatives, 131. The most celebrated gmg
warranto case was King v. City of London (1683), in
Francis Hargrave, ed., A Complete Collection Of State-Trials,
and Proceedings for High-Treason, and Other Crimes_and
Misdemeanors. 11 vols. (4th ed.; London: 1776-1781),
III, 546 ff. Hereafter cited as State Trials. See, generally,
Jennifer Levin, The Charter Controversy in the City of
London, 1660-1688, and its Consequences (London: University
of London, The Althone Press, 1969). The writ of scire
facias was available to repeal or revoke charters when they
were contrary to law, void for uncertainty or deception, or
unjust and injurious to the rights of third persons. Chitty,
Prerogatives, 330-331. For the use of the scire facias in
connection with the Bubble Act, see DuBois, English Business
Com an , 6-10. On reservation clauses, see Ibid., 104-105,
I26. Cecil T. Carr, "Introduction," Select Charters of Trading
Companies, A. D. 1530-1707 (London: Selden Society, 1913),
xix. Hereafter Cited as Select Charters. For examples of
royal reservation clauses,see the following business corpora-
tion charters: "Merchant Adventurers of England," sec. 12
(1564), in G. W. Prothero, ed., Select Statutes and Other
Constitutional Doeements Illustrative gfthe Reigns of Eli-
zabeth and Jemes I (4th ed.; Oxford: Clarendon Press, 1913),
464. 1fEast India Company," sec. 27 (1600), in Ibid., 455.
"Merchants of London Trading to the Levant Seas," (1601), in
Select Charters, 42. "Merchants of London Trading into France,"
(1612), in Ibid., 77-78. "King's Merchant Adventurers of
the New Trade," (1616), in Ibid., 97. "Starchmakers of the
City of London," (1623), in Ibid., 122. "Goldwiredrawers of
the City of London," (1624), in Ibid., 136. "Royal Fishing
of Great Britain and Ireland," (1676), in Ibid., 185.
"Company for Smelting Down Lead," (1693), in Ibid., 230.
"Company for Digging and Working Mines," (1694), in Ibid.,
240. "Charitable Corporation," (1708), in Ibid., 262.
"London Assurance Company," (1720), cited in DuBois, English
Business Com an , 143, n. 30. "York Building Company,
(1728), in IEid., 51, n. 50. "British Linen Company," (1747),
in Ibid., 205, n. 290. Bubble Act, sec. 16, 6 Geo. I, c. 18
(1719), 14 Statutes at Large (Pickering ed., 1765), 244, 254.

 

 

 

 

 

 

66
This royal reservation was not a mere boilerplate

provision, or a casual addition. On the contrary, it was
taken very seriously by Crown officers and prospective cor-
porators alike. For example, in 1704, Thomas Byfeild and
eleven other promoters petitioned the Crown to grant them a
charter to carry on a general trade with the American colonies
and, also, to import naval stores. The draft charter pre-
sented to the Privy Council by the Board Of Trade contained
a provision reserving to the Crown the power to terminate
the corporation by Order in Council. In their joint report
requested by the Council, both the Attorney General and the
Solicitor General strenuously insisted upon the retention
of this reservation. However, the prosPective corporators
strongly objected to a broad reservation clause, and more than
once requested that it be eliminated or at least narrowed.
In the end the project was vetoed by Queen Anne, but the at-
tention paid to the reservation clause and the hard bargaining
over it illustrate its importance in the English scheme.4
Despite the prominence Of the reservation clause in
royal charters, and its presence in some acts of Parliament,
judicial references to reservation clauses were very few.
Apparently, only one English case decided before 1800 men-
tions the charter reservation in a trading corporation charter.
In East India Company v. Sandys, decided in 1684, the defen-

dant challenged the trading monopoly which the King had

 

4W. L. Grant and James Munroe, eds., Acts of the Privy

Council of England, Colonial Series (Hereford: 1910), II,
464-469.

 

57
granted to the company. In an Opinion upholding the grant,
Chief Justice Jeffreys noted that the King's charter had
reserved full power to terminate the grant on three years'
notice whenever the King decided the grant was no longer
“profitable . . . to this Realm." Jeffreys' full Opinion
was not readily available, however, because it was not pub-
lished in a standard law report until 1778 and then only
in the State Trials, a collection unlikely to be searched
by English or American lawyers for precedents on the subject
of business corporations. The only other judicial reference
to a royal reservation clause came in King v. Amery, where
the King's Bench upheld the reserved power of the Crown to
remove any principal officer of a chartered municipal cor-

poration.5

 

5East India Company v. Sandys (1684), in Hargrave,

ed., State Trials, VII, 493, 556. Hargrave, "Preface,"

Ibid. For the full reservation clause, see the Charter
granted the East India Company by Charles II, April 3, 1661,
in Charters Granted to the East-India Company, from 1601;
Also the Treaties and Grants Made with, or Obtained from,
the Princes and Powers in India, from the Year 1756 to 1772
(n. p.: fl773D, 78. So far as observed, the first American
reference to Jeffreys' mention of the royal reservation
clause was by Warren Dutton in his argument in Charles River
Bridge v. Warren Bridge, 11 Peters 420, 443-444

rev 24 Mass. 3447(1829). Hereafter cited as Charles River
Brid e. For the use of the reservation clauses in the
charters Of municipal corporations, see King v. Amery, 2 Term
Reports 515, per Justice Ashurst, 568, and argument, 560
(1788); rev'd by the House of Lords, 2 Brown Parliamentary
Reports 336 (1790). See Kyd, quporations, II, 94, 492-496,
503-511. For the background of these clauses in borough
charters, see J. H. Sacret, "The Restoration Government and
Municipal Corporations," English Historical Review, XLV
(April, 1930), 232-259. Amery was cited by Story for the
authority that the king could not alter a corporate charter
in the absence of a reservation clause. Dartmouth College,
4 Wheaton, 675.

 

 

 

68
Although by the end of the eighteenth century England

had adapted the corporation to serve a wide variety of
governmental, economic, religious, and charitable purposes,
legal commentators often ignored realistic functional dis-
tinctions as they searched for the legal "essence" of the
corporation. Stewart Kyd, whose treatise on corporations

was influential in both England and the United States, did

as well as any. For Kyd, a corporation was a legal synthesis,
a "union of . . . several circumstances," no one of which

was startling or unknown to other aspects Of English law.

The resulting synthetic device, the corporation, was

a collection of many individuals, united into

one body, under a special denomination, having
perpetual succession under an artificial form,
and vested, by the policy of the law, with the
capacity of acting, in several respects, as an
individual, particularly of taking and granting
prOperty, of contracting Obligations, and of
suing and being sued, of enjoying privileges

and immunities in common, and of exercising a va-
riety of political rights, more or less extensive,
according to the design of its institution, or
the powers conferred upon it, either at the time
of its creation or at any subsequent period of
its existence.

 

 

 

This definition requires some explication in order
to be fully understood. A corporation was, first of all, a
creation of the law, and in this sense was a legally
conferred right or capacity to act as an entity. This

franchise to be was distinct from other privileges and

 

6Kyd, Corporations, 1, 12-13. For a brilliant review
of the common law theory of one type of corporation, the
borough, in an earlier period, see Heinz Lubasz, "The Corporate
Borough in the Common Law of the Late Year-Book Period,"
Law Quarterly Review, LXXX (April, 1964), 228-243. Hereafter
cited as "The Corporate Borough."

 

69
immunities which the corporation might possess and exercise

for its benfit.7
If the corporation was legally capable of acting as
a distinct entity, it was also a "collection of many indi-
viduals." Not only did "natural persons essentially consti—
tute the body politic," but each member had a legally defen-
sible "right" to act with others as a corporation. It fol-
lowed that Kyd was impatient with the metaphysics which con-
ceived of the corporation as "invisible" and "immortal."8
This emphasis on the individual and very human composition
of the body politic, moreover, had important legal and
practical implications. It was impossible to discuss the
rights and duties of corporations without discussing the rights
and duties Of individual members. Corporate rights and prOp-
erty were in this sense merely individual rights and property.
Probably the most important legal component of the

corporation was "perpetual succession,' an "incident"
necessarily attached by Operation of law to every corporation.
Perpetual succession, as Blackstone put it, was "the very
end Of . . . incorporation." It was simply the power of

appointing new members in the place of those who had been

 

7Kyd, Corporations, 1, 14-15. Blackstone, Commentaries,
II, 37. C. A. Cooke, Corporation, Trust and Company (Cambridge:
Harvard University Press, 1951), 66-67, 78.

 

8Kyd, Cor orations, I, 16-17. The conception of the
corporation as 'invisible" and "immortal" came from Sir
Edward Coke's Opinion in Le case de Suttons HOSpitall,
10 Coke 23a, 32b (1612). Hereafter cited as Suttons Hospitall.
Cf., Marshall's Opinion, Dartmouth College, 4 Wheaton, 636.

 

70

removed from membership for one reason or another, without
the necessity of doing anything else. AS Blackstone indicated,
perpetuity was not the distinctive feature of the corporation.
Through the private trust, large amounts of property could
be held by and for groups such as the Inns of Court forever.
However, the trust required a multitude of complicated deeds
and conveyances, all properly drawn and executed in due time.
It was the succession, the efficient change of membership
and thus of ownership, which was distinctive about the corpora-
tion, and of immense practical importance.9

Kyd also noted in his general definition that any
corporation could exercise "a variety of political rights,
more or less extensive, according to the design of its

10

institution, or the powers conferred upon it." As reflected

 

9Blackstone, Commentaries, I, 475. Blackstone found
four other "incidents" of every corporation: to sue and be
sued in the corporate name, to purchase and hold lands, to
have a common seal, and to make by-laws. Kyd repeated the
five incidents, Corporations, I, 69. The implied powers of
every corporation were first set forth by Coke in Suttons
Hospitall, 10 Coke, 30b-31a. Coke also laid down the rule
that it was impossible to take forever without incorporation.
Ibid., 26b. On the use of the trust to hold property "in
perpetuity," see Kyd, Corporations, I, 6-7. Frederic W. Mait-
land, "Trust and Corporation,Ir in Maitland: Selected Essays,
ed. by H. D. Hazeltine, G. Lapsley, and P. H. Winfield
(Cambridge: Cambridge University Press, 1936), 141-222.
Hereafter cited as Selected Essays. In addition to the
Inns of Court, Maitland noticed several other eighteenth-
century unincorporated associations. Ibid., 186-187, 191-
195, 207. W. K. Jordan notes the extensive use of the
transfer-retransfer system to achieve perpetuation of the
trustees of unincorporated charitable trusts. gnilanthrOpy
in England, 1480-1660: A Study of the Changing Pattern of
English Social Aspirations (London: George Allen and Unwin,
Ltd., 1959),7122. Hereafter cited as Philanthropy in England.

 

 

 

 

 

loKyd, Corporations, I, 12-13.

 

71
in the law, these "political rights,

or corporate powers,
were of two basic types, governmental and group property-
holding.

"The general Intent and End Of all Civil Incorpora-

tions, wrote an anonymous commentator at the beginning of

the eighteenth century, iS, for better Government." A cor-
poration was thus created for a public purpose -- government.
It was a bundle of "political rights" which added up to a
delegation of power, of jurisdictional control, over
specified territories or types of human activity or both.
Some corporations, such as cities, towns, and boroughs had
a general jurisdictioncwer particular territories. Early
merchant gilds, closely related to boroughs, also had
territorial jurisdiction, but often exercised power for more
limited economic purposes. Later, the incorporated "regulated
company," in which each member traded with his own stock
subject to the rules and regulations of the corporation, was
likewise governmental in character. The corporate body
exercised a delegated political power in order to regulate
the economic activities of its members.11

The corporation was never an exclusively governmental

device but had always been associated with group ownership

of property. According to Holdsworth, the technical concep-

 

11[Anonymous], The Law of Corporations: Containing
the Laws and Customs of All the Corporations and Inferior
Courts of Record in England (London: 1702), 2. Blackstone,
Commentariee, I, 467- -468. Cooke, Corporation, Trust and
Com an , 17, 19 ff., 51. On regulated companies, see Carr,
"IntrOHuction," Select Charters, xx-xxi. Holdsworth,
English Law, VIII, 2062 Cf., Kyd, Corporations, II, 103-107.

 

 

 

 

 

 

72

tion of the corporation as a group capable of holding pro-
perty was first received into the English law to provide
a rationalization for the religious associations which held
the property of the church. After the Glorious Revolution,
even incorporated boroughs came to function primarily as
property-holding and prOperty-managing institutions. The
borough corporations began to manage the commons and to
exercise their privileges and immunities for the private
benefit of their members instead of for the benefit of the
town at large.12

In the joint stock corporation, which emerged in the
late seventeenth and early eighteenth centuries, the public
governmental aspect of the corporation was almost completely
subordinated to the property-holding function. Government
became, in twentieth century terms, management. Unless a
Special privilege, such as monOpOly power, was granted, the
corporation's political jurisdiction had disappeared entirely
into the ownership and control of the capital stock. Although
the joint stock corporation was expected ultimately to serve
the public good, this would only be the result of giving pri-
mary attention to the private interests of its members.

Moreover, the "succession" of members was even easier than

 

12Holdsworth, English Law, III, 471. On the English
borough as a property-holding body, see, generally, Frederic
W. Maitland, Township and BorOpgm_(Cambridge: Cambridge
University Press, 1898), esp. 95. Maitland, Selected Essaye,
217. King v. Pasmore, 3 Term Reports 199 (1789).

 

 

 

 

73
before as shares in the stock were freely transferrable.

13
Unfortunately, the Bubble Act of 1719 cut off the free
development and extensive use of the corporation as a device
for business organization. Passed in the wake of a financial
panic caused in part by over-speculation in corporate stocks,
the Bubble Act forbade persons to act as a corporation or
to raise a transferrable stock without explicit authority
from the Crown or Parliament. Following this act, the or-
ganizers of business enterprise adapted the partnership and
private trust to serve many of the purposes of the corpora-
tion. The privately drawn deed of settlement replaced the
charter as the "constitution" of the organization. Under
certain limitations, shares were transferrable. Although
business got by with expedients such as these, the law
of business corporations nearly ceased to develop after the
Bubble Act. Those corporations which survived the Bubble
Act or were chartered thereafter Simply did not produce
enough litigation to enable the courts to create a compre-
hensive case law. This would have important implications
for Americans when they began to use the corporate device

to promote economic growth in the late eighteenth century.

Even by then, the courts found little usable English law

 

13Cooke, Cor oration, Trust and Com an , 50-79.
See, generally, WiIIiam Robert Scott, The Constitution and
Einamee of English, Scottish, and Irish Joint-Stock Companies
to 1720. 3 Vols. (Cambridge: Cambridge University Press,
1912). Cf., Frank Evans, "The Evolution of the English

Joint Stock Limited Trading Company," Columbia Law Review,
VIII (May, June, 1908), 339-361, 461-480.

 

 

74
14
relative to the Special problems of business corporations.

Despite the use Of the corporation in England as an
instrument for both governmental purposes and private gain,
the English law develOped no formal categorization of cor-
porations by "public" and "private" functions. Rough dis—
tinctions had emerged by the early nineteenth century in
connection with problems on the extent of corporate juris-
diction. For example, in 1702, Chief Justice Holt contrasted
the power of the London Common Council with that of the Cor-
poration of Glaziers. The Common Council, or “any other
corporation of publick concern" could bind all who came within
the "city or precinct." The Corporation of Glaziers, on the
other hand, was a "private society" which existed only for
the better government of its own members, and thus had no
authority over non-members. In the late eighteenth century,
Kyd summarized the whole line of cases:

. . . there seems to be a very important distinc-

tion between the power of such a court of a private

company, established merely for purposes of trade,

and that of a superintendent court of a corporation
for the purpose Of general government.

 

14Bubble Act, sec. 18, 14 Statutes at Large (Pickering
ed., 1765), 255-257. Cooke, Corporation, Trust and Company,
80-88, 95. L. C. B. Gower, "The English Private Company,
Lew and Contemporary Problems, XVIII (Autumn, 1953), 535-
536. Hereafter cited as 1rEnglish Private Company." Dubois,
English Business Company, is a valuable survey of the
organiiation of English business after the Bubble Act,
although he probably over-estimates the degree to which the
Act crippled business Operations, and the degree to which
business operated without the aid of courts. James Willard
Hurst, The Legitimacy of the Business_Corporation in the
Lew of the United Spates, 1780-1929 (Charlottesville:
University Press of Virginia, 1970), 7-8. Hereafter cited
as Legitimacy of the Business Corporation.

 

75
Nonetheless, Kyd's distinction does not seem to have been

firmly established. William Watson, in his work on part-
nership, published in 1807, divided business organizations
themselves into "public" and "private." "Public" organiza-
tions were incorporated trading or financial companies,
such as the East India Company or the Bank of England, and
unincorporated deed of settlement companies for trade and
insurance. The public companies were characterized by the
large number of members, transferrable shares, and a separate
management. A "private partnership," in contrast, consisted
of "two or three dealers, or not many more, trading under
a firm." Watson's distinction was thus a matter of size,
not function.15

The formal system of classification which the English
law had developed was based on the legal need to determine
what persons or courts had superintending or "visitatorial"
authority over particular corporate institutions. The key
element in the system was jurisdiction. The major division
was into "ecclesiastical" and "lay.“ In general, ecclesi-
astical corporations, those composed entirely of "spiritual
persons," were visited only by church Officials. In the

sixteenth and seventeenth centuries, the King, as head of

 

15Cityof London v. Wood, 12 Modern Reports 669, 680
(1702). This case was cited as controlling by Chief Justice
John Marshall in Bank of the United States y;_peveaux,

5 Cranch 61, 90 (1809). Hereafter cited as Deveaux. Kyd,
Cor orations, II, 395. Cf., Ibid., 1, 27-29; II, 103-107,
394,397. William Watson, A Treatise of the Law of Partner-
Shi (2d ed. rev.; London: J. Butterworth, 1807),3-5.

C ., Gower, "English Private Company," 536.

 

 

 

76
the Anglican church, visited corporations such as the

universities which were connected to the church. "Lay"
corporations, on the other hand, were under the jurisdiction
of secular authorities, usually the royal courts. Lay cor-
porations were subdivided into "civil" and charitable, or
"eleemosynary" corporations. The “civil" category compre-
hended most of the important corporations in England, including
both municipal and business corporations as well as such
collegiate bodies as the company of surgeons in London.

The royal courts had general supervisory jurisdiction over
these institutions. Charitable corporations, however, were
a special type of lay institution. Before the Reformation,
the church had visitatorial jurisdiction over charitable
corporations, but as the authority of the church contracted,
public policy and the common law, for reasons which will be
examined below, developed a Special set of rules for charity.
Although charitable corporations (with the exception of those
directly connected with the church) became lay, as Opposed
to ecclesiastical, visitatorial jurisdiction did not auto-
matically go to the King. In the first instance, it went

to the founder, who might be the King, but more often was

a private citizen. If a private person was the founder of
the charity, then the corporation would be private, and the
visitor could usually superintend the charity to the ex-

clusion of the King's courts.16 It should be noted that this

k

16Blackstone, Commentaries, I, 470-471, 480-482.
Kyd, Corporations, I, 22-27, assim. Samuel Williston,
"History of the Law of Business Corporations before 1800,"
flervard Law Review, II (Oct., 1888), 105, wrote that the

 

77
classification of corporations was useful so long as the

question under discussion was jurisdiction. Once a court
had determined the jurisdictional question, however, the
classification system was of little or no utility in the
solving of substantive problems, and the English lawyers

and judges ignored it.

The charitable corporation was the subject of a special

line of constitutional and legal development from the time

of the Tudors until the early nineteenth century. Because
the law of this type of corporation was well developed and

had a Significant impact on the Dartmouth College case, it

 

deserves separate and more detailed treatment.

The origins of the early modern law of charitable
corporations are in the Tudor reSponse to the difficult prob-
lems of financing education and alleviating the growing
poverty in the late sixteenth and early seventeenth centuries.
The essence of the Tudor solution was to encourage the wealthy
classes, the mercantile aristocracy and the landed gentry,
voluntarily to create the institutions and contribute their

resources to solve these pressing social difficulties. Both

 

English "classification is based on differences of fact
rather than on differences in legal treatment." This is
true only if jurisdiction is a matter of fact rather than of
law, a dubious proposition. Anthony Highmore, A Succinct
View of the History of Mortmain; and the Statutes Relative
to Charitable Uses; with a Full Exposition of the Last
Statute of Mortmain, 9 Geo. II. c. 36. and Its Subsequent
Alterations: Comprising the Law AS It now Stands Relative
po Devises, Bequests, ViSitation, Leases, Taxes, and Other
Incidents to the Establishment of Public Charities (2d ed.
rev.; London: J. Butterworth, 1809), 398, 411-412. Here-
after cited as Mortmain.

 

 

78
policy and law were framed to achieve the desired results.

First, the government allowed private donors a great deal
of freedom to establish charitable enterprises according to
their own plans. The theory was that individuals would be
encouraged to commit their wealth to socially useful purposes
if they themselves could shape the organization and lay down
the terms for the distribution of the bounty. Second, the
government sought to provide an efficient enforcement mechanism
in order to protect the interests of both donors and the
state. Prospective donors wanted assurance that their funds
would not be diverted from their designated purposes by
negligent or dishonest trustees. The state, only secondarily
interested in donors' wishes, wanted all charitable trusts
fully applied in order to achieve the maximum alleviation
of outstanding social problems.17
The Elizabethan Statute of Workhouses, enacted in 1597,
was one major device for encouraging the foundation of poor
houses. It was essentially a general incorporation act,
providing that a donor could found and incorporate hospitals
and work houses by the simple expedient of a deed enrolled
in Chancery. In all such institutions, the corporation was
to be composed of a head and a number of members. Beyond
this, the will of the founder controlled. He could name the
corporation, designate the place, the head, number of mem-

bers, and decree the rules, statutes, and ordinances under

 

l7Jordan, Philanthropy in England, 108, 115, 126, 149-

 

151.

79

which the corporation would operate. He could name his heirs
or others to "visit" the corporation, to superintend the
institution to make sure the will of the founder was being
carried out.18
Whether a charitable corporation was founded under the
Statute of Workhouses, or under a special act of Parliament,
or by letters patent from the Crown, similar legal rules
applied. Whoever first donated the property to establish
the institution was deemed the "founder" in law. Because
this foundation was based on property, the founder's powers
were legally designated as property rights. Initially, the
founder was the "legislator" for the charity, as one judge
described him, because he laid down the statutes to govern
the institution. After the corporation was in Operation,
however, the founder could not unilaterally revise his
statutes unless he had originally reserved a power to do
so. In the eighteenth century, this rule was applied to
charitable corporations founded by the Crown as well as to

those founded by private individuals.19 The reservation clause

 

18Statute of Workhouses, 39 Eliz. c. 5 (1597), 7 Statutes
at Large (Pickering ed., 1763) 2, Made permanent by 21 James I
c. l (1623), Ibid., 250. Jordan, PhilanthrOpy in England,
98, 115-116. This general incorporation law was extensively
discussed in legal literature read by Americans. It was
examined in Sir Edward Coke, The Second Part of the Institutes
, Q: the Laws of England (London: 1797), 720-727} BlackStone
noted it, Commentaries, I, 474. Kyd's discussion, Corporations,
I, 56-61, 102, paralleled Coke's.

 

19Blackstone, gemmentaries, I, 477, 480-481. Kyd,
Corporations, I, 50-51; II, 103. For the founder as "legis-
ator, King v._BishOp of Ely, 2 Term Reports 290, per Justice
(AShurst, 336 (1788). Hereafter cited as Bish0p of Ely.
Eyelips v. Bury, Skinner, 447, 513 (1694). S. C. 2 Term

 

80
requirement for charitable corporations thus paralleled that

for municipal and trading corporations.

Another prOperty right of the founder was the power
to appoint a visitor to superintend the corporation. If
the founder did not exercise his right, he was the visitor,
and the "visitatorial" power descended to his heirs at death.
The visitor was essentially a judicial Officer. He made sure
there was no misappropriation of funds or negligent adminis-
tration and also settled disputes which arose within the
corporation. In all cases, the founder's statutes or general
intent were to be the visitor's "rule of law." In general,
where there was a visitor his decision on matters within his
jurisdiction was final and could not be reviewed by the
20

royal courts. This was true even of royal foundations.

If allowing donors a large amount of freedom to organize

 

 

Reports 346. Hereafter cited as Phili 5. Doctor Bentley

v. Episcopum Eliens', Fitz-Gibbons 305, 313 (1729). Kin

v. BishOp of Ely, 1 Wm. Blackstone Reports 71, 84 (17 7 .
Hereafter cited as BishOp of Ely. For a charter reservation
with regard to statutes, see Le case ge Suttons Hoepitall,

10 Coke la, 4b (1612). Cf., Eden v. Foster, 2 Peere Williams
325 (1725). Hereafter cited as Eden.

20The nature and extent of the visitatorial power was
an issue in many cases and a favorite of treatise writers.
The most complete account is Highmore, Mortmain, 395-431.
See also Kyd, Corporations, II, 174-290. Kyd's account was
partially superseded by new decisions handed down after the
publication of his treatise. Phili s, 2 Term Reports, 352,
353. Bishop of Ely, 2 Ibid., 336. Attorney General, at
phe relation of Mapletoft v. Mester, Fellows and Scholars
pf Clare-Hall, 3 Atkyns 662, 673 (1747). Cf., Case of Kirkby
Bevensworth Hoepital, 8 East 221 (1807). Hereafter cited)
as Kirkby Ravensworph Hos ital. Green v. Rutherfgrth,
1 Vesey Sr. 462, 472 (1750). Hereafter cited as Green.
ettorney General v. Price, 3 Atkyns 108 (1744). Hereafter
cited as Price.

 

 

 

 

 

 

 

 

 

 

81
and control their charitable foundations was an essential

part of the Tudor program, it was also necessary to prevent
the abuse of charitable funds. Throughout the period under
consideration, Chancery had the power to redress the misap-
prOpriation of funds by Officers and members of charitable
corporations. In theory, at least, no charitable corporation
was too private to avoid chancery's superintendence of
charitable funds. In practice, however, the process by which
charitable corporations were brought into court -- an
information by the attorney general at the relation of
interested private parties -- was cumbersome and expensive.
The Elizabethan Statute of Charitable Uses of 1601 provided

a more efficient mechanism. The act authorized the estab-
lishment of charitable commissions under the authority of

the Chancellor. The commissions could take evidence on the
existence and government of charities, and make orders for
the correction of abuses touching lands or tenements. These
orders, however, were not to be contrary to the statutes of
the founders. The purpose was to secure the faithful execu-
tion of the trust, not to modify it. A special proviso showed
a similar respect for the property rights of founders by
exempting from commission investigations "any college, hospital,
or free school, which have Special visitors or governors, or
overseers appointed them by their founders." Nonetheless,
where visitors were also trustees, and thus in a position to

abuse the trust, the Chancellor ruled that the special exemption

82

was not intended to prevent an investigation.21
The ultimate result of the Tudor policy on charities
was the creation of a series of remarkably independent pri-
vate governments. Charitable corporations had their own con-
stitutions in their charters and founders' statutes. More
distinctively, they had their own judiciaries from which
there was no appeal on matters within their jurisdiction.
Only when the private governments broke down under actual
or threatened corruption did Chancery intervene in the affairs
of charitable corporations.22
This system of private government was extended and
strengthened as a result of the religious, political, and
constitutional crisis of the late 1680's. In the Spring of
1687, St. Mary Magdalen College, at Oxford, prepared to
elect a new president, the old one having died. James II

ordered the college to elect Anthony Farmer, a convert to

Catholicism. The vice-president and fellows replied that

 

21Holdsworth, English Law, IX, 58. John Fonblanque

[Henry Ballow], A Treatise of Equity, with the Addition
efMarginal References and Notes. 2 vols. (3d ed. rev.;
Philadelphia: P. Byrne, 1805, 1807), II, 205, n. a.

ertorney General v. Corporation of Bedford, 2 Vesey Sr. 505,
506 (1754). Hereafter cited as Bedford. Ex arte Berkham -
stead Free School, 2 Vesey and Beames 134, 37, 138, 144
(1813). Hereafter cited as Berkhampstead Free School. Statute
of Charitable Uses, 43 Eliz. c. 4, 7 Statutes at Large
(Pickering ed., 1763» 43. Case of Sutton Colefield, in George
Duke, The Law of Charitable Uses, Revised and Much Enlarged;
mith Many Cases in Law Both Antient and Modern: Whereunto
Ie_now Added, the Learned Reading of Sr Francis Moor, Kt.
Sergeant at Law. (London: Henry Twyford, 1676), 68-69.
Hereafter citéd as Charitable Uses. Hynshaw veMaypr of the
Corporation of Morpeth,)in Ibid., 69. Kirkby Ravensworth
Hospital, 8 East 221.

 

 

 

 

 

 

 

 

22Highmore, Mortmain, 401-402, 430-431.

 

83
Farmer was ineligible according to the statutes of the college,

but the King refused to nominate anyone else. On April 15,
the college elected Dr. John Hough to be President, ignoring
the King's directions. In J.1ne, the Ecclesiastical Commission
held hearings on the college's failure to obey the royal
command. Among other things, Dr. Hough challenged the juris-
diction of the commission to visit the "private College,"
citing the royal charter, the founder's statutes, and the fact
that the BishOp of Winchester was the duly-constituted visitor.
The commission, however, had been given jurisdiction notwith-
standing any 1aw or statute to the contrary. Dr. Hough and
all but two fellows were removed from the college, and

Samuel Lord, BishOp of Oxford, also a convert to Catholicism,
was made President. In the fall of 1688, James II, threatened
bY William of Orange, ordered the college to be resettled
according to its charter and statutes. This was done, but

it was too late to save the King.23

Magdalen College and other excesses of James II and

 

his courts and commissions still conditioned the legal
atmosphere when the important case of Phile v. Bury arose
in the early 1690's. Exeter College in the University of
OXfOrd was founded by William Stapleton, and incorporated
by Queen Elizabeth. The statutes appointed the Bishop of

Exef-er to be visitor. In 1689, the rector and scholars of
\

'0 23Proceedings against St. Mary Magdalen College in
M (16877, in Hargrave, ed., State Trials, IV, 262 ff.
Javld Hume, The History of England, from the Invasion of
$8 Caesar to the Revolu_tion inl688. 8 vols. (Rev.
ed-; London: T. Cahill, 1770), VIII, 278-280.

84
the college expelled one Colmer. He appealed, and a visi—

tatorial delegate reversed his expulsion. Thereafter, in
the summer of 1690, the Bishop of Exeter attempted a general
visitation of the college. The rector and many scholars ob-
jected that this visitation was not valid under the statutes,
and refused to appear before the Bishop when ordered. The
Bishop thereupon removed the rector, Dr. Bury, and the non-
appearing scholars. The case was brought to test the validity
of this removal. In the King's Bench, three justices found
for Dr. Bury, with Chief Justice John Holt dissenting. On
appeal to the House of Lords, the judgment was reversed
without opinion. Holt was later assumed to have stated the
law of the case.24

Holt's opinion was a merging of prior legal developments
in the area of charitable corporations with the constitutional
principles which had emerged from the Glorious Revolution.
The crucial passages follow:

[Tlhat we may the better apprehend the

nature of a visitor, we are to consider that there

are in law two sorts of corporations aggregate;

such as are for public government, and such as are

for private charity. Those that are for the public

government of a town, city, mystery, or the like,

being for public advantage, are to be governed

according to the laws of the land; if they make

any particular private laws and constitutions,

the validity and justice of them is examinable

in the King's Courts; of these there are no

particular private founders, and consequently
no particular visitor: . . . But private and

 

24Philips, Skinner 447. Skinner was counsel for Bury
before the House of Lords, so his report is probably the
most accurate of several available. Holt's opinion was re-
printed from the original manuscript, 2 Term Reports 346.
Kyd, Corporations, II, 197-226.

 

85

particular corporations for charity, founded

and endowed by private persons, are subject to
the private government of those who erect them:
. . . [T]his visitatorial power . . . is an
appointment of law; it ariseth from the prOperty
which the founder had in the lands assigned to
support the charity; and as he is the author of
the charity, the law gives him and his heirs a
visitatorial power, that is, an authority to
inspect the actions and regulate the behaviour
of the members that partake of the charity;

. . . What is the visitor to do? He is to judge
according to the statutes and rules of the
college. . . . [I]f he hath a jurisdiction and
cognizance of the matter and person, and he
giveth sentence in the matter, . . . there is

no appeal, if the founder hath not thought fit
to direct one. That an appeal lieth to the
Common Law Courts of England is without precedent.
. . . [T]he caugg of the visitor's sentence is
not examinable. -

Some elements of Holt's Opinion require comment. The
categorization was built primarily around the extent of
jurisdiction of royal courts. Most corporations were pub-
lic because the royal courts had original or appellate juris-
diction to settle corporate diSputes. Charitable corpora-
tions were private because they had judicial officers,
visitors, whose decisions were final. Moreover, Holt empha-
sized that the private corporation's exclusive jurisdiction
over intramural affairs was a property right of the founder.
This indicated the shift in focus of the British constitution
and the public policy and law of charitable corporations.
During the Tudor period, and especially under Elizabeth, the
state's policy called for giving donors a large degree of
personal control over their contributions. Now, in the after-

math of the Stuart constitutional crisis, Holt seized upon

 

252 Term Reports, 352-354.

86
the property aspect of earlier law to insulate established

foundations, some of which were very rich and very powerful,
from royal and even judicial control.

Finally, a secondary element of Holt's categorization
of corporations seems to be the differing rules of law which
control public and private corporations. Public corporations
were to be governed by the "laws of the land," and the
"validity and justice" of "particular and private laws and
constitutions" made by public corporations were examinable
in the King's courts. Private charitable corporations, on
the other hand, were subject to the statutes of their founders,
which provided the rules of law for the corporate visitors.26
Holt's distinction on these grounds will not bear close
examination. First, virtually all charters of charitable
corporations provided that the statutes which a founder gave
could not be contrary or repugnant to the statutes of the
realm or the law of the land. In this sense, the laws of the
land did control private corporations. Second, chartered
public corporations of all types were in the first instance
controlled by their charter provisions, just as private
charitable corporations. Although charter privisions varied
widely, there was thus little generic difference between the
laws of decision for public and private corporations. Juris—
diction remained the primary and only real basis for the
public-private distinction.

The basic principles announced in Philips v. Bury

 

 

261bid., 352.

87

provided the foundation for deve10pment of much of the law

of charitable corporations in the eighteenth and early nine-
teenth centuries. Where there was a visitor who had jurisdic-
tion over the parties and subject matter, the courts would

not review his decision. When a visitor exceeded his power,
however, the courts could intervene. Thus many cases turned
on whether a visitor had jurisdiction or not. A more impor-
tant line of cases concerned the problem of what to do when
there was no private individual or group legally capable of
visiting a charitable corporation. For example, where the
Crown founded a charitable corporation, but did not appoint

a visitor, the King's Bench would inquire into the proceedings
and issue a mandamus to restore a person improperly removed
from his office. The King's Bench also assumed jurisdiction
where one person exercised a number of offices, including

that of visitor, in the corporation. The BishOp of Chester,
as warden of Manchester College, refused to admit a chaplain
who had been prOperly elected. When the chaplain asked the

King's Bench for a mandamus, the Bishop stated that he was

 

visitor and denied that the court had jurisdiction. The

court granted the mandamus on the grounds that the Bishop's

 

visitatorial power was suspended in light of the obvious
conflict of interest. In other cases, the private founder
appointed no visitors, and there were no heirs, or none could
be located, to exercise the visitatorial power. Here, too,

the royal courts had jurisdiction.27 The basic concern of

 

27Highmore, Mortmain, 396-397, 402, 404, 408-415.
King v. Chancellor, Masters and Scholars of the University

 

88
all these cases was that those responsible for the adminis-

tration of charitable corporations not be left to their own
devices where there was no legal superintendence.

For a time, there was a problem of whigh court was to
assume jurisdiction where there was no visitor or the visi-
tatorial power was suspended. During most of the eighteenth
century, the King's Bench shared jurisdiction with Chancery.
In 1791, however, the King's Bench decided that it did not
have jurisdiction where there was no visitor, but that the
visitatorial power devolved upon the King, to be exercised
by the Chancellor under the great seal. Although this
decision was vigorously disputed, the Chancellor nevertheless
began to act as visitor of charitable corporations where
there was none other. Technically, the Chancellor's visi—
tatorial power in these cases was a part of the royal pre-
rogative, to be exercised by petition. It was, however, a
special type of prerogative. The Chancellor was not to decide
according to his uncontrolled discretion, but was, as a
regular visitor, to be governed by the statutes of the

founder.28

 

of Cambridge, 1 Strange 557 (1723). Dominus_Rex v. Episcopum
Chester, 2 Strange 797 (1727). Cf., 2 Geo II c. 29, 16 Statutes
at Large (Pickering ed., 1765), 81. Green, 1 Vesey Sr., 47.
King v. Master and Fellows of_Saint Catherine's-Hall, Cam-

brid e, 4 Term Reports 233 (1791). Hereafter cited as St;
Catherine's Hall.

28St. Catherine's Hall, 4 Term Reports, 243. Cf.,
a dictum by Lord Holt, Anonymous, 12 Modern 232, 233 (1699).
Ex parte Wrangham, 2 Vesey Jr. 609, 617, per arg.; 619 (1795).
Ex parte Dann, 9 Vesey Jr. 547, 548 (1804). Attorney-General
v. Dixie, l3 Vesey Jr. 519, 533 (1805). Hereafter cited
as Dixie. Attorney_General v. Earl of Clarendon, l7 Vesey

 

 

 

 

 

 

89

As the Chancellor in his capacity as personal repre-
sentative of the Crown began to assume a greater role in
the superintendence of charitable corporations, the court
of equity sharpened its old distinction between abuses of
charitable trusts which involved the misapprOpriation of
revenue for the benefit of the trustees, and those abuses
which were merely departures from the founder's statutes in
such matters as elections. To a large degree the distinction
was unreal since the election of an unqualified person to
a fellowship, for example, was as much a departure from the
will of the founder and a misapprOpriation of revenues as an
abuse which redounded to the immediate benefit of the trustees.
Nonetheless, the distinction came to have great procedural
significance. Equity could always entertain an information
or an action for accounting against charitable trustees accused
of misapprOpriating the revenues for their personal benefit.
However, where there was a visitor, equity would not act to
redress abuses other than those involving revenue which were
within the private visitor's jurisdiction. And where there
was no visitor, or the visitors could not act because of a
conflict of interest, an action against unscrupulous trustees
had to be split. That part of the action which directly
concerned the revenues had to be brought on an information

in the court of equity; that part which concerned other abuses

 

Jr. 491, 498-499 (1810). Hereafter cited as Clarendon.

George Cooper, A Treatise of Pleading onithe Equity-Side of
the High Court ofghancery (London: A. Strahan, 1809), xxvii.
Hereafter cited as Pleading.

 

 

 

9O

normally within the province of a private visitor had to be
brought before the Chancellor by petition.29

The complications of the English law of charitable cor-
porations did not end here. There were two types of chari-
table corporations, and the distinction was sometimes impor-
tant. In the most prominent type, what might be called the
“separated power" corporation, the charter incorporated
both the officer and those who were to receive the benefit
of the charity, and gave the whole group ownership and control
of the foundation property. Thus, a typical charter would
incorporate the rector and scholars of a school, the master
and fellows of a college, or the warden and poor of a hos-
pital. The visitor would be an altogether separate officer,
and would neither own the property nor receive any of the
foundation revenues. Assuming an absence of collusion between
the visitor and the rest of the organization, the visitor
was an apprOpriate person to audit the corporate accounts
and otherwise oversee the Operations to prevent fraud. Most
of the eighteenth century cases involved separated power
corporations, and the law was generally constructed to fit
this institutional arrangement. In the "unitary" type of
charitable corporation, the objects of the charity, the
scholars, the fellows, the poor, and so forth, were not

included in the corporation and there was usually no separate

 

29Bedford, 2 Vesey Sr. 505 (1754). Berkhampstead Free
School, 2 Vesey and Beames, 137, 138, 144. Cf}, PriCe, 3
Atkyns 108. Dixie, 13 Vesey Jr., 535. Clarendon, l7 Vesey
Jr. 498-499.

 

 

 

 

91

visitor appointed by the founder. Instead, a single set of
governors or trustees were incorporated, and given full owner-
ship and control of the foundation prOperty.30 The unitary
charitable corporation had the obvious advantage of institu-
tional simplicity. It became popular in England in the
eighteenth century and was the organizational scheme most
often used in America. Dartmouth College, for example, was

a unitary charitable corporation.

The problem of jurisdiction over the unitary corpora-
tion was extremely complicated. As noted above, the Statute
of Charitable Uses specifically exempted from investigation
by the charity commissioners any college, hospital, or free
school which had special visitors, governors, or overseers.

In the seventeenth century, the Chancellor ruled that this
proviso did not exempt unitary corporations from inquiries
into the use of the revenues. Early in the eighteenth century,

the problem arose again in the case of Eden v. Foster. The

 

trustees of the free grammar school of Birmingham, citing a
dictum of Lord Coke that governors should visit where no
visitors were appointed, objected to a commission investiga-
tion. The court resolved that the word "governor" in a
charter or private statute did not imply "visitor," and that
where governors received rents and profits they should be

accountable for the use of the receipts. In 1744, Chancellor

 

30Kyd, Corporations, I, 26-27. The Statute of Work-
houses (1597) provided for the chartering of separated powers
corporations.

 

92
Hardwicke stated that Chancery had jurisdiction to investi-

gate the application of the revenues of a unitary corporation,
but the trustees had an "absolute" authority over other aspects
of the charity. These cases led Kyd to the conclusion that
the governors of a unitary corporation had "a kind of visi-
tatorial power with respect to the objects of the charity,"
but were under the control of Chancery with reSpect to the
application of the revenues.

However, the absolute control of the governors of a
unitary corporation over non-pecuniary matters seemed to

and early in the nineteenth century. In Attorney General

 

v. Dixie the Chancellor, acting on a petition as the repre-

 

sentative of the Crown, removed improperly elected governors

where a visitor had himself been acting as governor. It

 

31Case of Sutton Colefield, in Duke, Charitable Uses,
68-69. Eden, 2 Peere Williams, 326-327. Suttons Hospitall,
10 Coke, 31a. Cf., Phili s, 2 Term Reports, 352-353.
Attorney Gegeral, at the relation of Gray veLock, 3 Atkyns
164, 165 (1744). Kyd, Corporations, II, 187, 195. Attorney
Generel v. Goyernors of the Foundling Hospital, 2 Vesey Jr.
42, 47, 49 (1793). Wooddeson, Lectures, I, 476. Two expres-
sions of apparently different rules by Lord Chancellor Hard-
wicke appeared in the mid-eighteenth century. In one case,
Attorney General v. Middleton, 2 Vesey Sr. 327 (1751), Hard-
wicke seemed to state that the trustees of a unitary corporation
had full visitatorial authority where no visitors were expressly
appointed by the founder. However, the report of this case
is thoroughly garbled. See Kyd's criticism, Corporations,
II, 194-195. In a broad and unqualified dictum in Green,
in 1750, Hardwicke made the same statement. 1 Vesey Sr.,
472. These two isolated statements cannot be treated as
declaring the law. They are contrary to many holdings made
both before and after 1750-1751, and run counter to other
statements made by Hardwicke himself. The point is important
because Justice Joseph Story, in his Opinion in the Dartmouth
Colle e case, insisted on treating Middleton and the Green
dictum as good law, 4 Wheaton, 675, 681, deSpite overwhelming
evidence to the contrary.

 

 

 

 

 

 

 

 

 

93
seems that the rule with regard to separated power corpora-

tions would now be applied to unitary corporations. Where
governors and visitors were one, the Chancellor, either in
place of the King or in his court of equity, had all the
visitatorial power there was.32
Taken together, the deve10pments in the case law

during the eighteenth and early nineteenth centuries show
an important change of emphasis in the law of charitable
corporations since Philips in 1694. Holt's category of

"private corporations, so far as it depended upon juris-
dictional considerations, had been by—passed, qualified, hedged
with exceptions, and otherwise rendered Obsolete by innovations.
The most important development was the decision that the
Chancellor acting as representative of the King had broad
visitatorial powers over charitable corporations where there
was a conflict of interest in visitors who were also gover-
nors. Charitable corporations thus subject to visitation
by the public authorities were not strictly private within
Holt's original definition. In fact, the public-private
distinction had become technically irrelevant in a large
number of cases, and by the early nineteenth century the
courts almost never bothered with it.

Still, it is important to note that many of these
changes in the technicalities of jurisdiction were at the

periphery. The central legal theory of the charitable cor—

poration remained much the same as it had been since the

 

32

Dixie, 13 Vesey Jr., 535, 539, 541. Cooper, Pleading,
xxvii.

 

94
days of Elizabeth. It was still the creature of the founder,

whose prOperty right (as Holt called it) allowed him to draw
statutes and to visit the corporation himself or through heirs
or appointees. Where there were visitors capable of acting,
the King's courts could not examine the affairs of the cor-
poration except in cases of abuse of trust. To a large, if
diminishing, extent, the charitable corporation remained a
self-contained private government, beyond the reach of the
public executive and judicial authorities.

Whatever the legal theory of charitable corporations,
in reality the system of private administration of charities
had become inefficient and corrupt by the beginning Of the
nineteenth century. Only a fraction of the resources
legally committed to education, relief of poverty, and other
charitable purposes was actually spent as the donors intended.
In 1795, Chief Justice Kenyon complained of grammar schools
which were merely "empty walls without scholars, and every
thing neglected but the receipt of the salaries and emoluments."
During a special Parliamentary investigation of the education
of the poor conducted from 1816 to 1818, Henry Brougham, a
Whig reformer, uncovered evidence of widespread abuses in
charitable foundations. In the case of trusts, the problem
sometimes was in the original constitutions, many of which
gave inadequate power to the trustees to manage the trust
profitably, or failed to provide legal authority to replace
dead or resigned trustees. Both corporations and trusts,

however, were subject to negligence and willful mismanagement

95
by the holders of the prOperty. To support his demand for

greater investigative powers, Brougham laid before Parliament
example after example of corruption and negligence in the
administration of charitable institutions. His strongest
criticism was directed at charities with "special visitors."
In one case, land had been bequeathed to the mayor and twelve
aldermen of a borough in trust for the support of a school.
The mayor and aldermen leased the land to themselves at a
rent far below the actual market value. The mayor and
aldermen were also the Special visitors charged with
superintending the trust.33
The major institutional reason for the sorry condition
of charities was the lack of effective supervision by the
courts, and especially Chancery. The problem was not the
technical lack of jurisdiction. AS noted above, where there
was a supportable allegation of breach of trust, equity's

jurisdiction was adequate and could be supplemented in many

cases by a petition to the Chancellor. Rather, the problem

 

33King v. ArchbiShOp of York, 6 Term Reports 490, 493
(1795). Speeches of Henry Brougham, House of Commons,
May 8, 18, June 3, 8, 1818, in T. C. Hansard, ed., The
Parliamentary Debates from the Year 1803 to the Present Time:
Forming a Continuation of the Work EntituledimThe Parliamentegg
History of England from the Earliest Peried t9 the Year 1803
(London: 1818), XXXVIII, cols. 596-601, 761-763, 1219, 1294—
1295. Hereafter cited as Parliamentary Debates. "Report from
the Select Committee on EducatiOn of the Lower Orders,"
June 3, 1818, Ibid., col. 1212. Review of "The Speech of
Henry Brougham, Esq., M. P. in the House of Commons, May 8th,
1818, on the Education of the Poor and Charitable Abuses.
Ridgeway, 1818," Edinburgh Review, XXX (Sept., 1818), 486-
502. Chester New, The Life of Henr Brou ham to 1830 (Oxford:
Clarendon Press, 19 , - , an esp. - , 4—220.
Hereafter cited as Brougham.

 

 

 

 

 

 

96

was excessive complexity of the law (jurisdiction was only
the beginning), long delays, sometimes amounting to years,
and high expense. The last factor was crucial. A charge
of breach of charitable trust had to be brought by private
parties who themselves had to bear the cost of preparing
the suit, and had to pay all the costs if they lost. This
was enough to dissuade nearly all from going into Chancery
to redress charitable abuses. The same difficulties had
rendered the charitable commission under the Statute of
Elizabeth obsolete and ineffective. The case invariably
went from the commission to Chancery, where it was swallowed
in delay and expense. Sir Samuel Romilly, a Brougham supporter
who himself tried many charity cases in equity, told the
Commons that it was "impossible" to redress charitable abuses
through Chancery.34

Brougham advocated the creation of a Special commission
with comprehensive powers to investigate the administration
of charitable trusts. The mere threat of exposure would
prompt many trustees to take immediate action to correct
deficiencies. The information collected would provide the
basis for further action to correct existing abuses and pre-
vent recurrences. Brougham strongly denied that his investi-

gations would be an unwarranted interference with private

 

4Speech of Sir Samuel Romilly, House of Commons, June
13, 1818, Hansard, ed., Parliamentary Debates, XXXVIII, cols.
1230-1231. Speeches of Henry Brougham, House of Commons,
May 8, June 13, 1818, Ibid., cols. 606-607, 1221, 1224.
Cf., Speech of Lord Chancellor Eldon, House of Lords, May 27,
1818, Ibid., cols. 976-977.

 

97

property and vested rights. He examined the legislative
history since the time of Elizabeth and concluded that the
"law regards the inheritance of the poor as matter of public,
not of private jurisdiction." The idea that charitable funds
held by trustees were "private property" was, declared
Brougham, "utterly repugnant to the whole law of England."

A bill embodying most of Brougham's suggestions passed the
Commons in the spring of 1818.35
In the House of Lords, the Tories counter-attacked.

Many of the richest charitable foundations were in the hands

of Tory lords and churchmen who as trustees or visitors ignored
their charges or turned the foundations to personal economic

or political advantage. Lord Chancellor Eldon, one of the
strongest opponents of Brougham's commission bill, contended
that no “honourable man" would become a charitable trustee

in the future if trustees "were to be exposed to suspicious

and vexatious inquiries into all of the details of their

duty." This rather missed the point, Since it hardly advanced
the cause of charity to have "honourable" trustees who neglected
or abused their trusts. More important, Eldon contended

that the courts of justice "ought to have nothing to do"

with charities which had special visitors appointed by the

founders. On these grounds, Eldon was Opposed to any

 

35New, Brougham, 214. Speech of Henry Brougham, House

of Commons, May 8, 1818, Hansard, ed., Parliamentary Debates,
XXXVIII, cols. 602-606. Review of "A Letter to Sir Samuel
Romilly, M. P. from H. Brougham, Esq. M. P. F. R. S. upon
the Abuse of Charities. Eleventh Edition. London, Longman
& Ridgeway. Edinburgh, Constable. 1818," [Etc.], Edinburgh
Review, XXXI (March, 1819), 505-506.

 

 

98

legislative interference with visitors except where it was
"proved" that the visitors had abused their trust. In the

same vein, the Tory Qearterly Review stated its Opposition to

the Brougham prOposalS in terms of prOperty rights. The
appointment of visitors was a prerogative of the founder.
Investigations would interfere with the will of the donor,

and would be an unwarranted public assumption of the visitors'
private "privileges." The Lords responded by amending Brougham's
bill almost out of existence. Among other things, the Lords
exempted from investigation the universities of Oxford and
Cambridge, the colleges of Westminster, Eton, and Winchester,

and any "charitable institution for the purposes Of education,
which have Special visitors, governors or overseers appointed

by their founders." The Commons, to the disgust of Brougham,
accepted the Lords' amendments.36

Attention centers on the conflicting theories of the

nature of charitable trusts in English law. Although the

 

6Speech of Lord Chancellor Eldon, House of Lords,
May 27, 1818, Hansard, ed., Parliamentary Debates, XXXVIII,
cols. 977-978. Review of "First, Second, Third, Fourth and
Fifth Reports of the Select Committee to Inquire into the
Education of the Lower Orders in the Metropolis, and to report
their Observations thereupon, together with the Minutes of
the Evidence taken before them from time to time, to the House:
and who were instructed to consider What May Be Fit to Be
Done with Respect to the Children of Paupers Who Shall Be
Found Begging in the Streets in and near the MetrOpolis, or
who Shall be carried about by Persons asking Charity, and whose
Parents, or other Persons who [whom] they accompany, have not
sent such Children to any of the Schools provided for the Edu-
cation of Poor Children. 1816-~1818." [Etc.], Quarterly
Review, XIX (July, 1818), 499, 506, 517, 565, 567-568. Here-
after cited as Review of "Reports of the Select Committee."
For the Commission Bill as passed, see 58 Geo. III, c. 91,
eSp. sec. 12, 58 Statutes at Large 375, 379 (1818). New,
Brougham, 214-216.

 

 

99
positions Of extreme partisans such as Brougham and Eldon

were no doubt determined by political considerations, the
question of whether charitable trusts and corporations were
essentially public or private was of interest to those who
wished to make an objective assessment. The disagreement was
over the correct interpretation of more than two centuries of
legislative and judicial deve10pment of the charitable cor-
poration. Here the Tories had by far the better argument.
The charitable corporation as a private government had been
in existence at least Since the time of the Tudors. Originally,
the Tudor monarchs and parliaments had allowed a large degree
of private control in order to encourage the voluntary commit-
ment of private resources to charity. After the Revolution
of 1688, there was a heightened emphasis on the property element
in the charitable corporation as a part of the general trend
toward institutional independence from royal control. By
the early nineteenth century, some inroads had been made
in the area of jurisdiction (inroads not sufficiently
acknowledged by the Tories), but most charitable corporations
still existed as essentially private governments. The most
Brougham and the Whigs could realistically claim from history
was a right to insist on a vigorous public enforcement of
charitable trusts. Under the circumstances, this was pro-
bably enough. Brougham was wrong, however, when he went on
to assert that charitable funds had always been "public."

In conclusion, by the early nineteenth century, the

corporation had been molded into a useful organizational

100

device within the English common law. In a strictly legal
sense, the treatise writers' search for the essential charac-
teristics of the corporation had so refined the legal idea of
a corporation that analysis could move to a more sohpisticated
level. On a broader scale, England had also discovered the
wide range of social functions the corporation could serve.
Political units, religious orders, charitable institutions,
joint stock business enterprises, and any other social
organization involving government (in the widest sense) and
property holding could be incorporated. Special charters
provided the means by which the English could shape the
corporate device to perform these different functions
efficiently. In addition, charters could grant a large
measure of legal autonomy or, if they included reservation
clauses, could preserve the necessary amount of royal control.
Americans borrowed from the English the basic raw
materials with which to build a corporation law suited to
American conditions. The importance of the English contri-
bution Should not be underestimated. The English had
invented, or at least redefined, the corporation in terms
of the common law so that the Americans were spared the frus-
trating and time-consuming process of social and legal inven-
tion. By reference to the English law, Americans could
profit from several centuries of English experience. Thus
Americans habitually looked, in the words of Chief Justice
John Marshall, "to the origin of corporations, to the

manner in which they have been framed in that government

101

from which we have derived most of our legal principles and
ideas, . . . [and] to the uses to which they have been
applied."37 In the case of charitable corporations, at least,
where the English law was relatively well developed, Americans
went beyond general characteristics to explore detailed legal
rules and institutional arrangements.

Still, the creation of an American law of corporations
was primarily a matter of adaptation. The shaping of the
imported raw material was controlled at every step by the
American legal system's perception of what was apprOpriate
in a domestic context. The investigation of these American

developments is the subject of the next several chapters.

 

37McCulloch v. Maryland, 4 Wheaton 316, 421 (1819).
Hereafter cited as McCulloch.

III

THE CHARITABLE CORPORATION IN AMERICA:

LAW AND EXPERIENCE

A major question for historians seeking to explain
a constitutional decision is the degree to which the Supreme
Court reached its decision on the basis of the individual
political beliefs of its members and of a somewhat more
objective social analysis as Opposed to more technical legal
considerations. Since constitutional decisions affect the
public order, the Justices must consider the probable
effects of their contemplated action, and weigh these effects
on scales of competing social values. The scales may be
tipped by judicial prejudice, partisan allegiance, economic
self interest, or class identification, and they may be
redressed by a relatively objective, informed analysis of
the needs of society at large. On the other hand, the
Supreme Court also measures a case and its decision by the
law, an indefinite collection of judicial decisions, statutes,
constitutions, and governmental practices. Intellectually,
law provides a common language and a fund of ideas with
which to define and discuss issues. Judicial Opinions in
prior cases are vehicles for conveying institutional values

from the past to the present. Judgments in analogous cases
102

103

supply objective standards by which to measure proposed

action in a given case against the actions of other courts

at other times. Even where brief and vague, constitutional
and statutory provisions control the scope of the ruling.
Institutionally, limitations on jurisdiction and remedies

help confine the power of the Court. Ideally, these objective
legal considerations will complement informed social analysis
and at least partially offset the judicial tendency to

reach constitutional decisions on the basis of political
preference alone.

The purpose of this chapter is to examine these legal
and policy bases of the Dartmouth College decision, so
far as they related to educational corporations. The history
of American governmental relations with colleges before
1819 is surveyed first. Then the focus shifts to a review
and assessment of several important legal issues, whether
and in what sense the Dartmouth College case involved property
rights, whether Dartmouth was technically a private corporation,
and whether the contracts clause extended to governmental
grants which did not involve property rights.

By 1819, America had been incorporating charitable
institutions for over a century and a half. In the colonial
and early national period, virtually all important colleges
and universities, whether founded by government or by private
groups, were incorporated. Unfortunately, relations between
government and college authorities had not always been smooth.

Between 1760 and 1819, governments in at least seven colonies

104

and states -- Connecticut, Pennsylvania, Virginia, Massachu-
setts, New York, North Carolina, and, of course, New Hampshire -—
seriously threatened or actually attacked college adminis-
trations.l Although it is not certain that the Supreme Court
in 1819 knew the history of Connecticut's attack on Yale or
Pennsylvania's attack on the College of Philadelphia, the
final resolution of these two situations anticipated later
developments in other states. The Justices were, however,
either acquainted with or personally involved in the attacks
by Virginia, Massachusetts, New York, and North Carolina on
colleges in those states. The outcome of these attacks

directly influenced the results in the Dartmouth College case.

 

Yale was organized by a group of Connecticut ministers

at the beginning of the eighteenth century. The college was

 

1According to Donald G. Tewksbury, nine "permanent
colleges" were founded in America during the colonial period,
and twenty-eight in the period 1780-1819. The Founding of
American Colleges and Universities before the Civil War
with Particular Reference to the Religious Influences Bearing
upon the College Movement (New York: Teachers' College,
Columbia University, 1932), 16, Table I. Hereafter cited
as American Colleges. Cf., Beverly McAnear, "College Founding
in the American Colonies, 1745-1775," Mississippi Valley
Historical Review, XLII (June, 1955), 24-44. For a survey
of relations between legislatures and colleges in the colonial
and early national periods, see Willard Wallace Smith,
The Relations of College and State in Colonial America,
unpublished Ph.D. dissertation, Columbia University, 1949.
Hereafter cited as College and State. Smith's discussions
are sometimes too brief, and occasionally omit important
episodes. Helpful, but very uneven, is Richard Hofstadter
and Walter P. Metzger, The Development of Academic Freedom
in the United States (New York: Columbia University Press,
1955). Hereafter cited as Academic Freedom. See also,
Bernard Bailyn, Education in the Forming of American Society:
Needs and Opportunities for Study (New York: Vintage Books,
1960). Bailyn's challenging interpretations, searching
questions, and extensive bibliography offered many suggestions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

105

not immediately incorporated, but the Connecticut General
Assembly indicated their support by passing an enabling act
and granting an initial annual revenue of 120 pounds. In the
early years, the college administration and the General Assem-
bly COOperated in the business of governing the young insti-
tution. After the first generation, however, the college
administration began to resent legislative interference and
to assert its independence. The trustees, foreshadowing
events to come, ignored for five years a 1723 legislative act
making the college rector one of their number.2

The turning point came with the appointment of Reverend
Thomas Clap to the Yale rectorship in 1739. An ambitious,

forceful, contentious, and often tactless man, Clap consoli-

dated effective control over the College in his own hands,

 

2Franklin B. Dexter, "The Founding of Yale College,"
Papers of the New Haven ColonyeHistorical SocieEy, III (1882),
1-31. The first "charter" of Yale, "An Act for Liberty
to erect a Collegiate School," Oct. 9, 1701, is in Thomas
Clap, The Annals or History of Yale-College,_in New Haven,
in the Colony of Connecticut, from the First Founding Thereof,

 

 

inithe Year 1700, to the Year 1766: With an Appendix, Con-
taining the Present State of the COIlege, the Method Of In-
struction and Government, with Officers, Benefactors and
Graduates (New-Haven: John Hotchkiss and B. Mecom, 1766).
Hereafter cited as Annals. The act reads like a business
agreement, referring to the founding ministers as "Trustees,
Partners or Undertakers for the . . . School," Ibid., 6, 7.
Abiel Holmes, The Life of Ezra Stiles, D.D.LL.D. A Fellow
of the American PhilOSOphical Society; of the American
Academy of Arts and Sciences; a Corresponding Member of the
Massachusetts Historical Society; Professor of Ecclesiastical
HiStory; and President of Yale College (Boston: Thomas
and Andrews, 1798), App. II, 383. Hereafter cited as Stiles.
On the 1723 act, see Clap, Annals, 34, and Louis Leonard
Tucker, Puritan Protagonist: President Thomas Clap of Yale
Colle e (Chapel Hill: University of North Carolina Press,

9 , 63-64, 73. Hereafter cited as Clap. The following
account owes much to Tucker's excellent biography.

 

 

 

 

 

 

 

 

 

”at?“

106

successfully asserted independence of the institution from
the General Assembly, and nearly destroyed the College in the
process. The first step was the securing of a formal corpor-
ate charter from the legislature in 1745. The new charter
gave the institution a firmer legal basis and elevated Clap
to the position of "President." Next, Clap, with the consent
of a majority of his trustees, exercised his new power by

attempting to convert Yale into a Congregational seminary.

if“

He leased college lands to accumulate funds, and established
the first professorship of divinity in 1755. The same year
the Assembly cut off its annual grant. In 1757, Clap organized
a college church.3

President Clap's religious doctrines and activities, his
heavy-handed methods, and new financial difficulties at Yale
provoked a slowly widening and intensifying reaction among
the Connecticut establishment, and especially among the majority
faction known as the "Old Lights." An anticlerical physician
named Benjamin Gale poured out a series of vitriolic anti-
Clap pamphlets. Gale thought that Yale was a public, secular
educational institution and that Clap's activities represented
a perversion of Yale's secular purposes, and he demanded a
re-assertion of traditional legislative power over the insti-
tution, beginning with a full-scale public investigation of

Clap's administration. In 1763, a number of prestigeous

 

3The 1745 charter, originally drawn by Clap, is in
Clap, Annals, 45-52. Tucker, Clap, 73-74, 185-186. Edmund
S. Morgan, The Gentle Puritan: A Life of Ezra Stiles, 1727-
1795 (New Haven: Yale University Press, I962Y, 107. Here-
after cited as Stiles.

 

 

107

laymen and clergymen heretofore unassociated with the contro-
versy submitted a memorial demanding that the legislature
appoint a Special committee to "visit" the college with a
view to taking immediate action to redress Clap's abuses.4
The legislature did not immediately issue a commission
Of visitation, but the public Outcry was SO great that it
took the extraordinary step of calling Clap before the
Assembly to answer the charges contained in the memorial.
Not only did the President capably defend his policies on
the merits but he also strongly questioned the power of the
Assembly to investigate Yale. The college, he said, had been
founded by the ten ministers before the legislature had passed

its enabling act of 1701. Citing the Case of Sutton's Hos-

 

pital, Philips v. Bury, and the Statute of Workhouses, Clap
contended that the founding trustees and their successors
were "visitors" by the common law and that therefore the legis-

lature had no right to visit the college. Although the

 

4On the developing Opposition to Clap, see Tucker,
Clap, 185-192 passim. Holmes, Stiles, App. II, 398-399.
Morgan, Stiles, 104-108. Clap attempted to answer his critics,
and formulated positions he would later use before the legis-
lature in The Religious Constitution of Colleges, Especially
of Yale-College, in New-Haven, ih the Colony of Connectigpp
(New London: T. Green, 1754). On the general subject of
the impact of Benjamin Gale's agitation and the relationship
between Yale and the Assembly, see Tucker, Clap, 193, 201-
231. For a summary of the contents of the 1763 memorial,
and the circumstances surrounding its presentation, see
Ibid., 223-225; Clap, Annals, 69-70; Benjamin Trumbull,
ApComplete History oijonnecticut, Civil and Ecclesiastical,
from the Emigration Of Its First Planters, from England, in
the Year 1630L1E° the Year 1764; and to theglose of the
Indian Wars. 2 vols. (New Haven: Maltby, Goldsmith and
CO. and Samuel Wadsworth, 1818), II, 327-333. Hereafter
cited as History of Connecticut.

 

108

General Assembly retained power to rectify a "breach of trust"
and to reform "any such Misconduct in the Corporation, as
should be plainly detrimental to the Public Good," still the
legislature could not investigate the conduct of the college
affairs committed to the discretion of the President and
fellows without being "altogether arbitrary" and infringing
the corporate charter. Besides, said Clap, "to have Visitors
over Visitors . . ., would make endless Trouble and Confu-
sion." The legislature, perhaps more for political than legal
reasons, declined to proceed further with the memorial and
did not formally visit the college. Considering this a

great victory over his enemies, and a Significant acknowledg-
ment of the independence of Yale from legislative control,

Clap published his argument as a pamphlet, The Annals or

 

History of Yale College.5

 

Yale's troubles did not cease with Clap's vindication,
or even with his passage from the scene. The college sunk
deeper into financial difficulty during the Revolutionary
War years. Many still believed that Yale ought to be a secu-
lar public institution. In 1784, a New Haven pamphleteer
published a competent refutation of Clap's argument, con-

tending, in terms paralleling those later used by university

 

5Clap, Annals, 70-77. Holmes, Stiles, App. II, 399.
Tucker, Clap, 225-230. Tucker acknowledges that Clap's
legal arguments helped his cause, but lays his "acquittal"
to the fact that Clap's political allies controlled the
legislature. Ibid., 229-230. Dexter, "The Founding of
Yale College," 12, objected to Clap's account of the founding
of Yale. Before Clap was hauled before the Connecticut
Assembly, that body had investigated the college, but
apparently had not asserted a formal visitatorial authority.
Smith, College and State, 52—54.

 

109
attorneys and Chief Justice Richardson, that the General

Assembly had all the power of the British Parliament and

that Yale was fully subject to its direction. Finally, in
1792, under the leadership Of its new President, Reverend
Ezra Stiles, Yale made its peace with the legislature. In

return for a large grant of funds, the college agreed to

accept the governor, lieutenant governor, and Six members
of the council as members of the Board of Trustees. f
It is not certain that the Justices of the Supreme Court L

in 1819 knew the history of Yale's relations with the
Connecticut Assembly. Warren Dutton, a Massachusetts lawyer
who was close to Webster, believed that the history was not
presented to the Court at the time of the argument of the

Dartmouth College case early in 1818. However, individual

 

Justices, at least, may have become better informed about

 

6See, generally, Morgan, Stiles, for an excellent
account of the career of Clap's successor. On the financial
condition of Yale and its relations with its critics and
the government during the Revolutionary and Confederation
periods, see Ibid., 299, 304-306, 319, 349-353, 357, 410,
412. [Samuel Whittelsey Dana], Yale-College Subject to the
General Assembly (New Haven: Thomas and Samuel Green, 1784).
Act of May, 1792, in R. R. Hinman, Elisha Phelps, and Leman
Church, eds., Resolves and Private Laws of the State of
Connecticut. From the Year 1789 to the Year 1836. Published
by Authority of Resolutions of the General Assembly, Passed
May 1835 and 1836, under the SuperviSion of a Special Committee.
2 vols. in 1. (Hartford: John B. Eldredge, 1837), 477-478.
Hereafter cited as Private Laws of Connecticut. The 1792
act did not represent an attack on Yale's charter, as it
was not to go into effect until it was accepted by the Yale
trustees. This was done by unanimous vote in June, 1792.
Holmes, Stiles, 318-319; App. II, 398, 399-401. The Con-
necticut Constitution of 1818, Art. 8, sec. 1, confirmed the
Yale charter as modified by the 1792 act. Thorpe, ed.,
Constitutions, I, 545.

 

 

 

110

Yale during the period of maneuver in the summer and fall

of 1818. The September edition of the North American Review,

 

which contained a lengthy review by Story on the subject of
maritime law, coincidentally contained several references

to Connecticut and Yale. An anonymous reviewer of a collec-
tion of Timothy Dwight's sermons referred to the "concilia-
tory" 1792 Connecticut act which had been "countenanced and
facilitated by President Stiles." The reviewer cited the
sketch of the history of Yale which appeared as Appendix to
Holmes' Stiles. The September, 1818, edition also announced
the publication of Benjamin Trumbull's History of Connecticut
during July and August. Trumbull's History contained a full
account of Clap's troubles. Webster at least had the edition
in hand. On September 9, Webster wrote Story to compliment
him on his article. The December, 1818, issue of the Nerth

American Review reviewed Trumbull's History of Connecticut,

 

 

mentioning Yale but not Clap's difficulties. Finally,
Appendix No. VI of Timothy Farrar's Report of the Dartmouth
College case, published in August, 1819, was composed of ex-

7 .
cerpts from Trumbull and Clap's Annals. Still, the final

 

7[Warren Dutton], Review of "Report of the case of
the Trustees of Dartmouth College against William H. Woodward,
argued and determined in the Superior Court of Judicature
of the State of New Hampshire, November, 1817: and on Error,
in the Supreme Court Of the United States, 1819. By Timothy
Farrar, Counsellor at Law. Portsmouth, N. H. Published by
John W. Foster and West, Richardson and Lord, Boston. J. J.
Williams, Printer, Exeter," [Etc.], North American Review
and Miscellaneous Journal, X (Jan., 1820), 100. (The copy
of the North American Review in the Graduate Library at
the University of Michigan is autographed "Wm. Plumer's"
on the title page, and ascribes this Review to "W. Dutton,"
p. 83. According to Dodd, American Business Corporations,

 

 

 

 

111

link is missing: there is no direct evidence that Story or
any other Justice actually knew of Yale's history before

the Dartmouth College case was decided. It may have been that

 

the Connecticut experience merely supported and confirmed the

Dartmouth College decision after the fact.

 

Whatever the impact of the history of Yale on the

Dartmouth College decision itself, a review of the Connecticut

 

experience led to important conclusions as to the consti-
tutional position of corporations in the state. In 1795,
Zephaniah Swift, a politician, lawyer, and future Chief
Justice, summed up the result of forty years of agitation in

A System of the Laws of the State of Connecticut. This was

 

the first treatise to define the American category "private
corporation" and its unique constitutional position. According

to Swift, "Yale-college, the society of physicians, and the

 

32, n. 67, the Review is also attributed to Dutton by a
marginal writer in Harvard's Widener Library copy.) [Joseph
Story], Review of "Laws of the sea with reference to mari-
time commerce during peace and war -- from the German of
Frederick J. Jackson, advocate, Altona, 1815. By William
Frick, Counsellor at Law. Baltimore; E. J. Coale, 1818.

pp. 636," Ibid., VII (Sept., 1818), 323-347. [Anonymous],
Review of "Theology; explained and defended, in a series of
sermons; by Timothy Dwight, S. T. D. L. L. D. late president
of Yale College. With a Memoir of the Life of the Author,
Middletown, Con.; Clark and Lyman; 1818. 5 vols. vol. i

8 vo.," Ibid., 356-357. "American Publications in July

and August," Ibid., 434. Trumbull, History of Connecticut,
II, 327-333. Webster to Story, Sept. 9, 1818,—in Webster,
ed., Writingsof Webster, XVII, 287. Webster included with
this letter five copies of his printed argument in the
Dartmoutthollege case. [Anonymous], Review of "A Complete
History of Connecticut, civil and ecclesiastical, from the
emigration of its first Planters from England in 1630,

to the year 1764, and to the close of the Indian Wars.

By Benjamin Trumbull, D.D. 2 vols. 8 vo. pp. 1166. New
Haven, Maltby, Goldsmith and Co. and Samuel Wadsworth, 1818,"
in North Americaaneview and Miscellaneous Journal, VIII
(Dec., 1818i, 115-117. Farrar, Report, App. No. VI, 401-406.

 

 

112

banks of Hartford and New-London" were all "private corpora-
tions." Although the legislature had "the power of dissolving
or altering all corporations of a public nature," it could
not dissolve "corporations of a private nature" except through

I I O 8
the courts on an "information in the nature of a quo warranto."

 

In 1819, the Supreme Court of the United States would rely
upon the contracts clause of the federal constitution, but
its legal analysis was fundamentally the same as Swift's.

In Pennsylvania, the governmental attack on a college
founded in the colonial period was much more severe and for
a time more successful than the attack on Yale. The College,
Academy and Charity School of Philadelphia had been chartered
in 1753 and 1755 after a successful subscription campaign
by a number of prominent Philadelphia citizens, including
Benjamin Franklin. During the Revolution, the college Pro—
vost, William Smith, and the trustees were suspected of
Loyalist sympathies. Despite the provision of the Pennsyl-

vania Constitution of 1776 which confirmed the privileges

 

8Zephaniah Swift, A System of the Laws of the State
of Connecticut. 2 vols. (Windham, Conn.: John Byrne,
1795-17965, I, 225, 228. Hereafter cited as A System of the
Laws. The authority of Swift's statement is perhaps increased
because in the early 1790's he was a member of the faction
in the Connecticut Assembly which insisted upon establishing
a governmental connection with Yale. It is difficult to
tell how influential Swift's volumes were, but the list of
"Subscribers" appended to Volume II includes James Kent,
Alexander J. Dallas, William Rawle, St. George Tucker, George
Tucker, Jeremiah Smith, who argued the Dartmouth College
case in the New Hampshire courts, and Elijah Paine, who was
a Dartmouth College trustee. For a competent sketch, see
Simeon E. Baldwin, "Zephaniah Swift," in William D. Lewis,
ed., Great American Lawyers (Philadelphia: John C. Winston
Company, 1907), II, 99-104.

 

 

 

113

and immunities of all religious, educational, or other chari-
table corporations, the radical "Constitutionalist" party
removed all the existing college officials and replaced them
with politicians and officers of the state in 1779.

Smith and the deposed trustees never accepted the
charter amendment, and worked for a decade to secure the res-
toration of the old charter. They were aided in this regard
by the supporters of the Bank of North America. The Bank's
Pennsylvania charter had been repealed by the legislature in
1784, and the pro-bank faction agitated for its restoration.
In a polemical pamphlet written in 1786, Peletiah Webster
argued that legislative acts which vested rights or interests
in companies of men were public contracts which could not
be repealed. Among these public contracts were not only

bank charters but also acts "for incorporating churches,

 

universities, hospitals, schools, &c. ip consideration pf

 

money paid, or pe_pe_paid by the contributors."10

 

9Edward Potts Cheyney, History of the Universityief
Pennsylvagia, 1740-1940 (Philadelphia: University of Penn-
sylvania Press, 1940), 17-52, 104-125. Hereafter cited
as University of Pennsylvania. Act of Nov. 27, 1779, ch.
871, in James T. Mitchell and Henry Flanders, eds., The
Statutes at Large of Pennsylvania from 1682 telBOl COfipiled
under the Authority of the Act of Mey 19, 1887. 16 vols.
(Various Imprints: 1896-1911T, X, 23-31. Hereafter cited
as Statutes at Large of Pennsylvania. Pa. Const. of 1776,
"Frame Ofifiovernment,“ sec. 45, in Thorpe, ed., Constitutions,
V, 3091. Cf., generally, Albert Frank Gegenheimer, William
Smith, Educator and Churchman, 1727-1803 (Philadelphia:
University of Pennsylvania Press, 1943).

loCheyney, University of Pennsylvania, 146-150.
[Peletiah Webster], An Essay on Credit, in Which the Doctrine
of Banks Is Considered, and some Remarks are made on the
present State of the flank o£_North-America (Philadelphia:
Eleazar Oswald, 17865, 23, 34-35. Italics in original.
Hereafter cited as Essay on Credit. The Bank of North America
is treated more fully below, Ch. VI.

 

 

 

 

 

 

 

 

 

 

114
The efforts of the bank and college forces were rewarded.

The Bank of North America was rechartered in 1787. Two years
later, on March 6, 1789, the legislature restored the charters
and property of the College of Philadelphia to Smith and
the old trustees. The preamble of the restoration act stated
that the Old officers had been deprived Of their charters and
estates "without triel’py_jpry, legal process or proof of
misuser or forfeiture . . .; all of which is repugnant to
justice, a violation of the Constitution of this Commonwealth,
and dangerous in its precedent to all incorporated bodies."
Subsequently, the Pennsylvania Constitution of 1790 reconfir-
med the privileges of corporate bodies and added a provision
forbidding the legislature to pass any law impairing contracts.11
Political difficulties with colleges were not confined
to the north. The question of the constitutional and legal
status of the College of William and Mary was agitated in
Virginia from the 1770's until 1819 and beyond. This parti-
cular issue was an aspect of the larger problem of the nature
and extent of the state's role in the promotion and control

of higher education in Virginia. Thomas Jefferson figured

 

11Cheyney, University of Pennsylvania, 150. Act of
March 6, 1789, Statutes at Large of Pennsylvania, XIII,
188-189. Pa. Const. of 1790, Art. VIII, sec. 3, Art. IX,
sec. 17, in Thorpe, ed., Constitutions, V, 3099, 3101.
The act of 1789 did not abolish the University Of the State
of Pennsylvania which had been created by the act of 1779.
For a time, the College of Philadelphia and the University
existed as separate institutions. When this proved
unsatisfactory, the two were merged by agreement into the
University of Pennsylvania. Act of Sept. 30, 1791, Statutes
at Large of Pennsylvania, XIV, 184-187. Cheyney, University
of Pennsylvania, 150-165.

 

 

 

115

prominently, forcing the issue whenever it seemed expedient
to do so, and in large part determining the contours of the
political and legal debate.

The College of William and Mary was founded by royal
charter issued on February 8, 1692/3 at the solicitation of
the Virginia Assembly. The institution clearly enjoyed a
"public" foundation, as the King and Queen made an initial
grant of 20,000 acres Of land and receipts from Virginia quit
rents, a penny tax to be levied on each pound of tobacco
exported from Virginia and Maryland, and from the office of
surveyor-general for Virginia. The Virginia Assembly supple-
mented these grants and revenues with additional funding and
Specific appropriations throughout the colonial period. The
charter named a number of persons and their successors "to
be the true, sole and undoubted Visitors and Governors of
the . . . College," with "full and absolute . . . power" to
make rules for the institution, and created a close institu-
tional connection with the established church.12

During the Revolution, education and educational insti-

tutions, as almost everything else in Virginia, were considered

 

12The charter of William and Mary is reprinted in
Henry Hartwell, James Blair, and Edward Chilton, The Present
State of Virginia, and the College (1727), ed. by Hunter
Dickinson Farish (Charlottesville, Va.: Dominion Books,
The University Press of Virginia, 1962), 72-94. See sec.
IX, p. 81, for the authority of the "governors." On the
foundation and growth of colonial William and Mary, see
U. 5., Bureau of Education, The Collegeef William and Mary:
A Contribution to the History_of Higher Education, with
Suggestions for Its National PromotiOn, by Herbert Baxter
Adams, Circulars of Information, No. 1 (Washington, D.C.:
Government Printing Office, 1887), 12-22.

 

 

 

116

for reform. Thomas Jefferson's proposals for educational
reform were contained in draft bills 79, 80, and 81 of the

Report of the Committee of Revisors of the laws, submitted

 

to the General Assembly on June 18, 1779. Bill No. 80 was
"for Amending the Constitution of the College of William
and Mary, and Substituting More Certain Revenues for Its
Support." Jefferson prOposed the severance of the close
ties between the college and the Anglican Church, and the
remodeling of William and Mary into a state-controlled,
fully state-supported institution.13

The long preamble to Bill No. 80, however, is more
important here than the details of the prOposed reform.
Jefferson, anticipating Opposition to his Bill on the legal
grounds that the college was a "private" institution not
subject to legislative control, made the preamble a detailed

legal brief, sans citations, for the proposition that William

and Mary was a public institution. Jefferson was fully aware

 

l3Robert Polk Thomson, "The Reform of the College of
William and Mary, 1763-1780," Proceedings of the Amerigep
PhilOSOphical Society, CXV (June 17, 1971), esp. 188, 201-
205, 207-208, is indispensable for understanding the position
of William and Mary in Virginia and Jefferson's proposals.
Hereafter cited as "Reform" A basic source for Jefferson's
Revolutionary educational plans remains his "Autobiography,"
(1821), in Paul Leicester Ford, ed., The_Works of_ThomaS
Jefferson. 12 vols. (New York: G. P. Putnam's Sons, 1904-
19055, I, esp. 75-76, 78 on William and Mary. Hereafter
cited as Works of Jefferson. For the text of Jefferson's
education bills, see Julian P. Boyd, ed., The Pepers of
Thomas Jefferson. 15 vols. to date. (Princeton, N. J.:
Princeton University Press, 1950), II, 534-535, with "Edi-
torial Notes," and esp. Bill NO. 80, 535-542, with "Editorial
Notes," 542-543. Hereafter cited as Papers of Jefferson.
See also, Roy J. Honeywell, The Educational Work of Thomas
Jefferson (Cambridge: Harvard University Press,4l931).
Hereafter cited as Educational Work of Jefferson.

 

 

 

 

 

 

 

 

 

 

117

of the elements of the legal argument, insofar as they de-
rived from the English law. In 1771, Jefferson as a lawyer
had challenged the jurisdiction of a Virginia court, relying
upon and quoting at length Chief Justice Holt's opinion on

private corporations in the case of Philips v. Bury. The

 

preamble to Bill NO. 80 thus included detailed evidence to
support the conclusion that the college,

being erected and constituted on the requisi-

tion of the General Assembly, . . . being

founded and endowed with the lands and

revenues of the public, and intended for the

sole use and improvement, and no wise in the

nature of a private grant, . . . is of right

subject to the public direction, and may by

them be altered and amended, until such form

be devised as will render the institution

publicly advantageoEi in proportion as it is

publicly expensive.

Although Bill No. 80 failed to pass the Virginia legis-
lature, Jefferson was able to accomplish some of his reforms
by other means. In 1779, he was elected one of the visitors
of William and Mary, and in that capacity succeeded in abol-
ishing the college's grammar school and in reorganizing the

1
curriculum and professorships.
The abolition of the grammar school produced the case

of Bracken v. Visitors of William and Mary College. The

 

displaced teacher, Reverend John Bracken, brought suit to

 

14Boyd, ed., Papers of Jefferson, II, 535-539; the
quotation, 538. Jefferson's argument, Godwin v. Lunan,
Jefferson Reports 96, 97-108 (1771). He quoted PhiIipS v.
Bury at length, Ibid., 100-101.

15Jefferson, "Autobiography," in Ford, ed., Works of
Jefferson, I, 76, 78. Thomson, "Reform," 209-211. Honeywell,
Educational Work of Jefferson, 8, ll, 56.

 

 

 

 

118
challenge the authority of the college visitors to abolish

his job. The case was adjourned to the Court of Appeals

"on account of difficulty," where it was heard late in 1790.

The college hired John Marshall, then a competent young at-

torney, to defend its "Jeffersonian" reform.16
At the outset, Marshall challenged the jurisdiction

of the court on the grounds that William and Mary was "a

mere Eleemosynary institution, with Visitors appointed for

its government." The court interrupted Marshall to stipulate

that the court would not have jurisdiction if the college

were a "private Eleemosynary institution," but the court

wanted to hear argument on the college's status. Admitting

that the college was founded on donations from the king and

the government, Marshall insisted, on the authority of Philips

v. Bupy and other English cases, that the college was "pri-

vate" anyway. The crucial point was that William and Mary

had appointed visitors to superintend their charity. Once

these were appointed, the corporation was in the same class

with "private Eleemosynary" corporations founded by indivi-

duals, and the Virginia court could have no jurisdiction

 

16Bracken v. Visitors of William and Mary College,
3 Call 573 (1790). Hereafter cited as Bracken. For a
brief record of the progress of the case through the courts,
see Irwin S. Rhodes, The Papers of John Marshall: A
Descriptive Calendar. 2 vols. (Norman, Okla.: University
of Oklahoma Press, 1969), I, 100. Hereafter cited as Papers
of Marshall. On Bracken, see Thomson, "Reform," 199, 200,
200, n. 13, 205. Brief and unsatisfactory accounts of the
Bracken cases are found in Sadie Bell, The Church, the State,
and Education in Virginia (Philadelphia: 1930), 179-180,
366-367 (hereafter cited as Education in Virginia), and
Hofstadter and Metzger, Academic Freedom, 460-461.

 

 

 

 

 

 

 

119

over removals within the visitors' power.l7 Insofar as
this argument applied to the Crown, it was well-founded in
English law.

Marshall's argument was designed to serve two purposes.
First, it was calculated to advance the immediate interests
of his client, William and Mary, which wanted primarily to
avoid a damage judgment in favor of Bracken. If the court
decided it did not have jurisdiction the college would win,
regardless of the merits of the case. Second, and more
broadly, Marshall was offering a rebuttal to Jefferson's
contention that the college was a public institution, and
was asking the court to declare it a private corporation,
at least partially immune from governmental control.

According to Edmund Pendleton, the President of the
Court Of Appeals, a majority of the judges thought that
William and Mary "had a public and not a private foundation."
Although Pendleton did not elaborate, the close involvement
of the Virginia Assembly in the founding of the college
must have been crucial. The English law of private charitable
corporations relied upon by Marshall might extend to royal
foundations, but certainly did not embrace a corporation
originally sponsored and continually supported by the
legislature. Since William and Mary was public, the Virginia

courts had jurisdiction to decide the case and others which

 

l7Marsha11's argument, Bracken, 3 Call, 580, 591-594.
In addition to Philips v. Bury, Marshall relied principally
on Bentley v. Episc' E1iens.', 2 Strange 912 (1732); Kin
v. BiShOp of Chester, 1 Wm. Blackstone Reports 22 (1748 ;
BiShOp of Ely, 1 Wm. Blackstone Reports 71 (1757).

 

 

 

120

might arise. On the merits, the court decided that the visitors
had power to remove the grammar school teacher, SO Bracken

18 If Marshall failed

had no legal grounds for complaint.
to fulfill his secondary goal of having the college declared
to be private, he at least won his case.

It is difficult to assess the ultimate impact of the

Bracken case on Marshall's Dartmouth College Opinion. At

 

least, the case educated Marshall as to the jurisdictional
nature of the visitatorial power, and as to the necessity
of finding other, stronger grounds on which to base a con-
stitutional limitation on the legislature. The Chief Justice

did not mention visitation at all in his Dartmouth College

 

Opinion. Beyond this, it seems that Marshall took to heart
the Virginia court's focus on the nature of foundation as
the major element. Dartmouth College was private because
its funds were private, not because Special governors were
appointed. By the same token, the Bracken decision stood

even after the Dartmouth College decision. William and
19

 

Mary was public because its foundation was public.

 

18Bracken, 3 Call, 599, as explained by Bracken v.
William and Mary College, 1 Call 161, 163-164 (1797).
Pendleton had been a member of the Committee of Revisors
with Jefferson and at least approved the draft of Bill No.
80 which labelled the college as a public institution.

19At the time of the Dartmouth College decision,
Marshall held honorary degrees from Harvard, the College of
New Jersey (Princeton), and the University of Pennsylvania.
Virginia legislative charters had named him trustee of the
Richmond and Hallerian academies in 1803 and 1807, respectively.
Charter of "The Trustees of 'The Richmond Academy,'" sec. 1,
Act of Dec. 29, 1803, Dec. Sess., 1803, ch. XXII, in
Samuel Shepherd, The Statutes at Large of Vigginia, From
October Session 1792, to Decefiber Session 1806: in Three

 

121

The Virginia story did not end with the Bracken
decisions in the 1790's. Jefferson apparently never abandoned
his belief that William and Mary could be, and Should be,
remodeled by the Virginia legislature into a secular,
state-supported institution. In 1816, when Jefferson wrote
to Governor William Plumer of New Hampshire to congratulate
him on his Speech advocating modifications of the Dartmouth
College charter, Jefferson's praise reflected his long held
beliefs and his thorough legal analysis:

The idea that institutions, established

for the use of the nation, cannot be touched or

modified, even to make them answer to their end,

because of rights gratuitously supposed in those
employed to manage them in trust for the public,

may, perhaps, be a salutary provision against

the abuses of a monarch, bps it is most absurd

against the nation itself.

After the War of 1812, however, Jefferson had begun
to focus more directly on the creation of a totally new
educational institution. His efforts were rewarded on
January 25, 1819, when the Assembly chartered the University

of Virginia. Jefferson was taking no chances. Section 9

carefully provided that the "university Shall, in all things,

 

Vplumes, (New Series) Being a Continuatieh of Hening.

3 vols. (Richmond: Samuel Shepherd, 1835-1836), III, 34-
36. Hereafter cited as Shepherd. Charter of "The Trustees
of the Hallerian Academy, sec. 1, Act of Jan. 6, 1807,
Dec. Sess., 1806, ch. LXXXIII, Ibid., 335. Rhodes, Papers
of Marshall, I, 474, 477, 493, 541, 554: II, 91.

20For a late expression of Jefferson's belief that
William and Mary was a "public institution," see Jefferson
to Joseph C. Cabell, May 16, 1824, in Albert Ellery Bergh,
ed., The Writings of Thomas Jefferson. 20 vols. (Washington,
D. C.: Jefferson Memorial Association, 1903), XVI, 35.
Jefferson to William Plumer, July 21, 1816, in Plumer,
Life of Plumer, 440.

 

 

122
and at all times, be subject to the control of the Legislature."

On February 2, Marshall admitted in his Dartmouth College

 

Opinion that "there may be an institution, founded by govern-
ment, and placed entirely under its immediate control."21
Harvard College, in Massachusetts, was the oldest

college in the country. Throughout the colonial period it
had a close institutional and working relationship with

the Massachusetts provincial government, and for this reason
could realistically be classified as a public institution.
The State constitution of 1780 sought to preserve governmental
control by providing that the legislature might alter the
college government "in as full a manner as might have been
done by the Legislature of the late Province of Massachusetts
Bay." The constitution also confirmed the historic division
of Harvard's administrative authority between the President
and Fellows, known colloquially as "the Corporation," and

a Board of Overseers, which had some legislative functions

as well as a superintending authority roughly analogous to

 

l . . . . .
2 Philip Alexander Bruce, History of the UniverSity

pf Virginie. 5 vols. (New York: Macmillan Company, 1920),
I, esp. 65-233 passim. for Jefferson's role. Act of Jan.‘
25, 1819, sec. 9, Dec. Sess., 1818, ch. XIX, Va. Acts (Ritchie),
17. Marshall's opinion, Dartmouth College, 4 Wheaton, 634.
According to Tewkesbury, American Colleges, 166, 167,

Table XXII, at least 6 "state universities," defined as
those "placed by legal stipulation under the predominant
control of the state" were founded prior to 1819: Univer-
sity of Georgia (1787); University of North Carolina (1789);
University of Vermont (1791); Ohio University (1804, founded
as American Western University in 1802); Miami University
(Ohio, 1809); University of Maryland (1812).

 

 

 

 

123

the "visitatorial power."22

After the turn of the nineteenth century, a controversy

arose concerning the membership fo the Board of Overseers.
Traditionally, it had been composed of certain governmental
officers and Congregational clergymen of various towns.
In 1810, however, "friends of the College," principally
Federalists, began to complain that this scheme excluded
"individuals particularly qualified" from the Board. With
an eye to progress the Federalist legislature passed a bill
drawn by TheOphiluS Parsons, Fellow of Harvard since 1806
and a staunch Federalist who was Chief Justice of the
Massachusetts supreme court. The bill, which was accepted
by the Corporation and Overseers, greatly reduced the number
of Eé officio positions, and provided for the election of
fifteen clergymen and fifteen laymen by the College alumni.
Predictably, the new Board was almost exclusively Federalist.23

Predictably, too, the new board came under attack

with the ascendance of the Republicans under Elbridge Gerry.

 

2 . . . . .

JOSiah Quincy, The History of Harvard UniverSIty.
2 vols. (Boston: Crosby, Nichols, Lee and Co., 1860), II,
174-176. Hereafter cited as Harvard. For Official provin-
cial actions relative to Harvard's government in the colonial
period, see Ibid., I, App. No. LXVIII, 586-612. Mass.
Const. of 1780, Part II, ch. V, sec. 1, art. III, in Thorpe,
ed., Constitutions, III, 1907.

 

 

23Quincy, Harvard, II, 294-295 for the quotations.
TheOphiluS Parsons, Memgir of TheOphiluS Parsons, Chief
Justice of the Supreme Judicial Court of Massachusetts;
with Notices thie Contemporaries TBoston: Tichnor and
Fields, 1859), 285, 286, 291. Hereafter cited as Parsons.
Samuel Eliot Morison, The Lifefend Letters of Harrison Gray
Otis, Federalist, 1765-1848. 2 vols. (Boston: Houghton
Mifflin Company, 1913), I, 252. Hereafter cited as Otis.
Smith, College and State, 29-30, 130, 133, 135-136.

 

 

 

 

 

 

124
When the Republican legislature proposed to repeal the "reform"
of the Overseers, the Federalist Corporation announced its
Opposition, and appointed Parsons to prepare a memorial
challenging the legislative authority to repeal the 1810
act. Later, Jeremiah Smith used Parsons' memorial in the
preparation of his case for the Dartmouth trustees and
excerpts appeared in Farrar's Report.

Parsons' argument was very simple. He admitted that
technically the General Court had not founded Harvard as a
private college, but contended that the Assembly had sur-
rendered its legislative authority over the institution to
the Corporation and its visitatorial power to the Board of
Overseers. Although the General Court could alter the Har-
vard government with the consent of the Corporation and Over-
seers, it could not unilaterally make an alteration because
such a change would impair the vested rights of Overseers
and adversely affect the Harvard Corporation. All changes
wrought in the past by the provincial General Court were
with the consent of the Harvard authorities or were arbitrary
legislative dictations. Consequently, the present legislature
had no authority to restore the pre-1810 arrangement over
the Opposition of the Corporation and the Overseers.25

The Republicans, however, relying on the colonial

 

24Parsons, Parsons, 291-292. Quincy, Harvard, II,
301. Shirley, Dartmouth College Causes, 168. Farrar,
Report, App. No. V, 397-400.

25Shirley, Dartmouth College Causes, 168-174, and
eSp. 170-173.

125
precedents, repealed the 1810 act on February 29, 1812, thus

restoring the traditional membership of the Overseers.

The Harvard Corporation and Overseers formally rejected this
act, on the grounds that the legislature could not change
the visitatorial power without consent of those affected.
Nonetheless, the 1810 Board voted that it was "not disposed
to bring its rights to the test Of judicial decision," and
surrendered to the reconstituted Board. In 1814, the matter
came to a close with the repassage and formal re-acceptance
of the 1810 reform. Although the Massachusetts constitution
continued to allow legislative control of the college, the
principle that the legislature could not intervene without
the consent of the Harvard authorities had been strongly
advanced.26

In April, 1818, about a month after the argument of

the Dartmouth College case in Washington, Joseph Story was

 

named a member of the Harvard Board of Overseers. If there
had been any doubt as to where the Justice's sympathies were,
this seemed to settle the matter. In his concurring opinion,
delivered in 1819, Story indicated he would extend the con-
tract clause far beyond the limits set in the court's Opinion.
The constitution, thought Story, should protect all state
grants to hospitals and colleges, whether the grants were
"for Special or general purposes, for public charity or
particular beneficence." Nor would Story limit the consti-

tutional protection to contracts respecting property in the

 

26Quincy, Harvard, II, 302-304. The Overseers'
resolution is quoted Ibid., 303.

126
strict sense. It reached all "immunities, dignities, offices

or franchises, or other rights . . . deemed valuable in law,"
including contracts "for the exercise of a mere authority."
Although Harvard and a fewcther colleges, such as William
and Mary and Columbia, were not technically "private," all
of them could, under Story's construction, claim the full
protection of the contracts clause.27
In New York, as elsewhere, relations between the
legislature and colleges were sometimes rough. The principle
college was Columbia, which had been founded as King's College
with money collected in a legislatively Sponsored public
lottery. Although the movement which led to the founding
of the college got under way in the late 1740's, the actual
organization was delayed by a bitter political dispute over
the nature and control of the new institution. A faction
led by William Livingston, the father of Brockholst, held
out for a fully secular, state-supported and controlled
college. The Anglicans and their allies, however, finally
secured a charter in 1754 which created a semi-autonomous
institution closely associated with the Church of England.
The trustees or "Governors" were made a self-perpetuating
body, and were given full authority to administer and to
"visit" the college. The charter guaranteed that "no
Visitation, Act or Thing, . . . concerning the . . . College,

[would] be . . . done, by any other . . . Persons whatsoever."

 

27Dunne, Stopy, 171. Harvard also gave LL.D.'S to
Justices Livingston and Johnson during 1818. Ibid. Story's
Opinion, Dartmouth College, 4 Wheaton, 697-700.

127

It was doubtful, however, that the royal governor's charter
could prevent the provincial assembly from visiting or
regulating the college, especially Since the institution was
originally endowed with funds raised by legislatively
sponsored public lotteries.28
Columbia prospered during the remainder of the colonial
period, but the Revolutionary War put it virtually out of
existence. Early in 1784, the few surviving Governors
petitioned the legislature to revive the corporation, to
remove Anglican control, and to make the college "the Mother
of an University." In the acts of May 1 and November 26,
1784, the legislature created the Regents of the State of
New York, and gave them comprehensive authority over all
secondary and higher education in the state. Since in
practice the Columbia faction dominated the Regents, the new
scheme in effect put the college in charge of New York's

entire educational system.

 

28The Charter of the Collegeof New-York, in America

(New York: Parker and Weyman, 1754), 9, 11. See also,

The Additional Chartercranted to the Governors of the

College oi_New-York, in America (NEw-York: Parker and
Weyman, 1754). Beverly McAnear, "American Imprints Concerning
King's College," Pepers of the Bihliographicalgecieiyof
America, XLIV (Fourth Quarter, 19503, 303-304, 308, 318,

321, 334, 337. George Dangerfield, Chancellor Robert R.
Livingston of New York; 1746-1813 (New York: Harcourt, Brace
and Company, 1960), 22. Milton M. Klein, "Democracy and
Politics in Colonial New York," New York History, XL (July,
1959), 239.

29Beverly McAnear, "The Raising Of Funds by the
Colonial Colleges," Mississippi Valley Historical Review,
XXXVIII (March, 1952), 593, and 593, n. 8. Petition from
the Governors of King's College to the Legislature, March
24, 1784, in Daniel J. Pratt, Annals of Public Education
in the State of New York, in N. Y., University of the State

 

 

 

 

 

 

 

 

128
The Board of Regents did not carry out their tasks

effectively. During the period 1784-1787, the Regents dealt
almost exclusively with the affairs of Columbia, and made

no serious effort to promote secondary or higher education
anywhere else in New York. AS demands rose in the legis-
lature for action on the educational system, the Regents
recommended that the control of education be partially
decentralized and that "each . . . College . . . be entrusted
to a distinct corporation." Although the Columbia faction
in the Board of Regents and the Legislature apparently
envisioned nearly complete autonomy for their college, while
the "country" program included a large degree of state
support and control, a compromise was finally reached.

The legislature reformed the whole system on April 13, 1787.30

 

of New York, Eighty-Ninth Annual Report of the Regents of
the University (Albany: Jerome B. Permenter, 1876), 673.
Hereafter cited as Annals -- Eighty-Ninth Report. Act of
May 1, 1784, Feb. Sess., 1784, ch. LI, N. Y. Laws (Holt),
69-71. Act of Nov. 26, 1784, Oct. Sess., 1784, ch. XV,
Ibid., 23-24. Frank C. Abbott, Government Policy and Higher
Education: A Studyef the Regents of the University of the
State of New York, 1784-1949 (Ithaca, New York: Cornell
University Press, 1958), 11. Hereafter cited as Government
Policy. Sidney Sherwood, "The University of the State of
New York: History of Higher Education in the State of New
York," in U. 8., Bureau of Education, The University of the
State of New York: Histogy of Higher Education in the State
of New York, Circular of Information, no. 3, 1900 (Washington,
D. C.: Government Printing Office, 1900), 50-52. Hereafter
cited as University of New York. Elsie Garland Hobson,
Educational LegieiatiOn and Administration in the State of
New York frgm 1777 to 1850 (Chicago: University of Chicago,
1918), 18-25. Hereafter cited as Educational Legislation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30Minutes of the Regents, 1784-1787, Pratt, Annals --
Eighty-Ninth Report, 683-733 passim. Report of the Regents'
special committee, Feb. 16, 1787, Ibid., 726-727. Act of
April 13, 1787, Jan. Sess., 1787, ch. LXXXII, N. Y. Laws
(London), 156-162. Abbott, Government Policy, 12-14.
Sherwood, "University," in University of New York, 58, 61-75.

 

 

 

 

129
The new plan was a considerable improvement over the

old one. The Regents of the University of the State of New
York were given the power to incorporate both academies and
colleges, the latter of which would enjoy all the rights of
Columbia College. Immediate administrative power over the
colleges would be vested in individual boards of trustees,
which would be self-perpetuating. The compromise nature of
the act, however, was reflected in the ambiguities with
regard to the authority of the Regents to supervise colleges.
Section three Specifically "required" the Regents to "visit
and inspect all the Colleges, . . . and yearly to report
the State of the same to the Legislature." On the other
hand, sections seven, eight, and ten "absolutely ratified
and confirmed" Columbia's original 1754 charter, with all
its "Rights, Privileges, Franchises and Immunities." These
included that provision which exempted Columbia from any
"Visitation, Act or Thing" by anyone except the trustees.31
Although the legislature often made sizable grants to
Columbia between 1787 and 1819, many New Yorkers were unhappy
with the college's semi-autonomous existence under the charter
of 1754 and the act of 1787. It was charged that the college
was a relic of royalty and a citadel of privilege out of
place in a democratic society. In 1807, when the Columbia
trustees requested certain alterations in their charter,

the legislature attempted to bring the college under the

 

31Aot of April 13, 1787, Jan. Sess., 1787, ch. LXXXII,
N. Y. Laws (London), 157-159.

130
control of the state. Section six of the bill required

that future vacancies on the Columbia board of trustees
be filled by the legislatively appointed Regents, instead
of the remaining trustees.32
This attempt to terminate the independence of Columbia
was primarily the result of the factional divisions which
agitated New York politics. In 1807, a majority of the
legislature was Republican, but the Republicans were badly
divided between Livingstonian and Clintonian factions. At
the beginning of the session, Livingstonians and Federalists
united to select a Council of Appointment friendly to both
groups. The new Council not only filled available govern-
ment positions with members of the coalition, but began re-
moving Clintonians from office in order to create more
vacancies. This dismissal of Republicans by Republicans
violated the first rule Of political morality in New York,
and it provoked a reaction among some Livingstonian legis-

lators, who deserted their faction for the Clintonians. On

 

32For legislative grants to Columbia, see Hobson,
Educational Legislation, 145-150. John Howard Van Amringe,
"King‘s College and Columbia College," in Brander Matthews,
eh. al., eds., A History of Columbia University, 1754-1904,
Publighed in Commemoration of the One Hundred and Eiftieth
Anniversary of the Founding of Kingfs College (New York:
Columbia University Press, 1904), 85-86. Hereafter cited
as "Columbia College." Robert Ernst, Rufus King: American
Federalist (Chapel Hill: University of North CarOlina Press,
1968), 298-299. Hereafter cited as King. King became a
member of the Columbia board of trustees in 1806. Alfred
B. Street, The Council of Revision of the Shete of New York;
Its History, a History of the Courts with Which Its Members
Were Connected; Biographical Sketches of Its Members; and
Its Vetoes (Albany: William GOGld, 1859), 344. Hereafter
cited as Council of Revision.

 

 

 

 

 

 

 

 

 

131
February 16, 1807, a large majority of Republican legislators

repudiated the Livingstonian Governor, Morgan Lewis, and
nominated the Clintonian Daniel D. Tompkins to carry the
Republican banner in the Spring gubernatorial elections.
Shortly thereafter, the Clintonians, now narrowly in control
in the legislature, leveled another attack on the Federalist-
Livingstonian coalition in the Columbia College charter
amendment. Most of the Columbia trustees were Federalists,
but at least one important member, Treasurer Brockholst
Livingston, was a leader of the rival Republican faction.33
The College bill, as noted, would gradually replace these
trustees with people appointed by the Regents, who were them-
selves chosen by the legislature. The Columbia College bill
was thus Simply another episode in the perennial battle for
office in New York.

The Council of Revision vetoed the Columbia charter
amendment. The Council was composed of the Livingstonian
Republicans Governor Morgan Lewis and state Supreme Court
Justice Smith Thompson, and the Federalist Chief Justice

James Kent. Lewis had been a Columbia trustee from 1784 to

 

33Jabez D. Hammond, The History of Political Parties
in the State of New York, from the RatificatiOn of the
Federal Constitution to Decemher, 1840. 2 vols. (4th ed.
rev.; Buffalo: Phinney and Co.,41850), I, 235-240. Street,
Council of Revision, 344. Milton Halsey Thomas, ed., Columbia
University Officers end Alhmni, 1754-1857 (New York: Columbia
University Press, 19365, 18, 70. Hereafter cited as Columbia
University Officers. Irving Kass, Politics in New York
State 1800 - 1830 (Syracuse, N. Y.: Syracuse University
Press, 1965), esp. 9-27, finds that the contest for office,
and not social, economic, or ideological divisions, was the
primary factor which moved New York politics.

 

 

 

 

 

 

 

 

132
1804, and Kent had been the school's professor of law from

1793 to 1798. In his Opinion for the Council, Kent ad-
mitted that the legislative interference with the college
might be justified by some "strong public necessity."
However, there was no such necessity in the present case,
and the objectionable amendment was made without the consent
of the corporation. "It iS a sound principle in free govern-
ments," wrote Kent, "that charters of incorporation, whether
granted for private or local, or charitable, or literary or
religious purposes, were not to be affected without due
process of law, or without the consent of the parties con-
cerned." The Senate voted to override the Council's veto,
but the Clintonians could not muster the necessary votes in
the House.34
Columbia got its revised charter in 1810, without the
objectionable provisions, but this did not end attempts to
compromise the college's independence. In 1817, a public
campaign was launched to persuade the Columbia trustees to
merge with Washington College, a recently chartered and in-
adequately endowed institution. The campaign grew out of
Governor Daniel Tompkins' efforts to develop Staten Island.
Between 1814 and 1816, Tompkins had purchased nearly 700
acres of land on the Island, and in the latter year had begun
steamboat ferry service to Manhattan. He next prOposed to

found a partially state supported college on his land, in

 

34Thomas, ed., Columbia University Officers, 13, 67.
Street, Council of Revision, 344-345.

 

 

133

order to promote rapid deve10pment of the area. With the
support of his old political ally, DeWitt Clinton, Tompkins
got a charter for Washington College from the Board of Re-
gents. However, aside from the land, the Governor's new
institution had neither endowment nor operating funds. For
these, the Governor looked to Columbia. Printed petitions
objecting to the maintenance of a college in Manhattan and
extolling Staten Island as an ideal location for an educa-
tional institution were circulated and submitted to the

Board of Regents. Obligingly, the Regents voted to ask the
Columbia trustees to merge with Washington College. Tompkins,
as might be expected, notified Columbia that the Regents'
recommendation had his enthusiastic support. After extensive
deliberation, however, the Columbia trustees rejected the
proposal. It would not, they said, be "consistent with the
Duty of Faithful Trustees, and necessary for the Advancement
of Literature and Science" to unite with the new college.
Brockholst Livingston, now both treasurer and chairman of the
board of Columbia, personally informed Tompkins of the
trustees' decision. Neither the Governor nor the Regents
took further action. Columbia remained haughtily independent

on Manhattan, and Washington College came to an early end.35

 

35Act of March 23, 1810, Jan. Sess., 1810, ch. LXXV,

N. Y. Public Laws (Southwick), 34-37. Ray W. Irwin, Daniel
D. Tompkins, Governor of New York and Vice President of the
United States (N. Y.: The New-York Historical Society,
I§38$, 513-518. Van Amringe, "Columbia College," 103-104.
Franklin B. Hough, Historical and Statistical Record of
New York during the Century from 1784 to 1884 (Albany:
Weed, Parsons and Company, 1885), 360-362.

 

 

 

 

134

It is important that Brockholst Livingston, who was
appointed to the United States Supreme Court in 1806, was
in the center of all these events. He had been named to the
New York Board of Regents in the original act of 1784, and
was chosen treasurer at the first meeting. The act of 1787
transferred him from the Regents to the Columbia board of
trustees, where he served as treasurer from 1787 on. In
1816, he was elected chairman of the board and held this
post along with his treasurer's job until his death in 1823.36

Livingston thus had more experience and a greater per-
sonal interest in college administration than any other

member of the federal Supreme Court. After the argument

of the Dartmouth College case in 1818, Livingston may have

 

been temporarily undecided -- the law was complex and the
relevant facts were anything but clear -- but there could be
little doubt that his real sympathies were with Dartmouth.
After all, he had been working for decades to keep Columbia
out of the hands of the New York legislature and the Regents.
As treasurer and chairman of the board of Columbia, which
had been founded with public funds, Livingston voted with the

majority in the Dartmouth College case and also agreed with

 

Story that constitutional protection ought to be extended

to publicly founded educational institutions.37

 

36Thomas, ed., Columbia University Officers, 9, 13,
17, 18, 70. Pratt, Annals -- EightyeNinth Report, 89, 684.

37Before the opening of the 1819 term, Story sent
Livingston a copy of his Opinion in the Dartmouth College
case. Livingston replied that he hOped it would be adopted
"without alteration." Livingston to Story, Jan. 24, 1819,

 

 

135
Unlike the educational institutions discussed above,

the University of North Carolina was founded after the Revo-
lution. Although the North Carolina constitution of 1776
directed the legislature to establish a university, the
pressures of the war and dislocations under the Confederation
delayed action. Finally, on December 11, 1789, the legis-
lature chartered the institution. The board of trustees,
originally composed of state officers, judges, lawyers, and
prominent politicians, was to be self-perpetuating.38
The new university was not well-endowed, and had to
rely in part on private subscriptions. Except for a loan
of $10,000, later made a gift, the state provided no direct
monetary aid before the Civil War. The legislature did,

however, give the university a number of legal claims held

by the state. In 1789, for example, the legislature granted

 

in William W. Story, ed., Life and Letters of Joseph Story,
Associate Justice of the Supreme Court of the United States,
and Dane Professor of Law at Harvard University, i‘vols.
(Boston: Charles C. Little and James Brown, 1851), I, 323.
Hereafter cited as Life of Story. Livingston had prepared
an Opinion, but did not publish it. Dunne, Sto , 179.

Henry Wheaton to Timothy Farrar, Aug. 2, 1819, in Shirley,
Dartmouth College Causes, 296. Albert J. Beveridge surmised
that LIVingston wasiwinfluenced" by the Opinion of Chancellor
James Kent on the Dartmouth College case. Life of John
Marshall. 4 vols. (Boston: Houghton Mifflin Company,
1916-1919), IV, 257. Hereafter cited as Marshall. Unless
it is assumed that Livingston was diSposed against Dartmouth,
it is hard to know what influence Kent could have had.

38N. C. Const. of 1776, sec. 41, in Thorpe, ed.,
Constitutions, V, 2794. Act of Nov. Sess., 1789, ch. XX,
N. C. Laws (Hodge and Wills), 14-16. Kemp P. Battle,
History of the University of Ngrth Carolina from Its Begin-
ning to the Death of President Swain, 178941868. 2 v615.
(Raleigh: Edwards and Broughton Printing Company, 1907-
1912), I, 1-4, 143. Hereafter cited as University of North
Carolina.

 

 

 

 

 

 

 

 

 

 

 

136
the university all property which had in the past or would

in the future escheat to the state upon the death of the
owner without heirs capable of taking. The university thus
received land warrants belonging to some deceased Revolution-
ary War veterans, and land of those whose heirs were not
citizens of North Carolina. In 1794, the university received
all lands and rights in land which had been confiscated from
Loyalists during the Revolution and which had not yet been
sold. Proceeds from future sales and from collections on
mortgages formerly held by Loyalists would constitute a fund
the interest of which could be used by the university for
ten years. At the end of this period, both principal and
interest would be at the diSposal of the legislature.39
By 1800, a combination of factors transformed this mild
legislative support for the university into active hostility.
For one thing, the members of the self-perpetuating board
of trustees and the faculty were mostly Federalists. Repub-
licans charged that non-Federalist faculty members had been
improperly dismissed and that the university inculcated
principles hostile to republican government. Equally impor-
tant, in order to benefit from the state grants, the uni-
versity had to prosecute its claims vigorously in courts all
over the state. Victories enlarged the institution's treasury

but also created stronger political Opposition. Suits under

 

39Grant of escheats, Act of Nov. Sess., 1789, ch. XXI,
N. C. Laws (Hodge and Wills), 16. Grant of confiscated lands,
Act of Dec. Sess., 1794, ch. III, N. C. Laws (Hodge and
Wills), 2-3. Battle, University of North Carolina, I, 9,
10, 17, 136.

 

137
the grant of confiscated lands were especially unpopular. Some

persons had lived on such land for almost twenty years when
university lawyers asserted title and demanded payment.40

In 1800, the Republican-dominated legislature repealed
the grants of confiscated lands and escheats. The loss of the
confiscated lands was not very serious because the grant was
scheduled to terminate in four years and court decisions in
favor of purchasers and British heirs rendered it almost worth-
less anyway. Escheats, on the other hand, had provided the
university with a good deal of income, and might continue to

do 30.41 Although this repeal of prior grants was qualitatively

 

4oBattle, University of North Carolina, I, 136-137,
141-142. Delbert Harold Gilpatrick, Jeffersonian Democracy
in North Carolina, 1789-1816 (New York: Columbia University
Press, 1931), 129-130. Hereafter cited as Jeffersonian
Democracy. Published court reports reveal the extent of
legal activity. For suits under the confiscation act, see,
3. g., Cunningham v. Michael, Cameron and Norwood 77 (Ct.
of Conference 1800); Hughes v. Trustees of the University,
Ibid., 370 (Ct. of Conference 1802). For suits for escheats,
University of Ngrth-Carolina v. Johnston, 1 Haywood 373
(Superior Ct. 1796); Trustees of_the University v. ,
2 Ibid. 104 (Superior Ct. 1799); Trustees of’the University
v. Gilmour, Ibid. 129 (Superior Ct. 1800): Trustees of the
University v. Sawyer, Taylor 114 (Superior Ct. 1799). See
also, Blount v. Horniblea, 2 Haywood 36 (Superior Ct. 1798)
and a companion case, University v. Horniblea, Ibid. 39
(1798); Trustees of the University of North Carolina v.
Campbell, 1 Murphey IBSWTCt. of Conference 1808).

41Act of Nov. Sess., 1800, ch. 5, in Francois-Xavier
Martin, ed., The Public Acts of the General Assembly of
Ngrth Carolina. Volume II. Containing the Acts from
1790 to 1803; Revised and Published under the Authority of
the Legislature (Newbern, N. C.: Martin and Ogden, 1804),
150. For the important judicial decisions against the
university under the confiscation act, see Ray v. McCulloch,
Cameron and Norwood 492 (Ct. of Conference 1804). Hereafter
cited as Ray. Trustees of the University v. Rice, Ibid.
497 (Ct. of Conference 1804). Battle, University of North
Carolina, 136-138, 143. Gilpatrick, Jeffersonian Democragy,
127, 130. Some Republicans in the legislature Opposed these
attacks on the university and supported proposals for
increased state aid. Ibid., 144, n. 5.

 

 

 

 

 

 

 

 

 

 

 

138

different from the threatened or actual seizures of educational
institutions by Pennsylvania, New York, and Massachusetts
legislatures, it was perhaps more serious. The full with-
drawal of state aid would nearly destroy the university.

The board of trustees refused to accept the act of
1800, and brought an action of ejectment for escheated lands
in order to test its validity. The Court of Conference, in
a broad opinion by Judge Francis Locke, held the act uncon-

stitutional in Trustees of University of North Carolina v.

 

Fox, Locke relied in part on the provision in the North
Carolina Bill of Rights which declared that no freeman could
be deprived of his life, liberty, or property except by

the law of the land. Holding that this provision applied

to corporations as well as individuals, Locke stated that

the "law of the land" meant "a trial by Jury in a court of
Justice, according to known and established rules of decision,
derived from the common law, and such acts of the Legislature
as are consistent with the constitution." The case at bar
certainly did not involve an action for forfeiture for misuser
or nonuser under the common law. There were two reasons

why the act of 1800 was inconsistent with the constitution

of North Carolina. First, the university had been "erected"
by the constitution, not the legislature, and thus stood

"on higher grounds than any other aggregate corporations."

As the legislature could not constitutionally destroy the
university by repealing the charter, so it could not accomplish

the same thing indirectly, by repealing state grants necessary

139

for its continued existence.42

There was a second and more general reason why the
repeal of the grant of escheats was unconstitutional. The
court held that constitutional protections against legisla-
tive control of private property applied to university pro-
perty as well. It seemed "difficult," explained Locke, "to
conceive of a corporation established for merely private
purposes" because every corporation was established to promote
some public good. In many corporations, the members had
"a private interest coupled with the public object." The
prOperty of these corporations, as the property of individuals,
was not "subject to the arbitrary will of the Legislature.“
Similarly, even though the university trustees were "a cor-
poration established for public purposes," and had, indivi-
dually, "no private interest beyond the general good," still,
Locke declared, the legislature could not control university

property.43

 

42Trusteesof the University of North Carolina v.
Egy, l Murphey 58, 81-89 (Ct. of Conference 1805). Hereafter
Cited as {21. S. C., less fully reported, 2 Haywood 310,
374. For the "law of the land" provision, see Const. of
1776, Declaration of Rights, Art. 12, in Thorpe, ed.,
Constitutions, V, 2788. For a good discussion of Fey, see
Edward S. Corwin, "The Doctrine of Due Process of Law before
the Civil War," Harvard Law Review, XXIV (March, 1911),
381-384.

43Fo , l Murphey, 88-89. A year earlier, the Court
had held t at at the Revolution the title and possession
of individuals' lands in North Carolina "were irrevocably
fixed, . . . beyond the control of any future law which the
legislature . . . might thereafter enact: and a line was
then drawn between public and private property, never there-
after to be violated." Ra , Cameron and Norwood, 493-494.
For later cases in which t e North Carolina court struck down
legislative acts on similar grounds, see Allen v. Peden
(Sup. Ct. 1816), in Carolina Law Repository, II (March, 1816),

 

 

 

 

140
After the decision in Foy, the legislature restored

the escheats, and moved to establish a closer governmental
connection with the university. Henceforth, the Governor
would be ex officio President of the Board of Trustees.
In addition, if a university trustee failed to attend any
meeting for two years, the board was given the authority to
declare his seat vacant, and to request the legislature to
appoint a replacement. Otherwise, the university organi-
zation remained unchanged.44

Although there was no Justice from North Carolina on

the United States Supreme Court when the Dartmouth College

 

case was heard, the Court was informed of the Egy_decision
by Webster, who cited it in his argument.45 Marshall, who
rode circuit in North Carolina, may have learned of the
case from his personal and professional acquaintances in

Raleigh.

 

638 (special legislative act emancipating slaves against
wishes of legal owner "in violation of the fundamental law
of the 1and."); Robinson v. Barfield, 2 Murphey 390 (Sup.
Ct. 1818) (special legislative act validating an invalid deed
an unconstitutional exercise of judicial powers by the
legislature).

44Restoration of escheats, Act of Nov. Sess., 1805,
ch. IV, N. C. Laws (Gales), 2. Charter amendment, Act of
Nov. Sess., 1805, ch. VII, Ibid., 12-13. Both Gilpatrick,
Jeffersonian Democracy, 144, and Battle, University of North
Carolina, I, 150, say that the legislature assumed power
to fiII all vacancies on the board of trustees. This may
have become the practice by informal arrangement, but it
was not decreed by the act of 1805. As written, the act
took no powers from the board; it merely added a process
for replacing delinquent trustees.

45Webster's argument, Dartmouth College, 4 Wheaton,
575, 599.

 

 

 

 

141
By early 1819, the Supreme Court had enough essential

facts about most, and perhaps all, of the clashes between
governments and colleges to make a realistic assessment of
the American experience. Although the details varied from
state to state, there was a coherent pattern beneath the
superficial diversity. From the dates of their foundation,
it appeared, all colleges needed some legislative support

in the form of financial aid or statutory assistance. In
general, government cooperated with college authorities to
promote higher education. Occasionally, this COOPeration
broke down. College boards of trustees were attacked as
nefarious cabals conspiring to destroy political democracy,
to raise up an aristocracy, to banish the true religion,

or to establish a false one. Political leaders sought par-
tisan advantage with demands for legislative action to
"improve" or “reform" college organization. At the least,
colleges were thrown into the political limelight, and became
the subjects of extended controversies which everywhere had
an unsettling effect. At the most, where legislative inter-
vention was actually carried out, the result was severe
institutional disruption. Although political leaders and
factions often gained temporary advantages, history recorded
no significant permanent gains for higher education. As
Webster told the Court, it would be "dangerous" to allow
colleges to remain "subject to the rise and fall of popular
parties, and the fluctuations of political Opinions. . . .

[L]earned men will be deterred from devoting themselves

142

to the service of such institutions. . . . Colleges and
halls will be deserted by all the better spirits, and
become a theatre for the contention of parties."46

The Dartmouth College case was merely the latest in
the series, and essentially no different. The affair had
begun as a nasty but rather insignificant intramural quarrel
between President Wheelock and the college trustees. After
Wheelock had been ousted, he made common cause with the
Republican party against the predominantly Federalist trus-
tees. Amid erroneous charges of religious bigotry, political
conspiracy, and abuse of trust, the Republican legislature
attempted to seize control of the institution by increasing
the number of trustees, packing the new board, and creating
a new board of overseers. At the same time, the legislature
apprOpriated no funds to support the expanded administrative
apparatus or the new colleges and institutes which were also
to be created. By thus pursuing partisan advantage, the
New Hampshire legislature had immobilized and all but
destroyed a valuable educational institution.

This historical record of the relationship between
government and colleges, including the record of the rela-
tionship between New Hampshire and Dartmouth, placed the case
in perspective and helped to define the ultimate issue in
the case as political, whether, in Marshall's words, "educa-

tion" was “altogether in the hands of government." Equally

important, the historical record suggested the apprOpriate

 

46Ibid., 599.

143
resolution of the problem, and provided the ultimate policy

basis for the decision. The Court thus concluded that the
public welfare could best be served by withdrawing at least
some of the nation's colleges from "the influence of legis-
lative bodies, whose fluctuating policy, and repeated inter-
ferences, produced the most perplexing and injurious
embarrassments."47 The decision effectively fOreclosed,
as a constitutional matter, further legislative attacks
upon private colleges and laid the foundation for the more
extensive development of a sector of higher education which
was free from governmental control.

However, the Justices' belief in the desirability
of restricting legislative control of colleges was not the

sole factor leading to the Court's decision in the Dartmouth

 

College case. Sitting as a court, the Justices were required
at least to consider the applicable law in defining the
issues, rationalizing the decision, and limiting the scope

of the ruling. In the Dartmouth College case it was impossible

 

to rely upon the American law of charitable corporations
for the simple reason that there was no such law. There
were very few judicial decisions of any kind on charitable
corporations, and those which had been made were not directly
relevant. Both lawyers and judges were forced to turn to
English cases and treatises as a major source of law.

The college attorneys confidently rested their case

primarily on the English law. Webster's presentation before

 

47Marshall's opinion, Ibid., 634, 648.

144
the Supreme Court was the fullest refinement of the argument.

Essentially, Webster contended that Dartmouth College, properly

 

considered in light of applicable English law, was a property
case, that Dartmouth College itself was, under English law,
a private charitable corporation, that the trustees were
the only visitors, and that these propositions, taken to-
gether, compelled the conclusion that the New Hampshire
legislature could not constitutionally amend the college
charter.

Although Webster's argument was ingenious, a close
examination of the English precedents, summarized above,

in light of the facts and ultimate issues in the Dartmouth

 

College case, reveals many serious flaws. The "private
charitable corporation" was itself an antique legal category
in England by 1818. As noted, a number of cases after 1800
had rendered it obsolete, and the English no longer paid
much attention to it. Webster simply failed to explain
these cases.

Even if the private charitable corporation remained

a vital legal conception, its application to the Dartmouth

 

College case was questionable. The category as defined

by Holt in Philips v. Bury was procedural, based solely on

 

the royal courts' lack of jurisdiction to review corporate

decisions on internal affairs. The Dartmouth College case,

 

on the other hand, was not even remotely related to these
jurisdictional problems. It concerned instead a much
different question of substantive constitutional law,

whether the New Hampshire legislature could unilaterally

145
amend the charter of Dartmouth. Webster insisted by forceful

repetition that the English cases on procedure ought to
resolve American constitutional issues, but he never quite
explained why, in legal terms, procedural ought to control
substantive law.48
Finally, it is doubtful that Dartmouth College was,
as Webster contended, a fully private corporation. Since
Dartmouth was a unitary corporation, having trustees but
no separately appointed visitors, the college was squarely

within the exceptions to the "private corporation" category

which the English had developed since Eden v. Foster in

 

1725. In England, the college would be at least quasi-

public, subject to control by the Lord Chancellor exercising
the royal prerOgative. In America, where there was no official
to administer the royal prerogative, charitable corporations
were, according to a dictum by New York's Chancellor James
Kent, fully public, subject as all other corporations to

control by the common law courts.49 Whether abstracted from

 

48Webster persistently distorted the concept of
"visitatorial power" to make it include not only judicial
functions but all the governmental and administrative power
within the chaFiEable corporation. 4 Wheaton, 563-567 passim.,
596. Cf., Smith's argument, 65 N. H., 534-537 passim.,
548-549, 560. Apparently, this was an effort to inflate
the significance of the English cases by making it appear
that they meant to find a total corporate independence.

49Although Webster contended before the Supreme Court
that the trustees of Dartmouth were legally the visitors,
privately he had doubts on this point. Webster to Mason,
[Late April or Early May, 1818], in Webster, ed., Writings
of Webster, XVII, 311-312. Kent's Opinion, Attorney General
v. UtiEa Insurance Com an , 2 Johnson's Chancery Reports
371, 388-389 (I817). Cf., Fuller v. Plainfield Academic

School, 6 Conn. 532 (1827).

 

 

146
English law, or applied to the American context, Webster's

cases simply did not, in a technical sense, support his
argument.

Whatever the flaws in Webster's technical application
of the case law, there was another sense in which Webster
was correct. Although he never quite sprung himself loose
from technical detail, he was really presenting the court
a review of the broad English tradition of private adminis-
tration of charitable corporations. He correctly emphasized
that, legally, the property rights of the founder had been
~the original basis of corporate independence. And citing
the adverse reaction to James II's attack on Magdalen College,
Webster noted that privileges and immunities of members of
charitable corporations had been beyond the reach of the
Crown at least since 1688.50

Webster actually expanded this aspect of his argument
in the summer of 1818. It will be recalled that the English
had been debating the nature of charitable trusts in con-
junction with the controversy over Henry Brougham's prOposed
parliamentary investigation of charitable abuses. On August
16, Webster wrote Story that he had "been looking over a
file of English newspapers, in order to learn the proceedings
of Parliament, at its late session, on the subject of
redressing abuses in charities." Webster summarized what

he had found, noted that he was sending the neWSpapers along,

 

50
Webster's argument, Dartmouth College, 4 Wheaton,

 

563-564, 568-569, 571, 574, 584-587.

 

 

147
and included the following:

I think its [the Brougham Commission Bill's]
history shows, 1. That the English lawyers recog-
nize a difference between charities having visitors,
and such as have none. Indeed, I did not observe,
till lately, that the commissions, issued under
the statute of Elizabeth [Charitable Uses], do
not extend to charities with visitors. 2. I think
we may see that Parliament is not supposed to
have the power of new-modelling, and directing
to new uses, at its own pleasure, charitable funds,
arising from donations of individuals, ggd by
them subjected to the forum domesticum.

 

At the state court level, at least, the university
attorneys, Bartlett and Sullivan, were neither blinded nor
overwhelmed by their opponents' barrage of English precedent.
They correctly pointed out that the "visitatorial power,"
which lay at the base of the English "private charitable

corporation,‘ was only judicial in nature, and had no

direct relevance to the question before the court. Likewise,
the university attorneys saw that the Dartmouth trustees were
not made visitors by the charter. They contended that under
the rule of Eden v. Foster the trustees were not visitors

by operation of law. Sullivan stressed the absurdity of

making trustees the visitors of themselves.52 Unfortunately,

 

51Webster to Story, Aug. 16, 1818, in Webster, ed.,

Writings of webster, XVII, 286. Webster did not say which
1'newspaper'rhe was sending, but it was probably the Quarterly
Review, XIX (July, 1818), which contained the Tory Review

of "Reports of the Select Committee," 492-596. Excerpts

from this Review appeared in Farrar's Repgrt, App. No. IV,
395-396. It is not known whether Webster or others associated
with the college forces called the attention of other Supreme
Court Justices to this article.

52Sullivan's argument, Dartmouth Colle e, 65 N. H.,
518, 522. Bartlett's argument, Ibid., 581. In his Opinion
for the New Hampshire court, Richardson denied that the
Dartmouth trustees were visitors. 1 N. H., 121.

 

148
these points were not made at all by Wirt and Holmes before

the federal Supreme Court. Had the latter two attorneys
been prepared, they might have taken some force out of
Webster's argument, so far as it depended upon a strict
reading of British case law.

Marshall's Opinion for the Supreme Court was based
in part on the English law of charitable corporations as
expounded by Webster, but the Chief Justice declined to
follow the attorney's lead into a detailed examination
of English precedents. Marshall seemed to read the English
law as a whole, as a valuable record of human experience
which provided general legal conceptions which were the
starting point of analysis. Thus, he accepted the basic
argument that the founders of Dartmouth had legally enforceable
property rights which were involved in the case, and that
historically this type of property right had been the basis
of the considerable independence Of charitable corporations
in the common law system. Similarly, Marshall thought that
the prOperty-related policy reasons which were used to justify
the English system might apply equally to America. If wealthy
men were allowed to control the ultimate disposition of their
charitable gifts, then they would be encouraged to make
socially useful benefactions. Conversely, if every charitable
gift was merely a gift to the public or to the legislature,
then wealthy men would be deterred from founding charitable
enterprises, and social needs served by private charity

would go unsatisfied. While relying on these general legal

149

and policy bases derived from the English law, however,
the Chief Justice refused to apply the elaborate technical
rules of the English system to the case at hand. He thus
did not even mention the visitatorial power, or develop
the idea that Dartmouth was, under English law, a private
corporation for jurisdictional purposes.53
It is difficult to know how much weight either Marshall
or the rest of the Court gave the policy argument that
allowing wealthy men substantial and continuing control
over their charitable donations would encourage the founding
of charitable enterprises in America. There was at least
one reason why Marshall, the Court, and most Americans might
find the argument mildly persuasive. They all shared the
general assumption, at once derived from and supportive of
the American system of political economy, that the public
good was best served by allowing the individual a large
amount of freedom to control his own property. It appears
that Marshall linked this general American assumption in
favor of private control of prOperty with the originally
British idea concerning the best way to promote charitable
giving in order to form a prOperty-related rationale for

the Dartmouth COllege decision.

 

However, the argument itself will not bear close

 

53Marshall's Opinion, Dartmouth College, 4 Wheaton,
630 ff. Webster wrote that MarshallTs opiniOn "was in his
own peculiar way. He reasoned along from step to step;
and, not referring to the cases, ad0pted the principles
of them, and worked the whole into a close, connected, and
very able argument." Webster to Mason, Feb. 4, 1819, in
Webster, ed., Writings of Webster, XVI, 44.

 

150

examination. Americans had had long experience with charity
by 1819, but there was no Objective evidence one way or

the other as to which public policy would encourage and
which would discourage the creation of charitable foundations.
Allowing individuals a perpetual prOperty right in their
donations would not necessarily substantially increase the
founding of charitable enterprises in the United States.

In England, the existence of a relatively large upper class
with great wealth and a sense of separation from the mass

of Englishmen may have made their policy apprOpriate and
successful. In America, however, there were very few men

of great wealth, so even if the assumption were correct,

the number of charitable enterprises founded by individuals
as a result of the Court's decision would be very small,

and the effect on society at large would be marginal. On

the other hand, allowing the legislature a constitutional
discretion to control charitable enterprises would not
necessarily reduce the number of new foundations. The
personal, humanitarian, and religious motives inspiring

gifts to charity are very strong, and are therefore unlikely
to be totally defeated by the presence of a mere possibility
of future legislation concerning a particular foundation.
Similarly, there is little justification for Marshall's
apparent assumption that private foundations filled important
social needs that would necessarily go unmet in their absence.
If the public need was great enough, either the state or

voluntary associations could perform the needed services.

151

From society's point of view, the choice was not between
something and nothing, as Marshall implied, but between
alternative means of accomplishing the same results.
Furthermore, there is good evidence that neither
Marshall nor the Court thought that promoting charitable
giving was itself of critical importance. The same term

in which the Court decided Dartmouth College, it determined

 

in Trustees of the Philadelphia Baptist Association v.

Hart's Executors, a diversity suit, that the federal court

 

had no jurisdiction in equity to enforce a charitable bequest
where at the date of death there were no persons in existence
legally capable of taking the bequest and where the objects
of the bequest were indefinite. While there were some

considerations of federalism present in Baptist Association,

 

these were not insurmountable, as the Court discovered in
1844 when it effectively overruled the case. Rather, the

main theory and effect of the Baptist Association ruling

 

was to refuse court enforcement of a wide variety of tes-

54 The Court simply could

tamentary bequests to charity.
not have reached this decision had it truly believed that

public policy demanded the promotion of charitable giving,

 

54Trustees of the Philadelphia Baptist Association v.
Hart's Executors, 4 Wheaton 1 (1819). Baptist AssociatiOn
was nominally distinguished but effectively overruled By
Vidal v. Girard's Executors, 2 Howard 127 (1844). See,
generally, Howard S. Miller, The Legal Foundations of
American Philanthropy, 1776-1844)(Madison, WiSc.: State
Historical Society of Wisconsin, 1961), and Irvin G. Wyllie,
"The Search for an American Law of Charity, 1776-1844,"
Mississippi Valley Historical Review, XLVI (Sept., 1959),
203-221.

 

 

 

 

 

 

152
and that the prOperty rights of donors to charity had

significant constitutional implications.
Both the quality of the argument and the decision

in Baptist Association indicate that the Supreme Court was

 

not persuaded that public policy required the encouragement
of charitable giving, or that allowing individuals a per-
petual property right in their donations was necessary to
effectuate that policy. Rather, Marshall used the argument
because it tapped the general American prejudice in favor

of private property and because it offered some justification
for his focus on property as the Operative legal element in

Dartmouth College.

 

In contrast to the Chief Justice, Story examined the
English law of charitable corporations at great length,
attempting to show that the English precedents required a
decision for Dartmouth College. Taking his cue from Webster,
Story distorted the English law in order to find that Dart-
mouth was fully private, and failed to say why procedural
should control substantive law. Moreover, he showed a com-
plete lack of respect for discreet English legal categories.
For example, Story's contention that the Crown could "not
force upon a private corporation a new charter" was correct
as far as it went, but he used English cases concerning
municipal corporations (which he defined elsewhere as public)

to support his point.55 Story ignored the obvious fact that

 

55Story's opinion, Dartmouth College, 4 Wheaton, 668,

 

707.

153

he was dealing with a general restriction on the power of
the Crown, not anything peculiar to English private corpora-
tions. In addition, the Justice defined "private corporation"
to include business as well as charitable corporations,
something the English had never done, and then used English
cases indiscriminately to support his wide-ranging analysis.
The ultimate result of Story's manipulation of legal language
and citations was a new and previously unknown pattern of
"English" law, a pattern which was, however, suited to his
own views.

(Nerall, Bushrod Washington's Opinion fell somewhere
in between the opinions of his two colleagues. On crucial
doctrinal points he was much closer to Marshall than to Story,
emphasizing private property and private foundation as the

determinative elements in the Dartmouth College decision.

 

On the other hand, he cited a few English cases, such as
Philips v. Bury, and apparently agreed with Story and Webster
that they were applicable to the case at hand. Washington's
warning against the assumption that there was "any implied
decision . . . of any other case, than the one immediately
before" the Court56 was notice to Virginia that the Bracken
decisions, to the effect that William and Mary was a public
corporation, were not being overruled by implication.
Whatever the differences among the members of the Court

over the content of the English law and its relevance to

 

56Washington's Opinion, Dartmouth College, 4 Wheaton,

 

659.

154
Dartmouth College, the five majority Justices united in

accepting Webster's basic contention that the case could

be treated for legal and constitutional purposes as involving
legislative interference with the property rights of founders.
In Marshall's Opinion for the Court, and Washington's con-
curring Opinion, at least, the political issues which lay

at the heart of the case and which could be resolved directly

only by a broad assessment of the American experience were

-r~'t'.'-J-9—n.

subordinated to a canvass of the property issue. This did
not, of course, affect the Court's final decision, since
careful analysis of both the political and the property issue
suggested the same result.

Focusing on the property aspect of the Dartmouth College

 

case was in part a tactical maneuver by the Court designed
to make the decision appear less radical than it really was
and to minimize possible adverse public reaction to the
decision. Since there was a widespread (if not universal)
acceptance of the idea that governmental authorities could
not legitimately infringe rights of private property, the
Court could without substantial political danger strike
down New Hampshire's charter amendment as a constitutional
defense of property rights. In addition to aligning itself
with general American attitudes concerning private property,
the Court, as indicated, could appear to be advancing the
ultimate public good by ad0pting the English rationale that
allowing individuals a continuing property right in their

charitable donations would encourage the foundation of

155

charitable enterprises. On the other hand apart from
prOperty, there was nothing in the federal constitution
itself and no broadly developed law of civil liberties
which appeared to require the freedom of educational
institutions from governmental control. Unless the Court
was willing to provoke a hostile public reaction by making
truly radical departures in the law while drastically extending
its power and modifying its nominally limited role in the
federal system, it could not strike down New Hampshire's
charter amendment simply on the grounds of protecting an
abstract liberty of educational institutions. Fortunately,
Webster's contention that there was a property element in
the Dartmouth College case was technically correct, historically
and legally, so the Court could legitimately focus on property
without violating current legal theory or prevailing public
attitudes.

The decision of a majority to base their opinions on
the prOperty element was also closely related to the resolu-
tion of another issue in the case, the reach of the contracts
clause. Technically, Dartmouth College was before the
Court on a writ of error to determine whether New Hampshire's
charter amendment violated the contract clause of the federal
constitution, and a judgment for the college would require
a finding that the charter was a constitutionally protected
contract. Earlier cases had held that public contracts

involving property rights were within the meaning of the

156
7
clause,5 and all five of the majority Justices agreed that

the Dartmouth charter, representing an agreement with the

Crown and state for the disposition of the founders' prOperty,
was a contract in this sense. However, at least two Justices,
Story and Livingston, raised the question of whether the
contracts clause might extend to governmental contracts and
grants which did not concern property rights in the traditional
sense. At issue was not only the legal grounds for the

Dartmouth College decision, but also whether the contracts

 

clause would be broadly construed as a general restriction
on the power of state governments to regulate domestic
institutions.

The issue of the reach of the contracts clause was
originally posed by New Hampshire's Chief Justice Richardson
in his Dartmouth College Opinion. He admitted that the con-
tracts clause protected "all contracts relating to private
property, whether executed or executory, and whether between
individuals, between states, or between states and individuals."
He insisted, however, that the word "'contracts' must be
taken in its common and ordinary acceptation, as an actual
agreement between parties, by which something is granted or

stipulated, immediately for the benefit of the actual parties."

 

57Fletcher v. Peck, 6 Cranch 87 (1810) (state's grant
of land to individuals for a valuable consideration is a
contract within the constitution.) Hereafter cited as Fletcher.
New Jersey v. Wilson, 7 Cranch 164 (1812) (treaty between
a colony and Indians that Indian land would forever be tax
exempt is a contract within the constitution.) Hereafter
cited as Wilson. These and other earlier cases are discussed
infra, ch. VII.

 

 

157
Thus, the contracts clause would not protect "grants of

power and authority, by a state to individuals, to be
exercised for purposes merely public." And equally important,
the contracts clause would not protect contracts which were
"mere matters of civil institution."58
Richardson's construction of the contracts clause was
not extensively argued by the attorneys before the United
States Supreme Court. Webster tacitly accepted Richardson's
general prOpositions, but argued that Dartmouth was a private
corporation, and this its charter necessarily involved a
bargain over valuable privileges and property. Holmes and
Wirt merely repeated Richardson's contention that Dartmouth
was a public institution.59
Among the Justices, Story, with whom Livingston ex-
pressed agreement, was the most eager to overturn Richardson's
construction of the contracts clause. Although Story care-
fully excepted grants of political power or authority to
public officers, he thought that the contracts clause protected
other types of governmental grants of "authority," even
though the grants did not involve economically valuable
privileges or prOperty. Furthermore, the Justice denied that

any bargain had to be made between the government and the

grantees of either authority or prOperty in order to create

 

58Richardson's Opinion, Dartmouth College, 1 N. H.,
132-133.

59Webster's argument, Dartmouth Colle e, 4 Wheaton,
589-596. Holmes's argument, Ibid., 603-604. Wirt's argu-
ment, Ibid., 608-610.

 

158
a constitutionally protected public contract. In the language

of the law, he contended that the grantees had to give no
"consideration" whatever for their grant. Thus, even pub-
licly founded corporations, such as colleges and hospitals,
which had received corporate franchises and public endowments,
would be protected by the contracts clause just as the
privately founded Dartmouth.60
On balance, Story's broad interpretation of the con-
tracts clause was as excessive as his treatment of the English
law of charitable corporations. By defining nearly all
governmental grants as executed contracts, the Justice went
far beyond the usual understanding of contract which, as
Richardson had noted and even Webster had agreed, was rooted
in bargain and mutual agreement between parties. Further-
more, in the past the Supreme Court had confined the use of
the contracts clause to those cases involving prOperty rights.
The extension of the clause to restrict legislative control
over grants of authority would have been a sharp break with

this line of decisions. Had Story's views been adOpted, the

contracts clause might have become an open-ended warrant for

 

GOStory's opinion, Ibid., 668-669, 684, 690, 694,
696-700. In line with this argument, Story placed a new
emphasis on the "entity theory" of corporations: a charter
was a contract between the state and the corporation itself,
as distinguished from the corporate founders and members,
so that the corporation held property and had rights apart
from its members. Ibid., 690-693. However, when dealing
with the Specific problems raised by the Dartmouth College
case, Story relied upon the "associational theory" in finding
a contract between the Crown and "every benefactor" of the
college. Ibid., 689. Thus Story did not eliminate the
associational element in corporate organization as Dunne
contends. Story, 181-182.

 

 

 

159
the Supreme Court to strike down virtually any legislative

action which disturbed an existing state of affairs.

It is not difficult to determine why Story took such
an advanced position. On one level, as indicated above,
the Justice wished to provide constitutional protection for
publicly founded Harvard College, and, more directly, for
his own position on Harvard's Board of Overseers. Similarly,
Story was a charter member of the Massachusetts General
Hospital, a publicly founded charitable institution which
had been incorporated in 1811. Unless the contracts clause
were extended to cover institutions not founded with private
funds, both Harvard and the General Hospital would remain
as vulnerable to legislative attack as before the Dartmouth
College decision. In a broader sense, however, Story was
fearful of what future political deve10pments might bring.
In March, 1818, a few days after the close of the argument
in the Dartmouth College case, Story expressed his anxiety
to an old acquaintance:

[A] new race of men is springing up to govern

the nation; they are the hunters after popularity,

men ambitious, not of the honor, so much as of

the profits of office, -- the demagogues whose

principles hang laxly upon them, and who follow

not so much what is right, as what leads to a

temporary vulgar applause. There is great, very

great danger that these men . . . will rule the

nation; and if so, we may yet live to see many
of our best institutions crumble in the dust. 1

 

61Charter of Massachusetts General Hospital, Act of

Feb. 25, 1811, Jan. Sess., 1811, ch. XCIV, Mass. Laws (Adams,
Rhoades and Co.), 339-342. The charter created a corporation
to be managed by a small board of trustees and to be super-
intended by a board of visitors composed of governmental
officers. The legislature made a conditional grant of

 

 

 

160
A man so deeply disturbed by the currents of democracy

which flowed afterthe War of 1812 would understandably
want to restrict legislative power as much as possible.
Marshall, in his opinion for the Court, emphatically
rejected Story's interpretation of the contracts clause.
"Taken in its broad, unlimited sense," wrote Marshall,
"the clause would be an unprofitable and vexatious
interference with the internal concerns of a state,
would unnecessarily and unwisely embarrass its legislation,
and render immutable those civil institutions, which . . .
ought to vary with varying circumstances." The contracts
clause, held Marshall, was intended only "to restrain the
legislature . . . from violating the right to property."
Synthesizing the principles of traditional contract law with
general principles derived from the English law of charitable
corporations, the Chief Justice went on to conclude, as
noted, that the Dartmouth charter was a contract within the
constitutional prohibition because it concerned the donation

of funds to the college in consideration for the perpetual

 

property worth about $20,000, and reserved a power to alter,
amend, or repeal the charter. An Act Of June 14, 1813,

May Sess., 1813, ch. XLII, Ibid., 266-267, repealed the
reservation clause, restricted the superintending authority
of the board of visitors and otherwise limited governmental
control of the institution. In December, 1816, Story was
appointed by the trustees to a committee for the town of
Salem to raise private subscriptions to get the Hospital
under way. See N. I. Bowditch, A History of the Massachusetts
General Hospital (Not Published. Printed by John Wilson
and Son, 1851), 3-9, 13, 14, 24, 400. The quoted letter:
Story to Ezekiel Bacon, March 12, 1818, in Story, ed., Life

of Story, I, 311.

161
application of the property according to the charter provisions.

62
The suitably narrow construction of the contracts clause

thus fit nicely with the emphasis on the founders' prOperty

rights as the determinative element in the case, and gave

the whole Opinion an aspect of comfortable moderation.

On the question of the reach of the contracts clause,
Washington's Opinion was substantially the same as that of
Marshall. Washington confined his discussion largely to
the problems at hand, employing the standard approach to
contracts, and emphasizing theelement of private property.63

If the above interpretation of the opinions in the
Dartmouth College case on the subject of contracts is correct,
Marshall's opinion for the Court represented the true Opinion
of only two of the seven Justices, Marshall and Johnson,
with Washington so close as to be in virtual concurrence.

The Chief Justice's Opinion must have become the "Opinion

of the Court" through a compromise which brought the trio
another vote in order to form the required majority. The
Opinion itself, however, cannot be labelled a compromise
between a narrow and a broad construction, because Marshall's
was the narrowest possible interpretation consistent with

a decision for the college. If there was any compromise

it was by Livingston, who is listed as concurring with all

three written Opinions in the case. Having failed to

 

62Marshall's Opinion, Dartmouth College, 4 Wheaton,
628, 642-644.

63Washington's opinion, Ibid., 656-659.

162
persuade two other Justices to adopt the enlarged view held

by himself and Story, Livingston voted with Marshall, Johnson,
and Washington in order to avoid an unsettling three-two
split on the important constitutional question of the extent
of the contracts clause.

In summary, Dartmouth College had both a political

 

and a property dimension. The primary issue was political,

stated generally, whether state government could control

all educational institutions. Even a casual review of

the American record of governmental relations with colleges

showed uniformly bad results where legislatures were free

to control institutions of higher education. During the

late colonial, Confederation, and early national periods,

most American colleges had been the subject of extended

public controversy or of direct political attack. If par-

tisan factions had gained temporary advantages from their

assaults, neither government nor education had made any

demonstrable gains in the long run, and many institutions,

including Dartmouth, had been seriously damaged. An objective

consideration of the American experience, then, led to the

conclusion that the Court ought to secure the freedom of

colleges such as Dartmouth from further governmental attack.
Because of its role as a law court and its position

in the American constitutional system, the Supreme Court

was expected to ground its decisions in the constitutional

text and received law, and a mere recitation of policy reasons

justifying a particular result was wholly insufficient.

. 163
Unfortunately, there was neither a developed law of civil

liberties nor a specific constitutional provision applicable
to the states which reached the political essence of the
Dartmouth College case. Story's suggested interpretation

of the contracts clause as reaching all governmental grants
except those to public officials and subdivisions was

merely a transparent rejection of traditional ideas of
contract and of the contracts clause, and thus could not pass
for valid legal analysis.

There was a second aspect of the Dartmouth College

 

case, however, one which did sound in the traditional law

of prOperty and contract. AdOpting Webster's basic arguments
along these lines, the Court identified the prOperty rights
of Dartmouth's founders as the determinative legal element,
in the case. The founders had made a contract with the
Crown for the perpetual disposition of their funds, a
contract embodied in the corporate charter. New Hampshire's
charter amendment, substituting a new system of college
government for that originally agreed to, was an unconsti-
tutional impairment of the obligation of the contract.

These propositions were loosely reinforced by generalized
appeals to the sanctity of contracts and by an argument,
uncritically borrowed from the English, that securing donors'
prOperty rights would encourage the foundation of charitable
enterprises. By thus focusing on property law, the Court
nominally preserved its limited role in the American constitu-

tional system, and made its decision acceptable to the American

164
pe0ple.

As private property and the charter-contract were the
stated bases of the decision, so they defined the limits
of the Dartmouth College doctrine, at least initially.
It was certainly clear that the doctrine would provide
constitutional protection from governmental interference
to fully private educational institutions. Measured by the
key elements of Marshall's Opinion, fully private institutions
were those which had been privately founded, which had no
orgainic relation with government, and which were not made
subject to direct legislative control by the express terms
of their charters. On the other hand, at least three and
possibly four major categories of incorporated schools
remained subject to a significant degree of legislative
control. First, although Marshall did not mention reser-
vation clauses in his Opinion, it seems that a legislature
could expressly reserve the power to alter, amend, or repeal
the charter of a privately founded school. The Chief Justice
did not suggest that private donors could not found insti-
tutions subject to legislative control, nor did he declare
that a legislature could not insist upon an effective
reservation clause as a condition for granting a charter.
Rather, the burden of Marshall's Opinion was that the
express terms of the charter controlled, even though they
were not entirely favorable to the corporation. Second,
publicly founded institutions remained subject to legis-

lative direction, even though they had self-perpetuating

165
boards of trustees and no functional connection with the

government. It could be argued, as Brockholst Livingston
may have done on the basis of his experience at Columbia,
that such an institution was in reality no different from
Dartmouth, especially where the legislature gave no regular
financial support. Nonetheless, the majority of the Court
finally held that since the contracts clause extended only
to matters of prOperty, the source of the endowment at the
time the charter was granted was the legally operative
element. Third, state universities which were founded and
supported by legislatures and which had an organic connection
with government were obviously beyond the reach of the
contracts clause. Finally, and most ambiguously, unendowed
incorporated institutions which existed solely on fees paid
by their students may or may not have been intended to be

covered by the Dartmouth College decision. The absence

 

of an endowment meant that there was no property on which
to base a constitutionally protected contract. On the
other hand, where the school had been organized by the
teachers themselves, it could be said that they had a
beneficial interest in the charter, and the legislature
certainly had no direct basis of concern in the absence
of a public foundation or a reservation clause.

The Dartmouth College doctrine had important implica—
tions for American higher education. Most immediately,
of course, the decision created a small constitutionally

protected private sector which would take its place beside

166
a much larger public sector. If anything, the implications

for the future were even more significant. The Court had
rejected suggestions that the system of education be either
virtually all public or all private. Instead, the Court
created a dual system in which a number of possibilities
would be available to the peOple and state governments.

On the one hand, a legislature could found or control through
the exercise of reservation clauses all or any part of

the educational institutions chartered within the state

after 1819. On the other hand, with legislative approval,
individuals and groups could create educational institutions
effectively free from state interference and direct political
control. Precisely because it allowed such a wide variation,
this constitutional system was neatly adapted to the fluid,
decentralized, democratic society of the early nineteenth

century.

IV

BUSINESS CORPORATIONS:

THE POLITICAL ECONOMY OF MASSACHUSETTS

Business corporations1 have a curious relationship

to the Dartmouth College decision. Although the Court's

 

decision applied most immediately to privately founded
charitable corporations, the terms and rationale of Marshall's
Opinion clearly encompassed business corporations by empha-
sizing private property and the constitutionally protected
contract which arose when individuals consigned their funds
to corporations in reliance on the state's charter.

Most important in the present context is the rela-
tionship between the whole problem of business corporations
and the processes by which the Supreme Court reached the

Dartmouth College decision. Discounting as indefensible

 

1The term "business corporation" is used to mean
a corporation created primarily for the purpose of making
money for its owners. A corporation might profit its owners
either directly through operations which generate a dividend
or indirectly through the provision of some service or other
economic advantage, or both. Thus, even a chartered bridge
which could not collect toll might be a business corporation
if it was created to improve the commercial value of lands
owned by the corporation's sponsors. Incorporated towns and
counties provided some services which were economically
advantageous, but they were not incorporated primarily to
make money for individuals, nor were they in any sense owned
by individuals.

167

 

168
the idea that the Supreme Court gave no thought whatsoever

to business corporations in reaching its decision, there
are essentially two possibilities. First, it might be
argued that however concerned the Court was with establishing
the political independence of charitable institutions, it
was even more concerned with establishing the constitutional
independence of business corporations from state legislatures.
With the latter purpose primarily in mind, the argument
goes, the Court ruled for Dartmouth College, and framed its
opinion in terms of prOperty and contract so there could
be little doubt that the decision would protect business
corporations from rapacious state legislatures. While there
is circumstantial evidence to provide a basis for these
inferences, there is little direct evidence in the Justices'
Opinions to support this conclusion.

Available evidence strongly supports an alternative
interpretation. As a matter of practice in nearly all states,

and a matter of law in some, when the Dartmouth College

 

case arose business corporations were already effectively
free from all direct legislative controls except for the
regulatory authority specifically reserved in charters.
Close examination of both the content and structure of the
Justices' Opinions in light of their personal experiences

indicates that they simply assumed an existing independence

 

of business corporations, an independence supportable in
law in terms of private property and contract, and justifiable

in policy by the need to attract private wealth into socially

169
useful projects. Implicitly drawing an analogy, the Court

held that privately founded charitable institutions, at
least, would in the future be as independent as business
corporations had been in the past, for basically the same
legal and policy reasons. The Dartmouth College decision,
then, changed virtually nothing in the actual Operation
of the political economy of business corporations, but
extended the essential features of the system into a new
area, charitable corporations.

This latter interpretation of the Dartmouth College

 

decision rests in the first instance on the prOposition
that business corporations were functionally independent

of governmental control, apart from special charter provi-
sions, before 1819. It is the purpose of this and the
following two chapters to examine several important aSpects
of the delepment of the American system of political
economy from 1780 to 1819 to determine the extent to which
business corporations had become legally and practically
free from legislative direction by 1819, and the reasons
why the system evolved as it did. The present chapter
traces the eonomic, political, and legal aspects of the
deve10pment of business corporations in Massachusetts.
Chapter V examines the Virginian political economy, and
shifts the focus somewhat to consider Chief Justice Marshall's
relation to his home state. Chapter VI is a general survey
of the political economies of other states.

The broadest and most influential modern analysis

170
of the pre-1820 development of the American business cor-

poration and of the relationship of this deve10pment to the

Dartmouth College decision, has been by Oscar and Mary

 

Handlin in Commonwealth: A Study of the Role of Government

 

in the American Economy: Massachusetts, 1774-1861, originally
published in 1947, and recently re-issued in a slightly
revised edition. The Handlins presented their book as a
record of the "large body of ideas, unformalized preconcep-
tions, that embodied peoples' notions of the kind of world
in which they lived and the kind of world in which they
wanted to live.“ If it were merely an intellectual history,
there would be little occasion to discuss it here. However,
Commonwealth is, in addition to being an intellectual
history, an insitutional history, a challenging and complex
interpretation of the constitutional and legal development
of the political economy of Massachusetts.2

According to the Handlins, the Massachusetts government
created by the constitution of 1780 was an "absolute sover-
eighnty," theoretically and actually "omnipotent." The
legislature "drew freely upon the normal legislative power,

a power to which it recognized no limits but those set by

 

2Oscar Handlin and Mary Flug Handlin, Commonwealth:
A Study of the Role of Government in the American Economy:
Massachusetts, 1774- -1861 (rev. ed.; Cambridge: Belknap
Press of Harvard University Press, 1969), xv, xvi. Here-
after cited as Commonwealth. Preliminary findings were
published in articles. See, generally, Oscar Handlin and
Mary Flug Handlin, "Origins of the American Business Cor-
poration," Journal of Economic History, V (May, 1945), l- -23,
and Oscar Handlin, 11Laissez- Faire Thought in Massachusetts,
1790-1880," Ibid., III (Supplement; Dec., 1943), 55- 65.

 

 

 

 

 

171
feasibility and utility." This absolutely sovereign,

omnipotent state was a "commonwealth," a moral entity "with
an identity and interests of its own, apart from those of
the groups within it." One of the major activities of the
commonwealth was the promotion of economic growth through
various types of state action. The corporation soon became
the legislature's primary "instrument for the realization
of restless ambitions" in the economic sphere. All corpo-
rations were agencies of the state, chartered with privileges
and political power to fulfill some social function deemed
worthy of advancement by the legislature. Corporations
were subject to complete governmental control, which included
summary dissolution, at all times.3 1
Various pressures generated within Massachusetts
politics resulted in moving the government from the old
system of "mercantilism" towards a new political economy of
"liberalism." The process was underway by 1800 and perhaps
half completed by 1820. The effective power of the "common-
wealth" idea declined. In a society in which nearly all
people held and highly valued property, the idea that there
were property rights which the state could not infringe gained
wide acceptance. People began to appeal to the courts for
protection against legislative action which adversely affected
their economic interests, citing provisions in the Bill of

Rights designed to protect private property from attack.

 

3Handlin and Handlin, Commonwealth, 29, 51-52, 56,
61, 64, 92, 94-97, 151-153; 1'Origins of the American Business
Corporation," 17-22, and esp. 22.

 

172

With regard to specific problems which arose as a result

of the growth in the numbers and power of corporations,
litigants urged "novel distinctions" in order to persuade

the courts to restrict legislative power either to aid or

to regulate business corporations. In a series of decisions
on these problems after 1800, the Massachusetts courts
"gradually undermined and transformed the law" of corporations
as it had existed in the early days of the commonwealth.

They began to develOp a legal distinction between "public"
corporations which remained subject to full governmental
control and "private" (usually business) corporations which
were in many respects shielded from legislative interference.
Although this distinction was analytically unsound and had
been develOped in response to no informed idea of enlightened
public policy, it was reOOgnized by the United States

Supreme Court in the non-constitutional case of Terrett v.

 

Taylor (1815) and finally given constitutional significance

in the Dartmouth College decision.4

 

To the extent that Commonwealth represents a substan-

 

tive interpretation of institutional deve10pments, instead
of an assortment of reactions of Massachusetts citizens to
the events of their time, the Handlins' thesis is flawed.
There is very little evidence to support and much evidence
cited by the Handlins themselves to refute the conclusion

that the state of Massachusetts was ever a moral entity

 

4Handlin and Handlin, Commonwealth, 21-22, 25, 134,
136-140, 142-143, 147, 153-160, 243.

 

173

with interests of its own apart from the people, omnipotent,
with no limits on its power but expediency. This dis-

tant anecedent of the federal New Deal simply never existed.
Similarly, the legal deve10pment Of the business corporation
was not as the Handlins contend, from the public agency
completely at the mercy of the state to a private economic
institution rather arbitrarily protected from legislative
attack by the courts. The deve10pment proceeded along
different lines.

This dissertation starts from a more traditional
analysis of early American constitutionalism. The Massa-
chusetts constitution of 1780 established the institutional
outlines of the new government, and assigned sufficient powers
to ensure effective, positive government which could advance
the public interest. At the same time, in order to be sure
that the new government did not become tyrannical in the manner
of the English government of George III, the peOple insisted
not only on wide-spread access to power through the political
system, but also on limitations on governmental power in
the form of a Bill of Rights. Because constitutional

government was experimental, and because the times were

 

5Robert A. Lively, "The American System: A Review
Article," Business History Review, XXIX (March, 1955), 82-
84, has stated that the Handlins' "hypotheses . . . out-
reached their evidence" with regard to the contribution
state promotions actually made to economic growth. The
Handlins replied that they were not attempting "to measure
the actual effect of legislation on economic deve10pment."
Commonwealth, xiv. This dissertation concentrates on insti-
tutional aspects of the Handlins' study, and reaches a
general conclusion similar to Lively's.

174
highly uncertain, both the constitution itself and the Bill

of Rights were general and ambiguous. Operational details
of all branches of government as well as more precise
constitutional limitations would be worked out in the decades
following 1780.6

The deve10pment of the political economy, including
such major institutions as the business corporation, took
place within this general framework. Although the peOple
of Massachusetts were familiar with educational, religious,
and governmental corporations, before 1780 they had little
experience with the corporation as a strictly economic
organization. The business corporation was thus frankly
experimental at first, and could be perfected as an economic
and legal institution only through the acquisition of
experience. As with constitutional government in general,
so with the deve10pment of the business corporation in
particular. The historical movement was from ambiguity and
experimentalism in the 1780's toward definition and routine
after the turn of the nineteenth century.

The first significant Massachusetts institution which
resembled the business corporation, and which had an impor-
tant relation to later deve10pments, was the organized

common field, which originated in the colonial period.

A common field was technically owned by a number of individuals

 

6Cf., Oscar Handlin and Mary Handlin, eds., The Popular
Sources of Political Authority: Documents on the Massachu-
setts Constitution of 1780 (Cambridge: Belknap Press of
Harvard University Press, 1966), 22, 28, 324, 325, 350, 375.

 

 

 

 

175

as tenants in common, and Operated as a unit for a variety
of purposes. Undivided land provided pasturage for live-
stock, as well as timber, stone, grass, and earth, with

each prOprietor's share being proportionate to the size of
his interest in the field. Divided land was sometimes cul-
tivated "in severalty," that is, by each owner acting inde-
pendently of his neighbor, but then pastured in common after
the crOps were in. Similarly, marshland or land bordering
ponds was often divided, but required common management to
yield maximum benefits to the owners. Despite significant
variations in details of ownership, t0pographical features
and economic function, all these fields had similar problems
of apportioning benefits and, more difficult in an agricul-
tural economy where labor and cash were scarce, of allotting
costs. Improving the land, draining, clearing, the main-
tenance of fences, the defense of legal title, suits involving
stray or interloping livestock, further division and sale

of undivided land, all these and more required co-Operative
effort if the fields were to be beneficial to their owners.
The difficulties which naturally develOped among the actual
users of common fields were complicated when land speculation
and absentee ownership became widespread and created strains

between resident and non-resident proprietors.

 

7On the colonial deve10pment of the organized prOpri-
etors of common fields, see, generally, Roy H. Akagi, The.
Town Proprietors of the New England Colonies: A Study of
Theirgevelooment, Organization, Activities and Controversies,
1320-1770 (Philadelphia: University of Pennsylvania Press,
1924), and esp. on the economic functions of common fields,

 

 

 

 

 

176

In the colonial period, from 1692 on, Massachusetts
developed legal institutions to permit the common fields
to function effectively as economic units. In 1784 and 1786,
various colonial acts were consolidated into general statutes.
Any two prOprietors could force the rest to organize simply
by applying to a justice of the peace for a warrant to call
a business meeting. The majority of those present could make
rules and regulations, assess the prOprietors to meet expenses,
sell land, and conduct other business related to the operation
of the field. Proprietors, furthermore, could sue and be
sued as a unit. Although the statutes did not Specifically
mention incorporation, Massachusetts' Attorney General
James Sullivan referred to the prOprietors' organizations
as "a new species of corporations, with new organs of action,
and under a new mode of existence," different from the
eleemosynary, religious, and governmental corporations so
common in Massachusetts. The prOprietors remained a quasi-
corporation, however, because individuals held title directly
to the property involved; in a real corporation, the cor-

porate entity owned the property, and individuals owned

 

48-49, 103-104, 109-111, 138, 141, 175, 189, 190, 209.
Hereafter cited as Town Proprietors. For the relationship

of land policy to the deve10pment of a particular town, see
Kenneth A. Lockridge, A New England Town: The First Hundred
Years: Dedham, Massachusetts, 1636-1736 (New York: W. W.
Norton & Company, Inc., 1970), 8, 9, 16-17, 40, 71, 80, 136-
137, 148. The legal status and attributes of the common
fields in the early statehood period are described by James
Sullivan, The History of Land Titles in Maesachusetts (Boston:
I. Thomas and E. T. Andrews, 1801), 116-117, 122-123, 171-173,
175-177, 196-197, 249-252, 299-301. Hereafter cited as

Land Titles. See Handlin and Handlin, Commonwealth, 90-94,
96, 107, 131, 138-142, 151, 156, 217, 236.

 

 

 

 

 

 

 

177
shares in the corporation.8

In granting legal authority to organize common fields
into functioning economic units, the legislature was extremely
careful to balance conflicting interests. If, in the name
of property rights, individuals were given an absolute veto
on the acts of the majority, most prOprietors' organizations
would come to a halt. Thus, the majority was given ample
authority to enforce its decisions. It could levy fines
for the breaking of rules. If an individual failed to pay
his assessments, the organization could in most cases sell
enough land to make up the deficit, although the individual
retained a one-year right of redemption. The legislature
ratified the practice of selling lands in lieu of levying
taxes by allowing the organizations to sell both divided
and undivided land at will, although Attorney General Sullivan
doubted whether this provision could survive a test under

the constitution of 1780. Finally, the majority could dissolve

 

8For major state provisions, see Act of March 10, 1784,
Jan. Sess., 1784, ch. XVI, Mass. Acts and Lagg (Adams and
Nourse), 81-85. Act of Feb. 24, I786, Feb. Sess., 1786,
ch. XV, Ibid., 401-405. Act of March 9, 1791, Jan. Sess.,
1791, ch. XXV, Ibid. (Adams), 95. Act of June 15, 1796,
printed as oh. I, Nov. Sess., 1796, Ibid. (Young and Minns),
34. Act of June 12, 1818, May Sess., I818, ch. XI, Mass.
Laws (Russell and Gardner), 13. There were, of course,
many other acts on special subjects which extended to common
fields. Sullivan, Land Titles, 196. Cf., Pro rietors of
Monumoi Great Beach v. Rogers, 1 Mass. 159, I85 (I884).
Hereafter cited as Ro ers. For a "Petition for Partition,"
see John Anthon, American Precedents of Declarations, Col-
lected Chiefly from Manuscripts of Chief Justice Parsons and
Other Accomplished Pleaders in the State of Massachusetts,
Digested and Arranged under Distinct Titles and Divisions,
and Adapted to the Most Modern Practice (New York: Stephen
Gould, 1810), 399.

 

 

 

 

 

 

178
the field at any time.9

On the other hand, because a minority or an individual
might be subject to unequal and prejudicial treatment if
the majority had absolute control over all matters relating
to the common field, the legislature provided many checks
on the organization's power. If an individual thought
his assessment was disprOportionately high, or his fence-
mending duties too great, he might appeal the matter to the
Court of General Sessions of the Peace. An individual
whose lands in a common field were "so rocky or barren" that
he had “never improved them" had to pay no assessments at
all. A minority of prOprietors who thought their lands
could be better managed in a separate common field could
apply to the court for such a partition. Similarly, any
individual desiring to improve his own lands, and willing
and able to bear extra burdens which this might entail,
could have his share set off from the common field on
application to the Supreme Judicial Court or the apprOpriate
Court of Common Pleas. In line with the same principle
of protecting individual enterprise, the legislature often
specifically excluded individuals from the Operation of
special acts incorporating general fields. It seems, in
sum, that a man owning land in a common field had a variety

of options. He could participate in the prOprietors'

 

9Act of Feb. 24, 1786, Feb. Sess., 1786, ch. XV,
Mass. Acts and Laws (Adams and Nourse), 401-405. Akagi,
Town Pro rietors, 77-79, 224-229. Sullivan, Land Titles,
1 — 7' 3' 720

 

 

179
organization and bear his share of the common cost; he could

join with other prOprietors to create a separate, more
advantageous common field; or he could have his share set
off, so long as he would maintain fences and improve the
land in accordance with the general legislative regulations.10

The one thing he could not comfortably do was nothing; the

law consistently favored prOperty in action over mere

 

1°Act of Feb. 24, 1786, Feb. Sess., 1786, ch. xv,
Mass. Acts and Laws (Adams and Nourse), 401-405. On
partition, see Ibid. Act of March 11, 1784, Jan. Sess.,
1784, ch. XVIII, Ibid., 87-89, gg amended, Act of Feb. 14,
1787, Jan. Sess., 1787, ch. XXXVI, Ibid., 626-627. Act
of March 9, 1786, Feb. Sess., 1786, ch. XXIII, Ibid., 411-
413. Akagi, Town PrOprietors, 108. Sullivan, Land Titles,
175-176, 197, 250. For special acts incorporating general
fields, but specifically excluding named individuals, or
all those who did not petition for incorporation, or excluding
all lands fenced "in severalty," see Act of June 27, 1782,
May Sess., 1782, ch. IV, Mass. Acts and Laws (Adams and
Nourse), 135-137. Act of Nov. 30, I785, Oct. Sess., 1785,
ch. XIX, Ibid., 336-338. Act of Oct. 28, 1785, Oct. Sess.,
1785, ch. II, Ibid., 315-316. Act of March 10, 1797, Jan.
Sess., 1797, ch. LI, Ibid. (Young and Minns), 102-104.
Act of March 3, 1798, Jan. Sess., 1798, ch. XLIX, Ibid.,
205-206. Act of March 4, 1800, Jan. Sess., 1800, ch. ,
Ibid., 404. Act of March 7, 1803, Jan. Sess., 1803, ch.
LXXIV, Ibid., 179-180. Act of Feb. 27, 1807, Jan. Sess.,
1807, ch. XCIX, Mass. Laws (Adams and Rhoades), 134-136.
Act of June 27, 1811, March Sess., 1811, ch. LVI, Ibid.,
455-456.

The Handlins treat incorporated general fields as
"organs of government" having the "power to coerce for
some desirable end" and "to enforce decisions" against
individuals. Incorporated general fields, they contend,
were distinguished from mere "voluntary organizations" from
which "a member . . . was always free to secede and to with-
draw his share of the prOperty." Commonwealth, 90-92.
Cf., Ibid., 150. The elaborate provisions in Massachusetts
law for appeal to the courts and the partition of lands, as
well as the established legislative practice of exempting
individuals from a Specially chartered general field, Show
that the Handlins greatly over-estimated the coercive aspects
of the prOprietors' organizations. In general, the legis-
lature pressured individual members of common fields, but
it did not often compel.

 

 

 

 

 

180
speculation.

The system governing prOprietors' organizations was
built primarily by the provincial and state legislature,
with the appellate courts playing at most a marginal role.
After 1804, when the state began its series of official re-
ports, the Massachusetts supreme court continued to respect

the system as it had been created. In PrOprietors of

 

Monumoi Great Beach v. Rogers (1804), the plaintiffs, as

a corporate organization, brought suit for trespass. Al-
though as individuals they had sown grass in the field, they
could prove no official corporate act since 1756. The
defendant, admitting that at common law the acts of individual,

unorganized tenants in common would stand as the acts of

 

all, nonetheless challenged the right of the prOprietors'

corporation to bring suit after decades of corporate inactivity.

 

The court upheld the right of the corporation to sue, declining
to rule that prOprietors' organizations had narrower rights

than unorganized tenants in common. Writing seriatim, three

 

of the four justices agreed in substance with Justice George
Thatcher that the "powers of prOprietors of common and un-
divided lands are not abridged, but enlarged by the statutes."
About a decade later, the same court rejected the contention
that a member of a proprietary corporation could not petition
for a partition of lands under the 1786 statute. A prOpri-
etary corporation was merely a tenancy in common, said the

court, and it was "essential to an estate in common to be

181
subject to partition."11 The prOprietors' organizations

were convenient economic devices, but did not abridge or
repeal common law or statutory rights of individuals.

On balance, the system of prOprietors' organizations
developed by provincial and state legislation, and sanctioned
by the highest state court after 1800, is an early expression
of those "working principles" found by James Willard Hurst
to inform early nineteenth century legal development. As
the public interest was defined in terms of expanding produc-
tion, the law favored property in action, and was hostile

to rentier interests.12

Speculators who held land in common
and who neither contributed to common expenses of improve-
ment nor partitioned the land for individual deve10pment
were at a severe disadvantage. At the same time, individual
creative effort was to be encouraged, and the law ensured
that the enterprising individual did not have to remain
subject to the group. These principles, first worked out

in colonial legislation, were carried over into state legis-
lation on prOprietors' organizations, and would continue

to inform legislative and judicial developments concerning
the proper relationship between the government, business
corporations, and individuals.

Because true business corporations, which the state

began to charter in the 1780's, were highly experimental

 

llgggegg, 1 Mass., 162-165. Mitchell v. Starbuck,
10 Mass. 5, 12, 20 (1313).

12Hurst, Law and the Conditions of Freedom, 5-10,
24-25, 37’ 430

 

182
in the beginning, and politically more controversial,

economically more powerful, and legally more sophisticated
than the traditional small quasi-corporate prOprietors'
organizations, the legislature insisted on chartering each
business corporation individually. Although the legislative
history of each charter varied in matters of detail, the
chartering process itself came to exhibit characteristic
patterms of political and economic relationships. Nominally,
of course, each charter was granted on the finding that the
activities of the prOposed corporation would somehow advance
the public interest. The legislature would hardly charter
an organization whose Operations would adversely affect the
state. In reality, the granting of a charter could be a
complex affair, involving, in the case of an important
undertaking, public controversy and political maneuvering
among special interest groups, rival entrepreneurs, larger,
more amorphous sections of the peOple, whose fortunes might
be affected by the project, and among legislators desiring
to protect the long-run public interest.

The dynamics of the chartering process, the political
and economic patterns which emerged as legislative charters
increased in numbers, can be illustrated by reference to the
chartering of corporations to build toll bridges around
Boston.

The city of Boston, as Daniel Webster once told the
United States Supreme Court, was "an exception in the ocean,"

accessible by land only on the south, across the Boston

183
Neck. Unless they went far out of their way, peOple and goods

from western, northern, and northeastern Massachusetts could
reach the city only by boat either directly from the point
of embarkation, or by land carriage taken across the Charles
River on one of several uncertain ferries. As a result of
these unsatisfactory conditions, the Massachusetts legislature
was under a great deal of pressure to approve prOposals
to build bridges which would out time and distance off the
journey to and from Boston. As one neWSpaper article put it,
"free access to the metrOpolis" in a "direct, smooth, and
unencumbered course," was the "right of those who live on
the extremities of the state."13
Despite the public demand for improved transportation,
the state itself constructed no bridges, but consistently
deferred to private entrepreneurs. Sponsors of toll bridges
were primarily real estate speculators who wished not only
to profit from the toll but also to increase the commercial
value of their lands in and around Boston by constructing
bridges adjacent to them and streets over them. The Charles
River Bridge, incorporated in 1785, revitalized Boston's
North End and part of Charlestown. The West Boston Bridge,
incorporated in 1793, was sponsored largely by real estate
interests in Cambridge and Boston's West End section. After

Andrew Craigie finally received the charter to build the

 

13Webster's argument, Charles River Bridge, 11 Peters,
516. On the difficulty of getting to and from Boston before
the bridges were built, see Frederick L. Oliver, "The Bridges
of the Charles," Proceedings of the Bostonian Society (1952),
34. Independent Chronicle, Jan. 30, 1804.

184
Canal Bridge between Boston and Lechmere Point, Cambridge,

in 1808, he was able to sell a large amount of his Cambridge
land at a three hundred per cent profit. Similarly, the

South Boston Bridge, chartered in 1806, was Sponsored by
speculators who wished to improve the route to Boston from

the Dorchester Neck, where they owned a considerable amount

of vacant land. In each case speculators planned and initiated
the projects. They offered the state to construct the physical
facilities in return for incorporation and permission to
collect tolls. The legislature, in each case, accepted the

14

offer and concluded the bargain.

The legislature was often called upon to choose between

 

4
1 For a brief history of bridges around Boston, see

Charles River Bridge, 24 Mass., 377-391. For the Charles
River and West Boston Bridges, see also Stanley I. Kutler,
Privilege and Creative Destruction: The Charles River Bridge
Case (Philadelphia: J. B. Lippincott Company, 1971), 7-14.
Hereafter cited as Privilege. A useful map appears at 24
Mass., 388, and as the frontispiece to Kutler, Privilege.
golumbian_Centinel, Jan. 18, 1792, Feb. 11, 1792. Boston
Gazette, June 18, 1804. James Sullivan, The Path to R1ches.
An Inquiry into the Origin and Use of Money; and into the
Principles of Stocks and Banks. To Which Are Subjoineg

§gme Thoughts Reepecting a Bank for the Commonwealth (Boston:
P. Edes, 1792), 54. Hereafter cited as Path to Riches.
Morison, Otis, I, 243. Letter, Otis to Robert Goodloe

Harper, April 19, 1807, in Ibid., 283. Joseph Stancliffe
Davis, Essays in the Earlier History of emerican Corporations.
2 vols. (Cambridge: Harvard University Press, 1917), II,

187. Hereafter cited as American Corporations. Josiah
Quincy, A Municipal History of the Town_and City of Boston,
during Two Centuries. From September 17, 1630,Eo September
17, 1830 (Boston: C. C. Little and J. Brown, 1852), 246-247.
Walter Muir Whitehill, Boston: A Topographical History

(2d ed.; Cambridge: Belknap Press of Harvard University
Press, 1968), 49-51, 74-78. Hereafter cited as Topographical
History. Lucius R. Paige, History of Cambridge, Meesachusetts,
1630-1877 (Boston: H. O. Houghton and Company, 1877),
176-177, 183-184, 186. Hereafter cited as Cambrid e. Oliver,
"The Bridges of the Charles," 38-39. Handlin and Handlin,
Commonwealth, 98-99, 102-103.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

185

rival groups of entrepreneurs. In 1785, the state favored
the Charles River Bridge prOprietors over a second group
which prOposed a bridge from Boston to Cambridge, instead
of to Charlestown. In 1792, the legislature rejected stock-
holder claims that the Charles River Bridge corporation
had an exclusive right to bridge the Charles, and granted
a charter to the West Boston Bridge.1

The four-year competition for the charter to build the
third bridge over the Charles, however, is a better example
of how private groups competed for the state's favor. In
between the Boston terminals of the West Boston Bridge and
the Charles River Bridge was Barton's Point, a promontory
ideal for the terminal of the third bridge. The only real
question was the location of the terminal on the opposite
shore. From 1804 to 1808 rival groups petitioned the
General Court for permission to build in a spot most favorable
to each of their respective interests. The controversy pro-
voked a pamphlet war, and wideSpread neWSpaper commentaries.

The Newburyport Turnpike Corporation, which had been
authorized to construct a road from Newburyport to Boston,
favored a toll bridge from Prison Point, Charlestown, to
Barton's Point, Boston, in order to shorten the length of
their road ten miles and reduce the high cost of land

acquisition at the Boston end. As a Prison Point-Barton's

 

15Charles River Bridge v. Warren Bridge, 24 Mass.,
377-380. Handlin and Handlin, Commonwealth, 102. Kutler,
Privilege, 8-9, 13-14.

 

 

 

186

Point bridge would be only a short distance from the Charles
River Bridge, that corporation led the opposition to the
Newburyport plan.16

The Middlesex Canal Corporation suggested a different
location for the third bridge over the Charles. The canal
had been completed to the Charlestown Mill Pond, but the
major problem remained of getting canal boats across the
river to Boston. Since the prOposed Newburyport Turnpike
bridge was too far east to be of use to the canal, the
Middlesex Canal Corporation petitioned for a bridge from
Lechmere's Point, Cambridge, to Boston. This proposal, of
course, was Opposed by the prOprietors of the West Boston
Bridge, who feared a loss of revenues and control of further

real estate development in Cambridge.17

 

16Newburyport Turnpike Corporation, Act of March 8,
1803, Jan. Sess., 1803, ch. LXXXII, Mass. Acts and Laws
(Young and Minns), 194-198. H. Follansbee Long, "The
Newburyport and Boston Turnpike," Historical Collections
of the Essex Institute, XLII (April, I956), II6-II7, I25.
Petitions of the Newburyport Turnpike Corporation to the
General Court, Independent Chronicle, Feb. 13, 1804, June
20, 1805. For Opposition of the Charles River Bridge
corporation, see Charles River Bridge v. Warren Bridge,
24 Mass., 383. Columbian Centinel, Feb. 4, June 2, 1804.

l7Middlesex Canal Corporation, Act of June 22, 1793,

May Sess., 1793, ch. XXI, Mass. Acts and Laws (Adams and
Larkin), 325-328. Attorney General James Sullivan was the
major promoter of the canal. He was the corporation's first
president, and remained in that office until his death in
1808. Thomas C. Amory, Life of James Sullivan: with
Selections from His Writin s. 2 vols. (Boston: Phillips,
Sampson and Company, 1859 , I, 361, 363, 365. Hereafter
cited as Sullivan. For the route of the canal and notice
of efforts to get a tow-path across the Charles, see Ibid.,
368- -369. Christopher Roberts, The Middlesex Canal, 1793-
1860 (Cambridge: Harvard Univers1ty Press, 1938), 114,115,

196. Still another prOposal took the needs of the Canal

 

 

 

 

 

 

 

 

 

 

187
By 1805, the legislature, caught in the cross-fire

of conflicting private interests, had been able to decide
that a bridge could be built from Barton's Point, Boston,
across the Charles, but had made no decision as to the
terminal on the Opposite shore. To break the deadlock, the
canal and turnpike corporations reached a compromise in the
spring of 1806, and submitted a joint petition for a bridge
from Charlestown to Boston.18

A third force, however, one ultimately more powerful
than the canal and turnpike corporations put together, came
upon the scene to complicate matters. Andrew Craigie, a
real estate speculator and financier, had been buying land
around Lechmere's Point, Cambridge, since the early 1790's,
so that he owned about three hundred acres by 1807. He had
signed the original Middlesex Canal petition for a bridge
from Lechmere's Point, but he strenuously Opposed the 1806

compromise which would result in a new bridge from Charlestown

 

into account. In 1804, Loammi Baldwin suggested the con-
struction of dry docks at Charlestown, between the Charles
River Bridge and Prison Point, the construction of a dam
from Prison Point to Lechmere's Point, Cambridge, and the
construction of a bridge from Lechmere' 3 Point to Barton' 3
Point, Boston. Thoughts on the Study of Political Economy
as Connected with the POpulation, Industry and Paper Currency
Of the United States (Cambridge: Hilliard and Metcalf,

1809), App., 83, 103-104. For the Canal's opposition to

the Newburyport Turnpike proposal, see petition Of the
proprietors of the Middlesex Canal, New England Palladium,
April 24, 1804. For the alternative proposal, Ibid., July
30, 1805; Independent Chronicle, Jan. 27,1806. The Com-
munication of the Middlesex Canal Corporation to the Pro-
prietors of the Canal, at their Meeting on the 3d of May,
1805," New England Palladium, May 7, 1805. On Opposition

by West—BOston Bridge, see Columbian Centinel, March 2, 1805.

18

 

 

 

 

Independent Chronicle, July 28, 1806.

 

188
to Boston.19

At this point, Craigie acquired, and skillfully played,
his trump card in order to ensure legislative approval of
the bridge from Lechmere Point. In 1806 and 1807, he pur-
chased a warranty deed made originally by the Commonwealth
in 1779 which had turned out to be bad. On June 21, 1806,
Craigie submitted to the legislature a claim against the state
for damages for breach of warranty. After a legislative
committee reported that the claim was good, and ought to be
honored, the speculator announced that he would release all
his claims under the 1779 deed if the legislature would
approve the Lechmere Point location for the third bridge.
Otherwise, he would insist on money damages.20

Craigie's claim placed the legislature in an unfor-
tunate position. It could refuse to pay a claim acknowledged
by its own committee to be valid, a refusal which the powerful
Yazoo interest could hardly tolerate; it could pay the claim,
a move certain to be politically unpopular; or it could
grant permission to build the third bridge from Lechmere's
Point to Boston. The latter alternative Obviously involved

the fewest negative political consequences. Thus, the

 

19Paige, Cambridge, 183-184. L. F. Kebler, "Andrew
Craigie," in Dictionary of American Biography, ed. by Allen
Johnson, Dumas Malone, Harris E. Starr, Robert Livingston
Schuyler, 21 vols. in 11 (New York: Charles Scribner's Sons,
1959), IV, 497-498.

20Paige, Cambrid e, 183-186. Canal Bridge Corporation,
Act of Feb. 27, 1807, Jan. Sess., 1807, ch. LXXXVIII, Mass.
Laws (Adams and Rhoades), 112-118.

 

189
February, 1807, charter of the "PrOprietors of the Canal

Bridge, as explained by an additional act of February, 1808,
gave Craigie power to locate and build the third bridge where
he wanted it. On May 9, 1808, Craigie formally released
his claim against the state in consideration for the rights
granted by the 1807 and 1808 acts. As construction of the
bridge from Lechmere's Point to Boston began, the speculator
sold the first of his Cambridge lands at as much as three
hundred per cent profit.21
Much the same pattern of private initiative-private
reaction-legislative response emerged in connection with
the chartering of the South Boston Bridge and the deve10pment
of the Boston Neck by the Front Street Corporation. In
1803, a number of wealthy and politically powerful real
estate speculators, including Harrison Gray Otis, purchased
about one third of the sparsely-pOpulated Dorchester Penin-
sula, which lay just south and south-east of Boston, and
came to be known as South Boston. The speculators, desiring
to speed settlement Of the area by improving access to Boston,
petitioned the legislature for a charter to construct a
bridge from Dorchester Point northward to Boston across

the channel forming the entrance to the cove which lay to

the east of the main harbor. The owners of lands and wharves

 

21Act of Feb. 27, 1807, Jan. Sess., 1807, ch. LXXXVIII,
Mass. Laws (Adams and Rhoades), 112-118, 3g ex lained p1
Act of Feb. 26, 1808, Jan. Sess., 1808, ch. LX, Ib1d., 259-
262. "Report" by the Commissioners to locate the bridge,
Ibid., 262-264. Amory, Sullivan, I, 369. Paige, Cambridge,
186.

 

190

fronting on the cove formed the South End Association to
Oppose the proposed bridge on the grounds that it would
impede navigation and reduce the commercial value of the
lands and wharves. An acrimonious debate between the South
Boston Speculators and the South End Association followed.22
When the legislature proved indiSposed to favor either
group at the expense of the other, the South End Association
and the South Boston group worked out a compromise early in
1804. Acting nominally in the public interest, the legis-
lature simply wrote the terms of the private compromise
agreement into law. A number of South End prOprietors were
chartered as the "Front Street Corporation" to build a Special
street from Town's Landing near the southern end of the
Boston Neck northward towards Boston along the eastern side
of the Neck. The South Boston speculators were incorporated
as "The PrOprietors of the South Boston Bridge," with per-
mission to build not across the straits on a north-south

line, but on an east-west line between Dorchester Point

and Town's Landing, the foot of Front Street.23

 

22[Anonymous], "An Answer to a Pamphlet, Entitled,
'Considerations on the Public Expediency of a Bridge from
One Part of Boston to Another'" (Boston: E. Lincoln, 1806).
Hereafter cited as “Answer." Colpmbian Centinel, Jan. 4,
7, ll, 14, 28, 1804, Jan. 29, 1805.

 

23For the text of the compromise dated Feb. 18, 1804,
see Columbian Centinel, Feb. 6, 1805. For the "Report of
the joint committee of both Houses on the Compromise," see
"Answer," Appendix NO. 3, pp. 3-4. Front Street Corporation,
Act of March 6, 1804, Jan. Sess., 1804, ch. XLVIII, Mass.
Acts and Laws (Young and Minns), 418-421. South Boston
Bridge, Act of March 6, 1804, Jan. Sess., 1804, ch. XLVII,
Ibid., 415-418. Cf., Annexation of part of Dorchester to
Boston, Act of March 6, 1804, Jan. Sess., 1804, ch. XLV,
Ibid., 412-414.

 

191
This brief examination of the process of granting

charters to Boston bridge corporations reveals what little
substantive contribution the state made to the planning

of internal improvement projects. Except where the state
itself had some prominent interest, as in the case of the
location of the Canal Bridge, the legislature deferred to
private groups, and even put the force of law behind private
compromises, as in the case of the South Boston Bridge
controversy.

It should not be concluded, however, that the state
played a wholly passive role in the granting of charters.
Although private groups planned and initiated projects, the
legislature retained the ultimate power to define the terms
of a corporate charter, and it used these terms to provide
protection for private or public interests which might be
adversely affected by the Operations of the corporation.
Consequently, most charters of bridge and other internal
improvement corporations contained not only the grant of
such privileges as incorporation, the right to take toll,
and the power of eminent domain, but also a variety of
conditions and regulations under which the corporation would
have to Operate. Those who petitioned for the charter could
reject it, of course, on the grounds that the conditions
and regulations were too burdensome; but once the charter was
accepted, the corporation took not only the benefits but
also the burdens of the grant.

The use of the state's power to establish regulations

192

and conditions in corporate charters can be illustrated by

a survey of provision on tolls included in charters granted
over the first quarter century after 1780. All toll bridge
charters, for example, included an elaborate schedule of
rates. Although a few charters set no time limit on the
collection of tolls, most provided that they could be
collected "forever," or for 20, 40, 50, 60, 70, or 75 years,
at the end of which time, some charters added, the bridge would
become the property of the state. Many charters further re-
served to the government the right to regulate the amount

of toll any time after 10, 20, 25, 30, 40, 50, or 75 years
from the Opening of the bridge. The tolls charged by one
corporation were subject to legislative alteration from the
beginning. On corporate pleas that the bridges had been more
expensive than expected, the legislature sometimes increased
the amount of toll, or extended the time during which it
could be collected, or collected without further regulation
by the government. In the rare cases where the toll was
reduced or a time period shortened to the detriment of the
corporation, this action seems always to have been balanced
by the provision of some new beneficial privilege granted

at the request of the corporation. No act has been found
which directly and clearly reduced charter privileges with
regard to toll, although the chartering of a competing bridge

might, of course, reduce total revenues.24

 

24See the charters in the session laws, 1785-1805; a
full list would be more than tedious. Fourteen were char—
tered from 1785-1800. Davis, American Corporations, II,

 

1 Huh M

H}! 55‘ ‘I‘ “in. O .H l

I hrfi \,dl., u.

1

193

Canal charters contained similar provisions with re-
gard to tolls. Rates were set in the charter. Typically,
the corporation could collect the tolls forever, but the
legislature reserved a power to regulate the rates after 30,
40, 50, 70, or even 100 years. Investors apparently took
these limits seriously. When the Middlesex Canal corporation
complained that a charter reservation allowing the legisla-
ture to regulate tolls after forty years had caused "great
discouragements and embarrassments . . . in the execution of
that project," the General Court modified the charter to
guarantee a minimum rate of toll to the corporation "forever."25

Toll provisions applicable to turnpike corporations
varied slightly from those in bridge and canal charters.

For about seven years after the creation of the First Massa-

chusetts Turnpike Corporation in 1796, the legislature did

 

188, Table IX. For a general summary of provisions, see
Edwin Merrick Dodd, American Business Corporations until
1860, with Special Reference to Massachusetts (Cambridge:
Harvard University Press, 1954), 236-241. Hereafter cited
as American Business Corporations. For the provision sub-
jecting tolls to legislative regulation from the beginning,
see Belfast Bridge charter, Act of Feb. 10, 1801, Jan. Sess.,
1801, ch. IV, Mass. Acts and Laws (Young and Minns), 445-
446. For an example of an amendment which both increased
and decreased toll bridge benefits, see Act of June 22, 1799,
May Sess., 1799, ch. XXII, Ibid., 329-330, amending Act of
March 19, 1793, Jan. Sess., 1793, ch. XXXIV, Ib1d. (Adams),
261-263. The rate of toll was increased by the 1799 amend-
ment, but the time during which the toll was to be free

from legislative regulation was cut in half. Cf., Act of
Feb. 13, 1796, Jan. Sess., 1796, ch. VIII, Ibid. (Adams and
Larkin), 538, amendin Act of Feb. 11, 1795, Jan. Sess.,
1795, ch. IX, Ibid., 342-444.

25For a review of canal company charters, see Dodd,
American Business Corporations, 247-257. Amendment to the
Middlesex Canal charter, Act of Jan. 25, 1800, Jan. Sess.,
1800, ch. III, Mass. Acts and Laws (Young and Minns), 342.

 

 

 

 

f

r

“J

(I)

194
not reserve a right to alter tolls in turnpike charters, but

did uniformly reserve the power to dissolve the corporation
whenever the revenues equalled capital and maintenance costs
plus twelve per cent yearly interest. As most turnpikes
showed little, if any, profit, this provision was merely a
matter of form. For the two years from 1803 until the enact-
ment Of the general incorporation statute, many turnpike
charters reserved to the legislature the power to regulate
turnpike tolls according to the weight of the carts and width
of the wheels. The "Act defining the general powers and
duties of Turnpike Corporations" passed on March 16, 1805,
did not reserve a right to alter tolls, but did provide that
the legislature could dissolve a turnpike corporation after
twenty years, or sooner if the corporation had earned a
twelve per cent profit.26

The grants of toll at set rates, the limits on duration,
and legislative reservations of the right to alter tolls on

Specified conditions reflect important aspects of the

 

26For a review of turnpike company charters, see Dodd,
American Business Corporations, 241-247. For the general
act, see Act of March 16, 1805, Jan. Sess., 1805, ch. LXXIX,
Mass. Acts and Laws (Young and Minns), 647-652. After
1805, the legislature incorporated by reference the pro-
visions of the general act into each special turnpike charter.
The first reservation of the power to alter the charter
to reduce corporate revenue was in section three of the
charter of the PrOprietors of the Androscoggin Boom, Act
of Feb. 13, 1789, Dec. Sess., 1788, Mass. Acts and Laws
(Adams and Nourse), 773-775. The corporation was to collect
lumber floating down the river, and secure it for a fee.
It was probably not expected to make a profit from its
revenues, but being for the economic advantage of its or-
ganizers, it was clearly a business corporation. Cf., Handlin
and Handlin, Commonwealth, 106. Davis, American Corporations,
II, 345, App. B.

 

 

 

 

«P 7.
yud

\“

195
chartering process and of the whole system of political economy

as developed by the legislature and entrepreneurs after 1780.
The legislature consistently wanted to protect the interests
of travellers and shippers and place an outer time limit
on the privileges granted. Private entrepreneurs who peti-
tioned for incorporation and other benefits wanted to know
with reasonable certainty not only their privileges, but
also the qualifying limitations, conditions, and reserva-
tions which might reduce the value of their investments in
the future.

In short, every internal improvement charter from the
beginning in the 1780's was understood to represent a
bargain between the legislature and the entrepreneurs. The
integrity and continued functioning of the system required
that the legislature continue to honor the terms of the
bargain, whatever the legislature's theoretical constitutional
power over incorporated enterprises. If the legislature
began to renege on its commitments, drastically to reduce
privileges or increase burdens, those with surplus capital
would shun internal improvements, and would seek alternative
investments in domestic and foreign markets. In such a
situation, either internal improvements would not be con-
structed at all, or the state would have to assume the burden
of construction and management itself, which would entail an
increase in taxes. Consequently, the legislature stayed well
within the understood limits of its bargain with investors,

and very rarely, if ever, (no case has been found), drastically

‘IL
3;.

~(‘1'

UV.

Luv

HI.

DU

am-
I

Hv~
o

196
altered a charter to the detriment of an internal improvement

corporation. The system, then, Operated to give the charter-
bargain the force of a legal "contract," as Attorney General

27 In practice, the charter

James Sullivan suggested in 1792.
became the measure of both corporate rights and legislative
power.

It is important to note that the development of this
political economy of internal improvements was not the result
of, or even significantly influenced by, competition between
the Federalist and Republican parties. All major groups
agreed that an improved transportation network benefited the
areas immediately affected and ultimately the whole state.

Who would be directly aided and who would be disadvantaged

economically by a given project depended almost exclusively

 

27Sullivan, Path to Riches, 57. Cf., Ibid., 54.
The crucial passageiis quoted in full in Dav1s, American
Corporations, II, 314. The Handlins acknowledge that the
state's specifications of the number Of years which a cor-
poration might collect tolls amounted to "commitments" which
the state had to honor if the system were to continue to
function properly. The importance of these commitments is
then discounted: "What the nature was of an omnipotent
state's commitments, in this or in any other respect, was
irrelevant so long as the Commonwealth honored them to lure
capital into the enterprises it sponsored." Commonwealth,
153. Cf., on the reservation clause, Ibid., 152. However,
that the legislature kept its end Of the bargains is not
evidence that the commitments or their "nature" was irrelevant.
It is evidence that the legislative commitments were a most
important element of the Massachusetts system, of such a nature
that they had to be honored. To anticipate a point developed
more fully below, when, after 1800, the courts indicated
they would protect chartered rights, they were merely giving
legal effect to a previous understanding between the state
and entrepreneurs, and to a functional imperative of the
system. It was a short step from giving legal force to a
legislative-entrepreneurial bargain to calling that bargain
a."contract."

 

 

 

 

197
on patterns of real estate ownership, patterns which were in

no way related to partisan divisions. Thus contests over
bridges in Boston pitted Federalist against Federalist,28
and ad hpp Federalist-Republican coalitions against one
another. The settled Operating principle that a charter was
the measure of corporate rights and legislative power was

the result of political accommodation among the interest

groups involved, but not the result of a partisan political
accommodation.

Although ultimately reaching much the same result, the
political economy of banking corporations develOped differently
from that of internal improvements. The Special role of banks
in the economy initially placed them in a class apart from
the more numerous canal, bridge, and turnpike corporations.
Although entrepreneurs were often reluctant to invest in
internal improvements because of their high costs and delayed
returns, no such difficulty existed with regard to banks.

After the 1790's, when investors had discovered that banks
could not only be profitable but also a ready source of credit
for favored borrowers, the problem was not to encourage the
founding of banks, but rather to keep the number within
reasonable limits. Moreover, there was a greater degree of
public interest in banking than in internal improvements.

Bridge, canal, and turnpike corporations were confined to

 

28Robert East, "Economic Development and New England
Federalism, 1803-1814," New England Quarterly, X (Sept.,
1937), 437. Hereafter cited as "New England Federalism."

 

198
essentially local construction projects, and the damage that

a mismanaged or inadequately regulated corporation could do
was limited. Banking operations, on the other hand, poten-
tially affected the whole economy. Attorney General James
Sullivan contended in 1792 that unregulated banks chartered
for “private emolument" were extremely "dangerous." Not
only was the currency of the whole state liable to be debased
by the excessive issue of unsecured paper money, but the
bank incorporators would "be able to command the markets,
monOpolize by themselves, or their confidential connections,
what articles they please, to fix a capricious estimate on
everything, and unduly to influence all the measures of

«29 For this reason, the government initially

government.
retained a large, if imprecisely defined, residual control
over banking corporations and especially their currency
Operations. Finally, unlike internal improvements, partisan
politics was heavily involved in the evolution of a state
banking policy.

Before the founding of the first state bank, the Massa—
chusetts Bank, in 1784, no one in Massachusetts had a very
good idea of how to run a large-scale banking institution.

In the colonial period, London had tightly controlled the
monetary system, and banking in Massachusetts had been con-
fined tO small private partnerships. The founders of the

Massachusetts Bank accordingly had to write to the Bank of

North America in Philadelphia for suggestions on how to

 

29Sullivan, Path to Riches, 55-56.

 

199
establish and manage their new business. The brief, almost

casual charter granted in 1784 by the state indicated a

similar ignorance of banking in the legislature. In addition

to the usual corporate powers, the charter limited the amount

of personal estate which the bank might hold, and reserved

to the legislature a right to examine the books. Not much

else of importance was said, and several crucial matters

were simply not mentioned. There were no restrictions on

the amount of capital, nor were there any limits on the amount

of notes which might be issued. No provisions were made to

safeguard the bank's creditors. And perhaps most important,

the charter neither assigned a term of years after which the

bank would be rechartered or dissolved, nor did it specifically

grant the corporate privileges in perpetuity.30
Although the legislature had probably expected the

Massachusetts Bank to serve much of the state's economy, the

bank's conservative policy of providing credit almost exclu-

sively to a select group of Boston merchants and financiers

led to legislative dissatisfaction. In reSponse to wide-

spread popular complaints about granting such dangerously

unrestricted banking privileges for the exclusive benefit of

the few stockholders and insiders, the legislature in 1792

 

30Norman S. B. Gras, The Massachusetts First National
Bank of Boston, 1784-1934 (Cambridge: Harvard University
Press, 1937), 9-13, 209-214. Hereafter cited as Massachu-
setts Bank. Massachusetts Bank charter, Act Of Feb. 7,ii784,
Jan. Sess., 1784, ch. II, Mass. Acts and Laws (Adams and
Nourse), 54-56. The charter was primarily a copy of the
Congressional charter of the Bank of North America. Dodd,
American Business Corporations, 201.

 

 

 

 

 

200
took the extraordinary step of summarily amending the bank's

charter over the strenuous objections of the corporation.
According to the amendment, notes and loans were not to exceed
twice the amount of specie reserves on hand, and the bank was
to report to the governor and council on these matters every
Six months. Notes of under five dollar denominations could
not be issued. The bank was forced to sell its stock in the
Bank of the United States. Although the bank tried unsuccess-
fully to get this charter amendment repealed, on the grounds
that it abridged the corporation's chartered rights, it
never brought the act to a judicial test.31
Despite the 1792 amendment which brought the corpora-
tion under some measure of control, the issue of the Massa—
chusetts Bank continued to agitate the state, and the question
of the extent of the state's power over the institution

continued to be raised. Attorney General James Sullivan in

a polemical tract entitled Path to Riches, published in 1792

 

after the passage of the charter amendment, proposed that
the legislature completely repeal the bank's charter, and
create a single public corporation as a state banking mono—
poly. Although he acknowledged that the legislature could
not repeal the charters of bridge and canal companies, he
contended the case of the Massachusetts Bank was different

because its charter amounted to a special gift of property

 

3lcras, Massachusetts Bank, 25, 62-63, 79-80, 82, n.
56. Davis, AmericanCopporations, II, 69. Act of March 9,
1792, Jan. Sess., 1792, ch. XLVIII, Mass. Acts and Laws
(Adams), 188-189.

 

 

 

OI

{>3

volu—

201
to the corporators, an exclusive privilege from which the

state derived no benefit, and which the state could not consti-
tutionally grant. A decade later Sullivan had altered his
position somewhat. In 1802, in response to a request from

a legislative committee for an official opinion as to whether
or not the charter of the Massachusetts Bank was "perpetual,"
the Attorney General suggested that the failure Of the legis-
lature to limit the charter's duration amounted to a grant

of perpetuity by implication. Although the absence of judi-
cial authority precluded the rendering of a definitive opinion
on the extent of legislative power over "perpetual" corpora-
tions, Sullivan continued, it was his understanding that

Since 1780 the “public Opinion" had been that the legislature
could not "at pleasure" dissolve incorporated "[b]ridges,
turnpikes, canals and aqueducts," or those institutions char-
tered "for the promotion of religion, morals, literature,

and the arts and sciences," or those "for the management of
money and the maintenance Of corporate credit." Sullivan
allowed that public Opinion might distinguish banks from all
of these, but he indicated that legislative authority over
towns, parishes, and quasi-corporate tenancies in common was

not questioned.32 Whatever guidance the legislators received

 

328ullivan, Path to Riches, 47, 53-54, 57. "Opinion
of the Attorney General of Massachusetts, on the Life of
the Corporation, 1802," in Handlin and Handlin, Commonwealth,
App. D, 254-261, and esp. 256-258. By failing to note that
Sullivan in 1792 carefully distinguished the Massachusetts
Bank charter, which he thought repealable, from bridge and
turnpike charters, which he contended could not be repealed,
the Handlins seriously distort Sullivan's 1792 position.
Commonwealth, 254. "Origins of American Business Corporations,"

 

 

 

202
from this Opinion, they delayed action on the Massachusetts

Bank question for another decade.

Meanwhile, the Massachusetts Bank had not retained its
monopoly in the state. Perceiving the advantages enjoyed
by the Massachusetts Bank's members and favored customers,
other groups of financiers and merchants began to demand
separate banks to serve their interests. The Union Bank of
Boston was chartered in 1792 to serve the expanding economy
of Boston. Before the end of 1800, five more banks had been
chartered to serve mercantile centers outside the capital
city. After 1800, the pace temporarily accelerated, as the
legislature issued sixteen new banking charters between 1802
and 1806.33

The increased knowledge of the banking processes
gained between 1784 and 1792 enabled the legislature to re-
gulate banking much more closely through the inclusion of
detailed provisions in banking charters. Accordingly, all

banking charters issued after 1792 contained elaborate regu-

lations, limitations, and restrictions designed to protect

 

20-21. Cf., DOdd's interpretation of Path to Riches, American
Business Corporations, 21, n. 17, 202. The Handlins con-
sequently over-estimate the degree of change which Sullivan's
1802 "Opinion" represented. Commonwealth, xii, 254. At

most, the 1802 "Opinion" reflected the idea that bank charters,
like bridge, canal, and turnpike charters, were the measure

of both corporate privileges and legislative regulative

power. This was not a new idea.

 

 

 

 

33Davis, American Corporations, II, 70-78. Paul
Goodman, The Democratic-Republicans of Massachusetts: Politics

 

 

in a Young Repupiic (Cambridge: Harvard University Press,
1964), 40-41, 171. Hereafter cited as Massachusetts. In
1792, the Bank of the United States established a branch in
Boston. Dodd, American Business Corporations, 202.

 

 

 

203
the economy and the public. Equally important, starting

with the charter of the Union Bank, all banking charters were
of limited duration. By the middle of 1810, all except four
bank charters in the state were scheduled to expire between
June and October, 1812. This meant that the state could
revise nearly its whole banking system in 1812 without doing
any violence to banks' chartered rights, which would simply
disappear when the charters ended.34
Apart from charter provisions, the state retained a
residual power to regulate currency, which the legislature
occasionally exercised by general laws applicable to all
banks. A 1799 act, for example, forbade all banks, except the
Nantucket, to issue any note of under five dollars denomina-
tion. The 1799 and related acts were repealed a decade later.
An 1809 act also increased damages for banks' failure to
redeem their notes on demand as required by law. None of
these had a retroactive effect, and none appeared to alter or

repeal privileges specifically granted by banking charters.35

 

For a review of the provisions of bank charters,
1792-1806, see Dodd, American Business Corporations, 202—
206. The charters of the followingibanks were not scheduled
to expire in 1812: Massachusetts Bank; Portland Bank,
chartered for 20 years, Act of June 15, 1799, May Sess.,
1799, ch. V, Mass. Actgand Laws (Young and Minns), 298-300;
Essex Bank, chartered for 20 years, Act of June 18, 1799,
May Sess., 1799, ch. VIII, Ibid., 305-307; Northampton
Bank, chartered for 10 years, Act Of March 1, 1803, Jan.
Sess., ch. LVII, Ibid., 131-135.

35Act of June 22, 1799, May Sess., 1799, ch. xxxxx,
Mass. Aets and Laws (Young and Minns), 339. Act of March 4,
1809, Jan. Sess., 1809, ch. XCIX, Mass. Laws (Adams and
Rhoades), 502-504. Act of June 20, 1809, May Sess., 1809,
ch. XXXVII, Ibid. (Adams, Rhoades, and Co.), 47. Cf., Brown
v. Penobscot Bank, 8 Mass. 445 (1812), discussed below.
Hereafter cited as Brown.

 

 

 

 

204

Because banking was SO important to the economy, and
because banking privileges were so valuable, the granting of
bank charters became the subject of partisan contention.

The political complexion of the legislature is thus a matter
of some importance. Prior to 1800, the state was in the

hands of the Federalists. Bank charters went to Federalist
groups, and state banking policies, both permissive and regu-
latory, were the product of Federalist counsel. After 1800,
the Republican party began to rise in strength, and to chal-
lenge Federalist domination of the state. The Federalists
retained control of the legislature until 1806, when the
Republicans gained a slim majority. The Republicans increased
their power the next year, but lost control to the Federalists
in 1809. After the Spring elections of 1810, the Republicans
again had a majority, which they managed to retain the fol-
lowing year. In the crucial session of 1812, the Federalists
had a strong majority in the House, and the Republicans, who
had severely gerrymandered Senatorial districts, gained a more
than two-to-one margin in the Senate.36

As the two party system grew in Massachusetts after
1800, the problems of banking policy grew more difficult and
more controversial. Serious divisions grew within each party,
and between the two, on the question of whether or not to

increase the number of chartered banks in the state. Within

 

36Richard E. Ellis, The Jeffersonian Crisis: Courts
and Politics in the Young Republic (New York: Oxford
University Press, 1971), 215, 220-221, 229. Hereafter
cited as Jeffersonian Crisis. Goodman, Massachusetts, 37-
42, 179-180. Columbian Centinel, May 30, 1812.

 

205
the Federalist party, those groups which already possessed

banking charters resisted the extension of banking privileges
to anyone else, Federalist or Republican. A majority of
Federalists, however, were not associated with an existing
bank, and insisted that they, too, should be allowed to exer-
cise banking privileges. In the Republican party, some, such
as Attorney General Sullivan, favored a state banking monOpoly
which would combine state and private capital and thus Opposed
the chartering of more private banks. Others, less enthu-
siastic about a state monOpoly, Simply resisted the increase
of the number of incorporated banks, or favored the total abo-
lition Of banking corporations and a return to the private
partnership system which had prevailed in the colonial period.
A significant minority of Republicans, however, wished to
have their own chartered banks, or, as a less satisfactory
alternative, wished to be allowed membership in predominantly
Federalist institutions.37
Between 1802 and 1806, when the Federalists controlled
the government, the majority faction of that party succeeded
in chartering sixteen new banks. Although all of these appear
to have been dominated by Federalist financial interests, at
least four were the product of a bipartisan coalition of
Federalists and those minority Republicans who favored an
expansion of the banking system, and who offered Federalists

their support in return for a grant of shareholder status in

 

37Goodman, Massachusetts, 41, 170-171, 177-178.
East, "New England Federalism," 434-436.

 

206
the new institutions.38

As the Republicans took control of the Massachusetts
legislature in 1806, the policies of the national administra-
tion resulted in a cessation of trade to EurOpe and a depres-
Sion in New England. Many Massachusetts banks were forced to
suSpend payments, and large numbers of worthless notes, ex-
pecially from banks outside Boston, plagued the economic
system. Under these circumstances, those Republicans who
Opposed the expansion of the number of bank charters dominated
their party. Those Federalists who had recently received
charters from the legislature joined their colleagues who
were associated with older institutions in opposing further
expansion. AS a result, the Republican faction which advo-
cated the grant of new banking charters to worthy partisans
remained for the time being a minority. No new bank charters

were issued by the legislature before 1811.39

 

38Goodman, Massachusetts, 170-171. East, "New England

Federalism," 434-436.

39Goodman, Massachusetts, 175-177. Dodd, American
Business Corporations, 206. Goodman, in attempting to
characterize the Republican party in Massachusetts in the
early national period, over-emphasizes the degree to which
the party represented upward-mobile commercial groups chal-
lenging an established Federalist elite in the field of
banking before 1811. Massachusetts, 170-171, 176, 178.
First, the most serious and successful challenge to the
established banking elite came from within the Federalist
party in the years 1802-1806. Thus, the Federalist party
was the party of aspiring bankers in those years. Second,
even when the Republicans did control the government after
1806, not a Single new banking charter was issued for five
years. Cf., David Hackett Fischer, The Revolution_of1American
Conservatism: The Federalist Party in the Era of Jeffersonian
Democracy (New York: Harper and Row, 1965), 203-211, who
cites Goodman and in general subscribes to his theses. Here-
after cited as American Conservatism. An alternative

 

 

 

 

 

 

 

 

 

 

207
By 1811, conditions were ripe for compromise between

the dominant factions within the Republican party and for

decisive action within the Republican-dominated legislature.
Nearly all Massachusetts bank charters were to expire before
the end Of 1812, and it became apparent that the Bank of the
United States would likewise cease to exist. By failing to

renew the Old Federalist charters, and merely substituting

 

new banks controlled by Republicans, the party could satisfy
the anti-expansionist sentiment in its ranks while at the
same time meeting Republican demands for new charters. Con-
sequently, the 1811 legislature rejected petitions from
existing Federalist banks for renewed charters, and began the
process of creating new Republican banks by creating the
Merchants Bank of Salem and the huge State Bank. The char-
ters of these institutions were similar in many respects,

and more elaborate than those granted by previous legisla-

tures, containing several new and more stringent requirements

 

analysis of Massachusetts politics, suggested by Ellis,
Jeffersonian Crisis, 184-229, finds the Republicans split
intoiflmoderate" and "radical" factions on the issues of
judicial and legal reform, with state policy usually being
determined by a coalition of moderate Republicans and moderate
Federalists. A major problem in applying this analysis to
banking, however, is the difficulty of characterizing the
various positions. Those Republicans who wished to abolish
all incorporated banks could fairly be labelled radicals.
But were those Republicans who favored a state banking
monOpoly which combined public and private capital radical
or moderate? Similarly, how are Republicans who Opposed
the state monOpoly but favored the expansion of charters to
be characterized? If the expansionist Republicans of 1806-
1810, a minority in their party, were radical, were the
expansionist Federalists of 1802-1806 likewise radical?
American politics are infinitely complex, and Ellis's
quadratic analysis breaks down at some points, just as more
conventional dualistic analyses.

208
- . . 40
and regulat1ons. Both charters were to expire 1n 1831.

Unfortunately, the Republican plans to create a series
of new banks were not completed before the Spring elections
of 1812. At that time, the Federalists won control of the
House, although the Senate remained strongly Republican. An
impasse quickly resulted. The House passed a bill to renew
the charters of the existing Federalist banks. The Senate
easily rejected the House bill, and passed a series of billS
to create new Republican banks. The House indignantly re-
jected the Senate's bills. Finally, a Committee of Conference
on the subject of Banks reached a compromise which was
acceptable to both houses. Most of the banks due to expire
were reorganized and several new banks were created. Except
for certain matters such as size and relationship to the
state, all these banks, new or revived, were subject to the
same charter provisions as the State Bank. This meant added
charter restrictions for some existing banks, but had the ad-
vantage Of subjecting all the banks to the same regulations.
Furthermore, all charters were to expire at the same time in
1831, which would give the legislature the Opportunity to
undertake a comprehensive revision of the banking system at

. . . . . 41
that t1me w1th no Violation of chartered r1ghts.

 

40Dodd, American Business Corporations, 207-209.
Goodman, Massachusetts, 179-180. Charter of Merchants'
Bank of Salem, Act OfiJune 25, 1811, May Sess., 1811, ch.
LXXXII, Mass. Laws (Adams, Rhoades and Co.), 494-500.
Charter of the State Bank, Act Of June 26, 1811, May Sess.,
1811, ch. LXXXIV, Ibid., 501-507.

41Columbian Centinel, June 10, 17, 20, 24, 1812.
Charters of 20 banks, Acts of June 23, 1812, May Sess., 1812,
chs. XXXIV—LIII, Mass., Laws (Russell, Cutler and Co.), 47-125.

209
The Massachusetts Bank, the oldest bank in the state

and an elite Federalist institution, presented a special pro-
blem. Its was the only banking charter which was not of
limited duration. Moreover, all other banks were subject to
modern, stringent charter restrictions, while the Massachusetts
Bank's lean 1784 charter, even as amended in 1792, left the
institution a remarkably wide freedom of action. Understand-
ably, the Republicans were particularly hostile. In 1812, a
summary repeal of the bank's charter narrowly failed to pass
the Senate when the Senate's President voted to break an
eighteen to eighteen tie. Nonetheless, a provision relative
to the Massachusetts Bank was included among the compromise
banking measures of June, 1812. The charter was to be re-
pealed as of March 1, 1813, unless the corporation agreed to
surrender its charter in 1831, and abandon all claims to
perpetuity.42
The Bank was placed in a difficult position. It could
stand on constitutional principle, taking the state to court
to challenge the constitutionality of the legislature's

actions. However, chances for success in court were not very

good. In Brown v. Penobscot Bank, decided during the March

 

term, 1812, the Massachusetts supreme court had strictly con-
strued the bank's charter to find that the corporation was

not entitled to privileges which had not been expressly

 

 

42Gras, Massachusetts Bank, 83-84. Act of June 23,
1812, May Sess., 1812, ch. XXXIII, Mass. Laws (Russell,
Cutler and Co.), 46-47.

 

210
granted by the legislature. Since the Massachusetts Bank had

never been expressly granted perpetuity, but claimed a grant
by implication, its case was uncomfortably close to B5933.
Wisely, the Bank accepted the 1812 act, choosing an assured
existence over the risky assertion of constitutional principle.
The compromise of 1812 signalled the end of the first
era of Massachusetts banking legislation. One result was that
the Federalists could no longer claim nearly exclusive control
of the banking system, but, on the other hand, the Republicans
would not completely replace the Federalists either. In a
larger sense, the compromise also represented a political and
institutional settlement of the troublesome question of the
relationship between the government and chartered banks.
Essentially, banks could enjoy all the privileges and immuni-
ties specifically granted by their charters. The legislature
learned that it could reasonably guard both general public
and narrow political interests by including regulations and
reStrictions in charters and by limiting the length of cor-
porate existence. In addition, the legislature retained a
residual control over matters not fully covered by charters,
such as the currency mix and the legal penalties for banks'
failure to Obey charter regulations. DeSpite more than a

quarter century of agitation over banks and banking, then,

 

43Brown, 8 Mass. 445 (1812). Gras, Massachusetts Bank,
84-85. The bank directors may have had inside information
as to the disposition of the supreme court from Federalist
Chief Justice TheOphilus Parsons, who was a stockholder
in the Massachusetts Bank as late as July, 1810, Ibid.,
548, and who may have still held shares in 1812.

 

43

211

the summary alteration of the charter of the Massachusetts
Bank in 1792 remained a unique event, a product of the early
experimental period which was never to be repeated.

It is now possible to summarize the whole course of
legislative deve10pment of the Massachusetts political economy
by the legislature and private entrepreneurs and financial
interests. The corporation was merely the organizational
tool by which self-interested entrepreneurs could make money,
and by which the state could avoid spending money, or avoid,
in the case of banks, the performing of functions which it
was politically inconvenient to undertake. Although many
constitutional details remained to be worked out, there came
to be general agreement that the charter was the measure of
corporate rights and duties and of retained legislative power.
Arguments developed for the most part over matters on which
charters were silent and ambiguous. In the case of internal
improvements, the system operated to give charters the aSpect,
and security, Of formal contracts. Private entrepreneurs
offered to construct facilities in return for the grant of in-
corporation and permission to take tolls; and if the state
accepted, the terms of the bargain were embodied in the
charter. In general, the legislature honored the terms of
charters because it wished to encourage the flow of private
capital into internal improvements. An alternative course
would have retarded the construction of economically desirable
tranSportation facilities. In the case of banks, the charter

became the measure of corporate rights and legislative power

'OL

L
5.0

:ha

212

for the Opposite reason. Banking privileges were so valuable,
and their exercise so important, that they were the subject

of more or less constant political agitation from the mid-
1780's on, with commercial and financial groups in both par-
ties demanding access to the banking system for themselves

and exclusion or restriction of their rivals. The compro-
mise which resulted from the chaos of 1812 allowed all major
groups a Share in the banking system, and included a tacit
agreement that henceforth charter regulations would be roughly
standardized and charter privileges carefully respected while
they lasted. The security which an individual banking cor-
poration could find in its charter because of these under-
stood limits On government action suggested that the banking
charter, too, had the aSpect of a contract with the legislature.

There is no evidence that the Massachusetts courts
played more than a marginal role in the development of this
system during the quarter century following 1780. The
peripheral role of the courts was due in part to the relative
absence of important cases involving corporations, and in
part to the total absence of Official published reports,
which meant that the few cases that were decided had little
permanent precedential value.

The Situation changed somewhat after 1804, when su-
preme court cases began to be officially reported, and when
more cases involving corporations began to arise. An
examination of the early case law will reveal, however,

that the supreme court confined itself to rationalizing

213
the system of political economy as it had developed since

1780, and to harmonizing the system with what it perceived
to be the rights of individuals.

The first important corporation case, Wales v. Stetson,

 

decided in 1806, provided the Massachusetts supreme court
with an Opportunity to announce its Opinion on the subject
of legislative alteration of chartered privileges. The
Blue Hill Turnpike Corporation had been chartered on March 7,
1804, and authorized to erect a toll gate "near the dwelling-
house of Joseph Hunt." The corporation placed the gate
near Hunt's house, but placed it on an "ancient publick
highway" which crossed the turnpike. Stetson, a local
resident who used the public road, refused to pay toll at
the gate, and later chopped it down. Wales, the treasurer
of the turnpike corporation, sued Stetson in an action of
trespass.44

Attorney General Sullivan and J. Richardson defended
Stetson. They maintained that the legislature could dis-
continue public roads only by express words, which were
absent from the charter, and not by implication. The cor-
poration's toll gate was thus a mere common nuisance which
Stetson had a right to abate. Richardson added that the
general turnpike statute passed in 1805 prohibited the
erection of turnpike gates on old public roads. The legis-

lature did not confine the general statute of 1805 to

 

44Wales v. Stetson, 2 Mass. 143 (1806). Blue Hill
Turnpike charter, Act of March 7, 1804, Jan. Sess., 1804,
ch. LXV, Mass. Acts and Laws (Young and Minns), 443-447.

 

 

214

"future grants of turnpike roads," so Blue Hill was bound
by its provisions even though the corporation had been
specially chartered a year before the passage of the general
law. Sullivan likewise maintained that Blue Hill was bound
by the 1805 act, although he took a Slightly different
ground than his colleague. The 1805 act was neither a
charter amendment nor a new restriction on Blue Hill's
chartered rights. Rather, the 1805 act was "unquestionably
intended to be explanatory of all past statutes establishing
turnpikes." Neither Richardson nor Sullivan, so far as the
record shows, contended that the Blue Hill charter standing
alone forbade the turnpike from placing its gate on the
old public highway.45
Whitman, counsel for the corporation, contended that
since Blue Hill had placed its gate near Hunt's house, it
had fulfilled the requirement in the charter. The general
turnpike act of 1805, he added in reSponse to the Opposition,
could not "operate to narrow prior grants of rights or to
affect the mode of exercising such rights," without "exceeding
constitutional restrictions upon the legislature."46
Chief Justice TheOphiluS Parsons, who had only recently
taken his seat, delivered the Opinion of the court in favor
of Stetson. He relied exclusively on Blue Hill's act of
incorporation. The "provisions of any statute," said Parsons,
laying down a broad rule, "ought to receive such a reasonable

construction, if the words and subject matter will admit

 

452 Mass., 144-145. 46Ibid.

Ck
1AM

Rb

“Vs

215
of it, as that the existing rights of the public, or

individuals, be not infringed." In this case, it was not
"necessary to give a reasonable effect to that statute" that
Blue Hill be allowed to cut off the old public highway.
The gate thus being a "public nuisance, the defendant had
a right to abate it."47
Since Parsons had relied on grounds which had not been
directly urged by counsel, he was under some obligation
to explain why the court ignored the 1805 general turnpike
statute in reaching its decision. "After considering the
several points made in this cause by counsel," he wrote,
"[W]e are . . . satisfied that the rights legally vested
in this, or in any corporation, cannot be controuled or
destroyed by any subsequent statute, unless a power for that
purpose be reserved to the legislature in the act Of incor—
poration." As no such reservation clause appeared in the
original Blue Hill charter, the conclusion which followed
was that the 1805 general statute could not be given retro-
active effect. Although this broad restriction on legisla-
tive power was technically, perhaps, a dictum and thus
open to future challenge, the opinion itself and the legal
context in which it was delivered indicate that the court
was announcing in advance the general standard it would

apply Should an apprOpriate case arise.48

 

471bid., 146.

48Ibid. The Handlins do not mention the Wales deci-
sion. This is the more extraordinary since their Book pur-
ports to be an intellectual history. Even a dictum by the

216
The judicial declaration that the legislature could

impair vested corporate rights only if it had expressly
reserved a power to do so was, of course, merely an elabo-
ration Of the Massachusetts system of political economy

and not at all a fundamental change. Because the functioning
of the system, at least with regard to internal improvements,
depended on the honoring of bargains struck with private entre-
preneurs, the legislature very rarely, if ever, directly
impaired corporate privileges. At the same time, the legis-
lature frequently reserved some control over the most

sensitive aspects of corporate activity, such as the collection
of tolls.

After 1806, the legislative practice changed very little.
Whether Wele§_was theoretically good law or not, the legis-
lature carefully stayed within the judiciary's restrictions.
Reservation clauses were sometimes broader and more elaborate
after 1806, but this was in part an extension of a general

trend toward more detailed Special charters. Section seven

 

supreme court would seem to be an index of the prevailing
conception of the corporation and its relation to the legis-
lature. Two years after Wales, the court laid it down as a
rule that "[elvery owner of a water mill or dam holds it

. . . under the limitation, that a sufficient and reasonable
passage way shall be allowed for the fish." The court added
that "[i]f the government should, in its grant of a mill-
privilege, expressly or by necessary implication, waive

this limitation, it would be bound." Stoughton v. Baker,

4 Mass. 522, 528 (1808). This dictum, aS that in Wales,
indicates that the court was willing to hold as a matter

of law that the legislature was bound to respect the terms
of a grant of a valuable privilege, but that the court
would strictly construe such grants to protect competing
interests.

 

217

of the March 3, 1809, "act for defining the general powers
and duties of Manufacturing Corporations," for example,
contained the broadest possible reservation clause. The
legislature reserved the power to repeal all or part of
any manufacturing corporation charter at any time and also
to "make further provisions, and regulations for the manage-
ment of the business of the corporation." An 1808 amendment
to the general turnpike statute of 1805, on the subject
of damages to be paid for the taking of private land,
extended specifically to all turnpike corporations which
would be created in the future, and to all turnpikes created
before 1808, the charters of which "expressly reserved to
the legislature" "a right to limit and restrict their power“
in the matter of damages.49

Whatever the precise status of the reservation clause,
however, the Weieg decision clearly established that the court
regarded the charter as the measure of corporate rights
and that the charter would be construed to favor the "exis-

ting rights of the public, or individuals." In Brown v.

 

 

49General Manufacturing Corporations Act, Act of March
3, 1809, Jan. Sess., 1809, ch. LXV, Mass. Laws (Adams and
Rhoades), 464-467. By its terms, the reservation clause
applied to "any corporation." Given fullest possible effect,
the clause would apply to all corporations chartered before
1809, and would also apply to all corporations, manufacturing
and non-manufacturing, business and non-business, chartered
after 1809. However, no instance has been found of a lawyer,
judge, or publicist who suggested such a broad construction.
The clause was universally assumed to apply only to the spe-
cific subject of the act in which it was contained, manu-
facturing corporations chartered after 1809. Amendment Of
the General Turnpike Corporations Act, Act of March 9, 1808,
Jan. Sess., 1808, ch. CXII, Ibid., 343-344.

218

Penobscot Bank, decided in 1812, the court extended these
doctrines to banks. The legislature, disturbed that many
banks, and especially those "country" banks outside the
major trading centers, often refused to redeem their notes
on demand, although required by charter to do so, had taken
action to remedy the Situation. By an act of 1809, all banks
which refused to pay their notes on demand would be liable
for damages of two per cent per month in addition to the
standard six per cent per year normally assessed in damage
actions. Brown presented a large amount of notes to the
Penobscot Bank, and when the institution refused redemption,
he sued for damages under the new law.50
Attorney General Perez Morton, appearing for the bank,
argued that the corporation's charter, while saying nothing
specific about damages, nonetheless contained an "implied
condition" that the bank would have to pay the usual six
per cent per year damages for failure to redeem its notes.
Since the charter containing the implied condition was a
"contract" between the legislature and the corporators,
the 1809 act increasing damages was "void as impairing
"51

the Obligation of a contract.

Prescott, for the plaintiff, rejected the idea that

 

50Brown, 8 Mass. 445 (1812). The statute in question
was Act of June 20, 1809, May Sess., 1809, Ch. XXXVII, Mass.
Laws (Adams, Rhoades and Co.), 47. On the problems of note
c1rculation and redemption, see Handlin and Handlin,
Commonwealth, 117-119, 252-253.

51

 

8 Mass., 448.

t 1 I ‘L. c ht afils MN

219

any contract between the government and the corporation
figured in this case. The 1809 act in question was merely
"a rule or measure of damages, . . . which, being wholly
prospective in its Operation, violates no principle of the
constitution." Furthermore, Prescott argued, "[s]o far
from this being a measure tending to impair the obligation
of contracts, its whole effect is to strengthen the
Obligation."52

The court upheld the act of 1809, and awarded the
plaintiff the damages authorized by the act, extending the
doctrine announced in ngeg. Since the 1809 act "had no
retrospective effect," said the court, "there was no ground
of complaint on the part of the banks." The act had taken
away nothing which the banks were Specifically granted by
their charters, and the court refused to exercise its power
of construction to fill in the blanks to create constitu-
tionally protected vested rights which might be highly
detrimental to the public.53

The opinion in B3232 further indicated that the court

gave a great deal of weight to the functional imperatives

of the banking system. Considering the system as a whole,

 

521bid., 448-449.

53Ibid., 449. The act of June 23, 1812, relative to
the Massachusetts Bank, forced the bank to accept a time
limit on its charter by March 1, 1813, or be dissolved.
The Brown decision, handed down during the March term, 1812,
may have been one reason the bank did not challenge the
constitutionality of the act. If the court adhered to the
policy of strict construction followed in Brown, it would
find no implied guarantee of perpetuity in the 1784 charter,
which was silent on the matter of duration.

220
the court found no essential conflict between the interests

of the banks and the interests of the public. "Punctuality
and promptness in meeting every demand made on [a banking]
institution is essential to its very existence; and a failure
in this respect, now that bank bills form almost exclusively
the circulating medium of the country, is a publick incon-
venience of great extent." The legislature therefore had
not only the power but the "duty" to correct "an evil, which
at the time of passing the law had increased to an alarming
degree." The court, then, would allow the legislature
wide latitude to remedy any "publick inconvenience," so
long as the legislature honored privileges Specifically
granted or necessarily guaranteed by charter.54

In 1815, the court again applied its policy of strict

construction in the case of Portland Bank v. Apthorp. In

 

1812, the legislature had for the first time levied a tax

of one per cent per year on the paid-in capital Of banks.
The Portland Bank, whose 1799 charter said nothing one way
or the other about taxation, challenged the constitutional
authority of the legislature to tax the bank. The court,
stretching the language of the Massachusetts constitution,
sustained the tax act of 1812. Chief Justice Isaac Parker,
who wrote the Opinion for the court, also noted that the
Portland Bank's charter contained "no express waiver" of the
power to tax, "nor . . . any strong implication of one."

The charter was "a privilege to manage their business,

 

548 Mass., 449.

221
not an exemption from duty." The tax was, therefore,

"perfectly consistent . . . with the rights of the corporation."55

In Portland Bank, as in Wales and Brown, a corporate

 

charter had been at issue. Although attorneys argued in
Brggg that a corporate charter was a contract within the
Obligation of contracts clause of the federal constitution,
the court simply ignored the contention, and treated the
problem as one of statutory construction and state consti-
tutional limitations. In so doing, however, the Massachusetts
court arrived at much the same results as if it had treated
the charter as a contract. This is evident from a comparison

of Portland Bank with the case of Providence Bank v. Billings,

 

 

decided by the United States Supreme Court in 1830, after

the Dartmouth College decision had held that a charter was

 

a contract. The pertinent facts of Providence Bank were

 

virtually the same as those of the earlier case. The Bank
had been chartered by the Rhode Island legislature in 1791.
Nothing was said about taxation. In 1822, Rhode Island
levied a tax on the paid-in capital of all state banks.
Providence Bank challenged the tax. After the state court
sustained the legislative act, the Bank appealed to the
United States Supreme Court, complaining that the tax was
contrary to the charter and thus an unconstitutional impair-

ment of the obligation of contracts. Chief Justice Marshall

 

55g9rt1and Bank v. Apthorp, 12 Mass. 252, 254, 257
(1815). Portland Bank charter, Act of June 15, 1799, May
Sess., 1799, ch. V, Mass. Acts and Laws (Young and Minns),
298-300. Bank tax, Act of June 23, 1812, May Sess., 1812,
ch. XXXII, Mass. Laws (Russell, Cutler and Co.), 45.

 

 

222

wrote the Opinion for the court upholding the Rhode Island
law. He stated that the power to tax was essential to
government and extended to "all persons and property belonging
to the body politic." Although the state might grant a

tax exemption, Marshall said, "[a]ny privileges which may
exempt [a corporation] from the burthens common to individuals
do not flow necessarily from the charter, but must be
expressed in it, or they do not exist." Since the charter
did not contain an express exemption.from taxation, Rhode
Island had "made no express contract which has been impaired
by the act" in question. The only essential difference be-
tween Marshall's Opinion in this case and Parker's Opinion

in Portland Bank is that the former rested on the federal

contract clause and the latter did not.56

 

It is not entirely clear why the Massachusetts court
treated charters as contracts but never took the step of
formally labelling them as such. At least two reasons can
be suggested. In the first place, the Massachusetts court
had no compelling reason to call charters contracts. The
court could achieve the results it wanted on general principles,
without locking itself into the narrow and complicated

technicalities of contract law. In the second place, to

 

56Providence Bank v. Billipgs, 4 Peters 514, 560, 562,
563 (1830). Hereafter cited as Providence Bank. Cf.,
Charles River Bridge, 11 Peters 420 (1837). The Handlins
write,i“The application of the contract conception to the
relations between state and corporations seemed, as late
as 1812, 'too fanciful to need any Observation,'" citing the
Brown case and quoting the words of Prescott without indenti-

fying him as counsel. Commonwealth, 155, and n. 78.

 

 

 

223

(hold that a charter was a contract would almost automatically
translate every question of the public law of corporations
into a federal question, and would at the very least invite
appeals to the United States Supreme Court in cases such as
Welee, grgwg, and Portland Bank. Massachusetts judges did
not have to be as militant states rightists as the Virginians
to desire to render final decisions in essentially local
matters.

Welee and its offspring had established in a general
way the limits of legislative power to affect adversely
the chartered rights of corporations. An extremely impor-
tant case, Ellis v. Marshall, decided in 1807, gave the
court an opportunity to establish general standards to con-
trol the degree to which the legislature could adversely

affect individual rights in order to advance the interests
57

 

of a corporate enterprise.
The Eiiie case involved the Front Street Corporation,

the group incorporated on March 6, 1804, to build a street

from the terminal of the South Boston Bridge north toward

the center of Boston. The charter itself, it will be recalled,

was passed by the legislature to give effect to a private

agreement compromising thecpnflict between the land and

wharf owners of the South End Association, and the real

estate developers who were promoting the South Boston Bridge.

The charter incorporated by name a number of individuals,

including William Marshall, stated to be owners of the

 

S7Ellis v. Marshall, 2 Mass. 269 (1807).

224

lands over which the new street would pass. Provisions
similar to those for the prOprietors of common lands set
down the mode of calling meetings, and other procedural
details, and empowered the majority to assess taxes to pay
for the street. According to section three of the charter,
if an individual owner refused to pay his tax, the cor-
poration could sell as much of the individual's land as
necessary to meet the assessment. Unlike the prOprietor
of a common field, a member of the Front Street Corporation
was given no appeal to a court if he felt he was assessed
more than his share. The corporation, furthermore, was
not given the power of eminent domain.58
Although William Marshall was an owner of lands along
the Front Street route, and had been named a corporator
by the charter, he had refused from the beginning to recog-
nize the project's existence in any way. He had not sub-
scribed to the original petition requesting the charter,
and had not come forward to Oppose it. After the corporation
was organized, he attended no meetings. When he also refused

to pay his assessment, the Front Street Corporation sold

part of his land adjoining the street to Ellis, following

 

58Front Street Corporation charter, Act of March 6,
1804, Jan. Sess., 1804, ch. XLVIII, Mass. Acts and Laws
(Young and Minns), 418-421. On the construction of Front
Street itself, see Edward Stanwood, "Topography and Land-
marks of the Last Hundred Years," in The Memorial History
of Boston, Including Suffolk County, Massachusetts, 1630-
1880, ed. by Justin Winsor, 4 vols. (Boston: James R.
Osgood and Company, 1881-1883), IV, 31. Whitehill, TOpo-
graphical History, 77-78.

 

 

 

225
the procedures established by section three of the charter.59

Ellis had to bring an action of ejectment against
Marshall to enforce the sale. Attorney General Sullivan
and his colleague, Amory, representing Marshall, stated
that their client had never consented to be a corporator,
and had never accepted the grant of incorporation. Although
they conceded that the state, or a corporation Specifically
granted the power of eminent domain, might take land on the
payment of a just compensation, they contended that the
legislature could not, without an individual's consent,
and with no provision for compensation whatever, subject
his lands "to the will of a corporation," to be sold at
the corporation's discretion.6o
Ellis replied that Marshall must have had constructive
notice of the organization of the project, considering
the public uproar, and had therefore to be deemed to have
consented to the act of incorporation. Even if he had no
such notice, the legislature had the power to subject
Marshall's lands to assessment when the improvement was for
his benefit. This happened every day in the case of common
fields, where a minority could call a meeting, and a majority
could levy taxes. Similarly, in the case of marshland,
a majority of the owners could apply to a court for the
appointment of commissioners of sewers, who could enforce

assessments on the owners whether the owners consented

‘

592 Mass., 270-271. 60Ibid., 271-273.

226

individually or not.61

Justice Isaac Parker, for a unanimous court, delivered
the Opinion in favor of Marshall. Either a town, or any
corporation having the power Of eminent domain, might take
an individual's land upon the provision of compensation.
This case, however, was different. The incorporation of
Front Street was "a grant or charter," "a private act,
Obtained at the solicitation of individuals, for their pri-
vate emolument, or for the improvement of their estates.

. . . [I]t was never before known," continued Parker, that
the legislature had "power over the person, to make him a
member of a corporation, and subject him to taxation, nolens
volens, for the promotion of a private enterprise." Nor
could those interested in special projects insert the names
Of individuals into petitions or charters "by intrigue

or mistake," and thus prevail upon the legislature to "press
into the service" of the new corporation "those whose lands
might he wanted." Because the Front Street charter was

a grant, then, and.because any man might "refuse a grant,"
even if acceptance of the grant would "be highly beneficial
to him," Marshall had to give his assent, "either express
or implied," before he could be subjected to the provisions
of the charter. No such consent being found, Marshall

got to keep his lands.62

 

511bid., 273-275.

62Ibid., 276-278. The legislature had itself referred
11> a corporate charter as a "grant" in section eleven of the
General Turnpike Corporations Act, Act of March 6, 1805,

 

227

Justice Parker was aware of the importance of the
Eilie decision, and was careful to state the reach of the
ruling. On the one hand, Parker made it clear that the case
was not to affect the organization of common fields or the
appointment of commissioners of sewers. Both of these
cases differed "materially" from the Front Street Corporation.
"The act relative to common fields" was "predicated upon
the assent Of all who are to be affected by it; and that
which provides for the appointment of commissioners of
sewers gives an eventual trial by jury to all questions
arising under it." Moreover, the acts relative to common
fields and sewers were "public acts, promotive of general
convenience, and Operating equally upon all citizens whose
property is intended to be secured or improved by them,"
whereas the Front Street charter was, again, "obtained at
the solicitation of individuals for their emolument or
advantage." On the other hand, Parker specifically extended
the Elli§_decision to cover not only real estate deve10pment
corporations like Front Street, but "all incorporations
'to make turnpikes, canals, and bridges," Since these, too

*were grants to enable individuals to realize a profit.63

 

~Jan. Sess., 1805, ch. LXXIX, Mass. Acts and Laws (Young
and Minns), 647-652. Ellis merely gave formal recognition
1n the case law to what the legal system already acknowledged.

632 Mass., 279. The organized proprietors of common
fields are discussed above. For the act providing for the
appointment of commissioners of sewers, see Act of Feb. 26,
1796, Jan. Sess., 1796, ch. XXXVIII, Mass. Acts and Laws
(Adams and Larkin) , 562—564. The distinction drawn by the
court was in part analytically unsound, since acts on common
fieldds and sewers, though general in operation, were as much

228
Although Parker's legal category of incorporated

"private enterprise" was not formulated with analytical
precision, it did rest on functional distinctions which were
themselves based squarely on the realities of the chartering
process and Of the interests and composition of internal
improvement corporations. The Front Street charter was little
more than the legislative sanction of a private agreement
between warring groups of entrepreneurs. At the time of
the Eiiie decision, the controversy over the location of
the Canal Bridge was still very much alive and in the press,
emphasizing the power wielded by speculators in the legis-
lature. A year before, the court had decided Welee, in
which a turnpike corporation had illegally placed a gate
across a public road in an effort to increase its revenues.64
All of these situations highlighted the existence of special
economic interests which were eager to take advantage of
the state and the public at large for private-economic gain.
Under these circumstances, it would have been indefensible
for the court to allow the legislature to press individuals
into the service of corporations on the grounds that the
corporations were "agencies" of the state.

In a larger perspective, the problem presented in

Ellis was merely a variation of that which had arisen in

 

for the "emolument or advantage" of individuals as the Front
Street and similar charters which authorized particular
IfrOjectS. Cf., Handlin and Handlin, Commonwealth, 140, 155-
56.

64Wales, 2 Mass. 143 (1806).

229

connection with the organization of common fields. Essentially,
the problem for the state, whether represented by the legis-
lature or the court, was to balance the conflicting economic
interests of groups with those Of individuals. In the case
of common fields, the legislature gave the organization

the edge, but checked the power of the majority by allowing
an aggrieved individual to appeal to the courts, or even

to secure partition of his lands. In the case of Front
Street, on the other hand, the corporation had all the
power. Marshall's land had already been partitioned, he
had no appeal against the size of his assessment, and he
had none of the procedural safeguards built into an eminent
domain proceeding. The court's decision that the legis-
lature could not conscript Marshall into the Front Street
Corporation without providing him more protection was thus
merely an application of the values implicit in the common
fields system to the newer real estate deve10pment and in-
ternal improvement corporations. In terms of economic and
legal values, then, Ellie reveals a substantial continuity
laetween the late colonial and early national periods.

Ellie was soon followed by other cases in which the
court explored the implications of its conclusion that
internal improvement corporations were to be treated primarily
as profit-making organizations. In Commonwealth v. Cambridge,
decided in 1810, the court put another limit on the actions
the government could take against an individual in favor

0f Ixrivate enterprises. The case grew out of the rivalry

230
between Craigie's Canal Bridge and the West Boston Bridge

over the location of new public roads through the town of

Cambridge. Each time one group would propose a new road

to its bridge, the other would Oppose it as detrimental to
its interests. The legislature had given the authority

to lay out new roads to the courts of common pleas, which
acted on the applications of individuals or groups. If the

court granted a request, it ordered the town to purchase the

1. ‘m' “‘ 7

lands at public expense, and to open and maintain the new

 

road. It appears that Craigie occasionally tried to influence

the court by formally promising to pay one-half of the cost

of opening a road to his bridge so that the common pleas

j udges would not be dissuaded by public expense from ordering

the road applied for. When the West Boston interests com-

91 «ained of this practice, the supreme court agreed, calling

Craigie's action "irregular," and ordering it not to be

he Peated. Although private property rights would have to

give way to the public convenience on the provision of a
3 ust compensation, said the court, an individual was "injured"

when a road was Opened across his land "against his consent
. not for the sake of the publick; but for the sake of

-
-

p): ivate persons or corporations who invade his rights for
their own benefit, but in the name Of the publick." In the
future a jury could discontinue a public road whenever they
WQ J1‘45. satisfied that "private emolument, and not the interests
93 the inhabitants, had caused the way to be located."

A
a in Ellis, the court contrasted the narrow, pecuniary

231
interests of private persons and corporations with the

rights Of individuals, which the court would protect, and
the interests of the public, which the court would honor.65
A distinction between business and other types of
corporations was at least implicit in the Ellie and Cambridge
decisions. Suits by individuals against business corporations
gave the court the Opportunity to be more explicit. In
Commonwealth v. Blue Hill Turnpike Corporation, decided in
l 8 O 9, the supreme court reviewed a lower court judgment
which authorized the collection of a damage award from
Lndividual stockholders if the turnpike corporation itself
aid not pay the judgment in six months. Admitting that
aarnages awarded for the taking of land for a public highway
<30 111d be collected against individual inhabitants of towns,
the court nonetheless refused to sanction this process in
the case of damages assessed for land taken by a turnpike
co:l:‘poration. The town had general authority to tax its
c~5—‘t.izens, whereas the turnpike corporation was limited to
Se lling the shares of those who. failed to meet assessments.
MQre important, the citizen whose property was taken to
satisfy a judgment against the town had, by statute, the
right to sue the town for indemnity. The individual
Sichkholder had no such remedy against the turnpike corporation.

'3:- .
hus, towns and business corporations were dlfferent, and

\

(1 65Commonwealth v. Cambridge, 7 Mass. 158, 166-167
B:- §10). On the competition between West Boston and Canal

Q: :Ldge interests, see Paige, Cambrid e, 199-203. Cf.,
nge v. Mellen, 6 Mass. 7 (1809).

 

 

232
judgments against the latter could be collected only against

the corporate funds.66

The same line of reasoning was followed in Riddle v.
Proprietors of Locks and Canals on the Merrimack River,

decided in 1810. Riddle had lost his barge and part of

his cargo because Of the failure of the corporation to
maintain its canal at the depth required by the charter.
When Riddle sued for damages in an action of trespass on

the case, the prOprietors replied that such an action would

not lie against a corporation at common law. The court ad-

mi tted that a "private action" for breach of duty could not

be maintained against towns and counties, the inhabitants

of which were"quasi corporations," "invested with particular
Powers without their consent," and totally lacking in special

corporate funds. Such "prOper aggregate" or "regular" cor-

Porations as the canal company, on the other hand, were
" Supposed to have a corporate fund," and this fund could
be reached in a private action for damages for breach Of

duty. This distinction between business corporations and

11'). corporated or quasi corporate towns and counties was thus

tieIll‘ived in large part from real, as opposed to merely legal

di- fferences between the two types of corporations. Business

o:Irganizations had a corporate fund which could be reached;

I>11blic corporations had no such fund, and, being created

\

 

5 66Commonwealth v. Blue Hill Turnpike Corporation,
IMlass. 240 (1809). Cf., Andover and Medford Turnpike Cor-

%ation v. Willard, 5 Mass. 80 (1809).

233

to perform a wide variety of governmental functions, were
67

subject to different statutes and legal liabilities.

After Riddle, only the Brown and Portland Bank decisions,

discussed above, remained for the court to complete in case

law the basic outline of the Massachusetts system of politlcal

economy with regard to business corporations. The results

of the cases can be easily summarized. The court, finding

distinctive attributes and functions in business corpora-
tions, easily distinguished them from counties and towns.
Incorporated businesses were merely private enterprises,

self-interested, for profit, with a corporate fund usually

available to satisfy damage judgments. Incorporated towns

and counties, on the other hand, had a wide variety of govern-

mental functions, had no special corporate fund, and conse-

quently were subject to a special set of statutes. Organized

PrOprietors of common fields were in turn distinguished

on the basis of peculiar characteristics and functions from

other business as well as governmental corporations. The

legislature could both aid and regulate standard business

coIl’e‘porations so long as apprOpriate procedures were followed

to secure both public and private rights. The legislature

colJ.:].d, for example, authorize a business corporation to
take the land of an individual on the provision of just
compensation, but the legislature could not force a man to

erme a member of an 1ncorporated prlvate enterprlse aga1nst

\

 

‘teh 67Riddle v. Proprietors of the Locks and Canals on
\Merrimack River, 7 Mass. 169 (1810).

 

234
his will. Furthermore, although the legislature could not
arbitrarily abridge corporate rights or privileges Specifically
granted by charter, it could with a little foresight adequately
provide for regulation in the public interest by limiting
the duration Of the charter or by reserving the power to alter,
amend, or repeal all or part of the charter itself. Finally,
the courts construed charters strictly against the corpora-
tions and liberally in favor of the state, refusing to hear
corporate pleas that every benefit enjoyed necessarily

represented a legally vested right whether or not it was

specifically guaranteed by charter.

It is apparent that the court did not use its power
of judicial review to work any fundamental or essential
change in the Massachusetts system of political economy
as it had been developed since 1780 by the legislature and

Private entrepreneurs. Although the court restricted the

me ans available to the legislature both to aid and to regu-
late business corporations, the focus of the decisions and
the attention to functional imperatives make it clear that
the primary goal of the court was to rationalize and perfect
the system, not to alter or remodel it in terms of abstract
doctrines of vested rights. Furthermore, when it restricted
both governmental and corporate infringements on the personal
or property rights of individuals, the court was merely
seeking to harmonize the system of political economy with
the essential individualism of the common law tradition

16- constitutional bill of rights. The early court left

235

the essential features of the system intact, and allowed

both legislature and corporation ample alternative means

to advance both public and private interests.

Justice Joseph Story of Massachusetts, appointed to

the United States Supreme Court in 1812, was the greatest

exponent of his state's system of political economy at the

national level. Story's career had given him an intimate

association with the Massachusetts system. Admitted to the

state's bar in 1801, Story very quickly became prominent

in his profession. Before he went to the Supreme Court

in 1812, Story had argued at least thirty-six cases before
the state Supreme Judicial Court and the important case

of Fletcher v. Peck in Washington. In 1805, he was elected

to the state House of Representatives as a Republican where

he became a leader of his party. After serving in Congress

fer one session in 1808-1809, Story returned to Massachusetts,
and was re-elected to the state's House of Representatives,
where he became speaker in January, 1811, the year the legis-
lature began reform and expansion of the banking system.
Although Story went to the Supreme Court early in 1812, he

Inadintained close business and professional ties with the

s"last-e. He was an incorporator of the Merchants' Bank of

Salem, chartered in 1811, and President of the bank from
1815 to 1835. He was also listed as a corporator of the

\
68The Handlins state that "Specific interpretations

i I
hit case after case gradually undermined and transformed
e law" in the period after 1800. Commonwealth, 139.

 

 

236
Massachusetts General Hospital, as noted, and the Insti-

tution for Savings in the Town of Salem, of which he was

vice-president from 1818 to 1830. In 1814, the Justice

served on a commission to codify Massachusetts colonial
arui state laws. Few people could have been more familiar
‘trLan.Story with the political, economic, and legal aspects
of the Massachusetts system.69
Story's judicial opinions reveal the impact of his

Ddaisssachusetts experience on his legal thinking. In the

11c>xarconstitutional case of Terrett v. Taylor, decided in

 

18 15 , Story, who wrote the opinion for the court, went
c>111:.of his way to state his view as to legislative powers

atr1<3.restrictions with regard to different types of corpora—

1:;i.<3ns:

A private corporation created by the legislature
may lose its franchise by a misuser or a non-
user of them; and they may be resumed by the
government under a judicial judgment upon a
quo warranto to ascertain and enforce the for-
feiture. . . . In respect, also, to the public
corporations which exist only for public purposes,
such as counties, towns, cities, etc., the legis-
lature may, under proper limitations, have a right
to change, modify, enlarge or restrain them,
securing, however, the property for the uses of
those for whom and at whose expense it was
\

£3 69The latest biography of Story is Dunne, Story.
See also, generally, Story, ed., Life of Story. William
thofield, "Joseph Story, 1779-1845," in William D. Lewis,
(2 -., Great American Lawyers, 8 vols. (Philadelphia: John
‘tflEi Winston Company, 1907-1909), III, 137, 181. Charter of
£3 ‘63 Merchants' Bank of Salem, Act of June 25, 1811, May
Gees” 1811, ch. LXXXII, Mass. Laws (Adams, Rhoades and
.Zx‘n" ), 494-500. Massachusetts General HOSpital charter,
32:1: of Feb. 25, 1811, Jan. Sess., 1311, ch. xcxv, Ibid.,
UP 53-342. Charter of the Institution for Savings in the
QEWn of Salem, Act of Jan. 29, 1818, Jan. Sess., 1818,

.. LXIV, Ibid. (Russell, Cutler and Co.), 464-466.

 

237

originally purchased. But that the legislature
can repeal statutes creating private corporations,
or confirming to them prOperty acquired under

the faith of previous laws, and by such repeal
can vest the property of such corporations ex-
clusively in the state, or diSpose of the same

to such purposes as they may please, without the
consent or default of tBe corporations, we are
not prepared to admit.

The Dartmouth College decision of 1819 finally gave
czcxnstitutional authority to Story's basic doctrines by
reading them into the contracts clause. Near the end of h-
his concurring Opinion, Story cited parenthetically two

Massachusetts cases, revealing the source of his ideas. L

 

IEZLHJis v. Marshall, he said, "held, that the state legis-
JLzastnre had no authority to compel a person to become a member
1c>jE a mere private corporation." In Wales v. Stetson, the

" Same learned court declared, that they were all satisfied,
that the rights legally vested in a corporation cannot be
‘C=<>11trolled or destroyed by any subsequent statute, unless

Ei- Ipower for that purpose be reserved to the legislature

:5-11- the act of incorporation." Story concluded that these
Principles were "consonant with justice, sound policy and
‘JL‘Eesgal reasoning." Story had clearly been asserting the basic

I:‘:’-:l=’:i.nciples of his state's political economy at the federal

level, and with no little success.
\

 

70Terrett, 9 Cranch, 51-52.

w 71Dartmouth College, 4 Wheaton 513, 708. Both
(=E1=Shington and Story specifically cited Terrett in their
<2<§Ntucurring opinions. Ibid., 663, 695. Marshall did not
..:1~‘:e a single case by name, but said his Opinion was

E3<aually supported by reason, and by the former decisions

of this court." Ibid., 650.

238
The fact that the Massachusetts system bore a uniquely

close relationship to the Dartmouth College decision does
not mean, of course, that the Supreme Court considered

(directly or indirectly the law and political economy of
Probably second to Massachusetts in terms

no other state.
of its contribution to the Dartmouth College doctrines was

\figrginia, whose system was carried to the Supreme Court
Marshall, and the

to)? John Marshall, the Chief Justice.
:innqpact of the Virginia system on his thinking and on the

<2<>Jnstitutional law he announced,is the subject of the

Ileezxt chapter.

 

V

JOHN MARSHALL AND THE

VIRGINIA SYSTEM OF POLITICAL ECONOMY

The Marshall Court, as Felix Frankfurter said, was
"an orchestral and not a solo performance." But if the most
significant part of the performance, the precise holding,
was typically "a composite product of the Court," it is
also true that John Marshall had the primary responsibility
for the final arrangement of the number. Marshall could
state in his own way the compromise agreements reached by
the Court, and could set them in a broad expository frame-
work all his own. Under the heading of "reason" in his
opinions, Marshall developed the general principles on which
he believed the final decision of the case rested. The
principles were in large part the formal articulation of
the lessons of history and experience as Marshall perceived

them.l

 

lFelix Frankfurter, The Commerce Clause under Marshall,
Taney and Waite (Chapel Hill: University of North Carolina
Press, 1937}, 43, 44. Hereafter cited as Commerce Clause.
Frankfurter's conclusions were supported by Donald G. Morgan
in "Marshall, the Marshall Court, and the Constitution," in
W. Melville Jones, ed., Chief Justice John Marshall: A
Reappraisal (Ithaca, N. Y.? Cornell University Press, 1956),
168-185, and esp. 168-170, 177, 183-185. Hereafter cited
as Marshall. Other scholars have thought the Marshall Court
was virtually a one-man band. Beveridge, Marshall, IV, 59,
61, 89-91, 94. Haines, Role of the Supreme Court, 630,

239

 

240

What was true of most of the Marshall Court's great
constitutional decisions was true also Of the Dartmouth
College case. Although the reach of the decision, parti-
cularly with regard to publicly and privately founded charitable
institutions, represented a compromise by the Court, the
Opinion of the Court was pre-eminently Marshall's. Informing
those general principles Of prOperty and contract law and
public policy which he extended to charitable corporations
was an extensive experience with the Operations of the
Virginia political economy in general and Of business corpo-
rations in particular. The purpose of this chapter is to
survey the broad features of the Virginia system, and to
single out for special attention problems and issues with
which Marshall was directly concerned. Although evidence
is sometimes scanty, a full exploitation Of what is available,
coupled with inferences as to what Marshall should have
known, will make it possible to isolate with reasonable cer-
tainty the forces which contributed to the formation of

Marshall's constitutional Opinions relative to the economy.2

 

referred to Marshall's "domineering attitude and dictatorial
control Of the Court."

2Marshall's legal career and business affairs before
his appointment to the Supreme Court have been covered by
Beveridge, Marshall, esp. II, Ch. V. Beveridge is not so
complete, however, with regard to Marshall's affairs after
1800. He states that Marshall "seems to have left to his
brother and partner, James M. Marshall, the practical hand-
ling Of his business affairs" after the Fairfax deal. Ibid.,
II, 173, n. 2. The impact of Marshall's experience on his
constitutional Opinions has been briefly noticed by Joseph
Dorfman in "John Marshall: Political Economist," in Jones,
ed., Marshall, 126 ff. Cf., Herbert A. Johnson, "John Mar-
shall," in Leon Friedman and Fred L. Israel, eds., The

241
The basic features of Marshall's life in Virginia

are easily identifiable. He Spent most Of his adult life

in Richmond, almost never being absent for more than a few
months at a time, in part because Of a desire to care for
his invalid wife. He moved at ease in all ranks of Richmond
society, and apparently was on comfortable terms with most
leaders Of the Virginia Republican party. His neighborhood,
a center Of Richmond elite socity, included such members

of the "Richmond Junto" as Thomas Ritchie, editor of the

Richmond Enquirer. As the state capital and a major commer-

 

cial center, the town grew rapidly after Marshall established
his law practice there in the early 1780's, contributing to
his success as a lawyer. Most of his cases concerned
prOperty in the broadest sense, not only land but also
mercantile contracts of various sorts. His closest business
associates, aside from lawyers, were members of the Richmond
financial community, composed of merchants and speculators.
In the 1790's, this group was the nucleus of the Federalist
"interest" and then Of the Federalist party which supported
the Washington administration's policies in both domestic

and foreign affairs. Marshall was a leader Of the Richmond

 

Justices of the United States Supreme Court, 1789-1969: Their
Lives and Major Opinions. 4 vols. (New York: Chelsea

House, in Association WIth R. R. Bowker Company, 1969), I,
289. Robert K. Faulkner, The Jurisprudence Of John Marshall
(Princeton, N. J.: Princeton University Press, 1968), esp.
Ch. I, is occasionally useful on the dimensions of Marshall's
constitutional "understanding" or "persuasion." Faulkner

is not concerned, however, with the source of the under-
standing Or what it was that persuaded Marshall to hold the
views he did.

 

 

242
Federalists from the early 1790's, when he showed considerable

skill in organizing public meetings to drum up popular support
for the administration's handling Of the Genet problem and

the Jay Treaty. His political loyalties and service brought
him to the attention of the national authorities. President
John Adams made him a special emissary to France and, on

his return, he was elected to Congress. Adams soon appointed
Marshall Secretary Of State and then Chief Justice. After
taking his position on the bench, Marshall generally abstained
from active participation in politics, although he followed

public affairs closely.3

 

3On Marshall's life in Richmond, see esp. Beveridge,
Marshall, II, 172; IV, 61. Many useful details about Rich-
mond itself are presented by Samuel Mordecai, Richmond in
By3Gone Days: Being Reminiscences of an Old Citizen
(Richmond: George M. West, 1856). Hereafter cited as
Richmond. See also Myrtle Elizabeth Callahan, History Of
Richmond As a Port City (Unpublished M. A. Thesis, University
of Richmond, Virginia, 1952). Hereafter cited as Richmond
As a Port City. Philip Morrison Rice, Internal Improvements
in VirgInIa,’I775-186O Unpublished Ph. D. Dissertation,
University of North Carolina, 1948), passim. Hereafter cited
as Internal Improvements in Virginia. Perhaps the best dis—
cussion of Richmond society is Charles H. Ambler, Thomas
Ritchie: A Study in Virginia Politics (Richmond, Va.:
Bell, Book and Stationery Co., 1913), 13-18. Hereafter
cited as Ritchie. On Marshall's legal career and business
associations in the 1790's, see Beveridge, Marshall, II,
Ch. V, and esp. 181. Marshall's political activities in
Virginia are most thoroughly covered by Lisle A. Rose,
Prologue to Democracy: The Federalists in the South, 1789-
1800 (Lexington: University of Kentucky Press, 1968),
esp. 22, 40-44, 75-77, 128-129. See also Harry Ammon's
two articles, "The Genet Mission and the Development of
American Political Parties," Journal of American History,
LII (March, 1966), 730-732, 736, hereafter cited as "The
Genet Mission"; and "Agricola versus Aristides: James Monroe,
John Marshall and the Genet Affair in Virginia," Vir inia
Magazine Of History and Biography, LXXIV (July, 1966;, 3I2-
320. A good summary of Marshall's early career was written
by the Chief Justice himself in 1827: An Autobiographical
Sketch by John Marshall Written at the Request of Joseph

 

 

 

 

 

 

 

 

 

 

 

243
Both before and after Marshall went to the federal

bench, he was associated with various business enterprises.
In 1791, Marshall signed a petition requesting that a branch
of the Bank of the United States be established at Richmond.
Among other things, the petition stated that a scheme was

in Operation for the establishment of a state bank in Rich-
mond, and a branch of the BUS would render this project
unnecessary. When the BUS refused to locate in Richmond, _
Marshall and other memberscf the financial community secured
a charter Of the Bank of Richmond. The project failed to
attract enough subscribers, however, and the doors never
Opened. Whether Marshall purchased stock in Virginia banks
after 1800 is not known, but he did purchase some stock in
the second Bank of the United States. Marshall was also
associated with at least two insurance companies. One,

the Mutual Assurance Society against Fire on Buildings of
the State of Virginia, founded in 1794, will be discussed
below. The other was the Marine Insurance Company Of
Alexandria, chartered in 1798. When a case involving this
company came before the Supreme Court in 1805, Marshall
"declined giving an Opinion, conceiving himself," in the
words of the report, "to be in a remote degree interested

in the stock of the insurance company." Finally, Marshall

 

Story and Now Printed for the First Time from the Original
Manuscript Preserved at the William Clements Library, To-
gether with a Letter from Chief Justice Marshall to Joseph
Story Relating Thereto. Ed. by John Stokes Adams (Ann
Arbor: University of Michigan Press, 1937). Hereafter
cited as Autobiographical Sketch.

244
was associated with the founding of at least two internal

improvement companies, the James River Company, chartered
in January, 1785, and the Virginia Canal and Navigation
Company, chartered in February, 1818. Both of these will
be discussed below.4
These enterprises were not Marshall's only business
ventures. He was also a speculator in land. In the east,
he was heavily involved with Robert Morris, to whom he was
related by marriage, and was a purchaser, along with his
brother, of the Fairfax estate in Virginia's Northern Neck.
Ultimately more important, however, than his eastern

speculations was Marshall's close association with the west.

In the 1780's while Marshall was establishing himself in

 

4"The Bank of the United States. Petitions of Virginia
Cities and Towns for the Establishment of Branches, 1791."
"Petition from Richmond, Manchester &c.," Virgipia Magazine
of History and Biography, VIII (Jan., 1901?, 293, 294.
Charter of the Bank Of Richmond, Act Of Dec. 23, 1792, Oct.
Sess., 1792, ch. LXXVII, in William Walter Hening, ed.,
The Statutes at Large: Being a Collection of All the Laws
of Virginia, from the First Session of the Legislature, in
the Year 1619. 13 vols. (Various Imprints, 1809-18237,
XIII, S99-607. Hereafter cited as Henin . See also, George
T. Starnes, Sixty Years Of Branch Banking in Virginia (New
York: The Macmillan Company, 1931), 19, 24, 25. Hereafter
cited as Banking in Virginia. On Marshall's ownership of
shares of the second Bank of the United States, see Rhodes,
Papers of Marshall, II, 156-157. Mapine Insurance Company
of Alexandria v. Wilson, 3 Cranch 187, 191 (18057. The
company was chartered by Act of Jan. 10, 1798, Dec. Sess.,
1797, ch. XX, Shepherd, II, 89-92. For other cases in
which Marshall was listed as not sitting or in which the
Chief Justice's name does not appear, see Marine Insurance
Company of Alexandpia v. Tucker, 3 Cranch 357, 384 (1806);
Hodgson v. Marine Insurance Company of Alexandria, 5 Cranch
100, 109 (i809h Marine Insurance Company of Alexandria v.
Hod son, 6 Cranch 206 (1810). Marshall delivered the opinion
for the Court in Marine Insurance Company of Alexandria v.
Hodgson, 7 Cranch 332 (1813).

 

 

 

 

 

 

 

 

 

 

 

245
Richmond, his father and much Of his family had gone west

to Kentucky. At his father's death, Marshall inherited

three large tracts in the western part Of that state. Other
western land he acquired through military land warrants which
had been issued directly to him or which he had purchased

on the market. Occasionally, as in the summer of 1799,
Marshall himself went west, and purchased hundreds of thousands
of acres. It was this economic interest in the west that

led Marshall to accept, in the fall of 1812, an appointment

by the Virginia legislature to the chairmanship of a com-
mission tO survey the upper James and the trans-Allegheny
rivers in order to determine the feasibility of opening a

trade route to the west by connecting the James with the

Ohio river. The Marshall Report recommended that Virginia
undertake the project in order to exploit the benefits

certain to be created by the further commercial deve10pment

of the western areas.5

Ultimately, Marshall's extensive investments in Kentucky

 

5On Marshall's connection with Morris, see Beveridge,
Marshall, II, 7, 8, 101, 199-200, 202-211, passim. On
Fairfax, see Ibid., I, 191-196, 448-449, 458; II, loo-101,
129, 203-211, 371, 373; III, 582; IV, 144-166. Stanley
Phillips Smith, "The Northern Neck's Role in American Legal
History," Virginia Magazine of History and Biography, LXXVII
(July, 1969), 280 ff. On Marshall's association wiEh Ken-
tucky, see Irwin S. Rhodes, "John Marshall and the Western
Country, Early Days," Historical and PhilQSOphical Socigpy
of Ohio Bulletin, XVIII (April, 1960), 117, 119-121, 123-125.
Establishment Of the Marshall Commission, Act of Feb. 15,
1812, Dec. Sess., 1811, ch. XXXVII, Va. Acts (Pleasants),
51-52. Report of the Marshall Commission, December 26, 1812,
Va., Journal of the House of Delegates, 1812-1813, 83-89.
Hereafter cited’asififiarshall Report?“ Beveridge, Marshall,
IV, 43.

 

 

246
lands and his appreciation of the commercial possiblities

of the west meant that his primary experience with Virginia
business investments and with Richmond's legal and financial
community would be interpreted not exclusively in light of
parochial concerns but in terms of a wider, interstate,
nationalist perspective. Marshall's Opinions on political
economy, the roots of which are the main subject of this
chapter, were thus closely related to his economic nationalism,
and both were firmly grounded in personal experience.

In Virginia, as in other states where economic activity
went beyond agriculture and simple trade, the joint stock
corporation was a major organizational device. Article IV
of the Virginia bill of rights laid down general standards
as to what businesses the legislature could incorporate.

It stated that "no man, or set Of men, are entitled to
excluSive or separate emoluments or privileges from the
community, but in consideration of public services." As
applied to corporations, this meant that a business would
have to promise significant benefits to the public before

it would receive a charter. Canal and river improvement
projects, turnpikes, banks, insurance companies were granted
corporate powers while, significantly, the import-export
trade itself, so vital to the Virginian economy, remained

wholly on the basis of private partnership.6

 

6Va. Const. of 1776, Bill of Rights, Art. IV, Thorpe,
ed., Constitutions, VII, 3812. Rice, Internal Improvements
in Virginia, ch. VII, 217—266, and esp. 217-218.

 

 

 

247

The constitutional requirement that a corporation
provide a "consideration" to the public in return for the
charter and other privileges indicates that in Virginia,
as in Massachusetts, the charter represented a bargain
between the public and the corporation's sponsors, with both
sides giving a price and receiving a benefit. The term
"consideration" was, of course, borrowed from private con—
tract law, where it signified the legal "price" paid by each
party to form a binding contract. The charters themselves
read like contracts, and indicate the terms of the bargains.
For example, the charter of the James River Company, which
was granted in 1785, and which became a model for nearly
all future charters of internal improvement companies,
provided that "for and in consideration of the expences the
. . . prOprietors will be at" in building and maintaining
the canal, the "canals and works, with all their profits,

. . . are hereby vested in the . . . prOprietors . . .
forever, . . . and the same shall be . . . for ever exempt
from the payment of any tax . . . whatever." The legislature
was even more explicit in its recharter of the Bank of
Virginia in 1814. The preamble stated that the "stockholders
Of the Bank" had "prOposed for the acceptance of the General
Assembly . . . their terms and conditions of a mutual compact
between the stockholders and the commonwealth." The legis-
lature "accepted" the stockholders' prOposals, and went on

to ratify "the compact which the . . . recited terms and

248

conditions import."7

The feature Of the Virginia system which has received
most attention from scholars is the relatively large amount
Of aid given by the state legislature to internal improve-
ment corporations. Before 1816, the state had appropriated
over $200,000 for this purpose, most Of which was in the
form of stock subscriptions to individual corporations,
after the pattern established with the James River and
Potowmac Companies. In 1816, a variety of factors, including
an increase in trade, pressure from town merchants, and
demands from the planter shipping interests, prompted the
legislature to establish a permanent Fund for Internal
Improvements, with a Board of Public Works to administer it.
In general, the state was to continue to subsidize the con-
struction of internal improvements by subscribing to stock
in individual corporations, but provision Of a permanent
fund allowed the subscriptions to be on a more regular basis
and the administrative board could bring some system into
the program. The primary goal, however, remained that Of
promotion of private investment in internal improvements.

Despite the state subsidies and the increased possibilities

 

7Charter of the James River Company, sec. 9, [Act

of Jan. 5, 1785], Oct. Sess., 1784, ch. XIX, Hening, XI,
450-462. The charters of the James River Company and the
Potowmac Company were passed the same session, and varied
Only in matters Of detail. These two charters set the pattern
for the future. Rice, Internal Improvements in Virginia,
59-73, 77. Recharter of the Bank of Virginia, Act Of Jan.
24,1814, Dec. Sess., 1813, ch. XXXI, Va. Acts (Pleasants),
57-“71. In the terminology of the day, a compact was the
Same as a contract.

249
of state control, as Carter Goodrich has emphasized, the mixed

enterprises Of Virginia were always essentially private,
that is, planned, organized, financed, and directed by
private citizens.

In legal terms, these mixed enterprises came to be
regarded as strictly private. In his Dartmouth College
Opinion, Marshall said a private corporation was one "endowed
with a capacity to take property, for Objects unconnected
with government, whose funds are bestowed by individuals,
on the faith of the charter." A corporation would be public
"if the funds . . . be public property, or if the state . . .,
as a government, be alone interested in its transactions."

While the distinction between the two types of corporations

 

8For the amounts of state subsidies to internal

improvements before 1816, see Rice, Internal Improvements
in Virginia, 93-95, 149, 265, n. 159. The most complete
treatment of the movement leading to the establishment Of
the Fund for Internal Improvement is Ibid., ch. IV, 102-
145, and esp. 102, 130-138. The cruelal "Report Of the
Committee of Roads and Internal Navigation," recommending
the establishment of the Fund, was submitted to the House
of Delegates on December 23, 1815, and is reprinted in full
in Carter Goodrich, ed., The Government and the Economy,
1783-1861 (Indianapolis: Bobbs-Merrill Company, Inc.,
1967), 59-77. Goodrich, relying heavily on this Report

and evidence as to how the Board of Public Works operated
in practice, emphasizes that the main purpose of the Fund
was to assist private groups, not to establish a compre-
hensive governmentally planned and controlled transporta-
tion network. "The Virginia System of Mixed Enterprise.

A Study of State Planning of Internal Improvements,"
Eglitical Science Quarterly, LXIV (Sept., 1949), 357-365,
378-383. For the establiShment of the Fund, see Act Of
Feb. 5, 1816, Dec. Sess., 1815, ch. XVII, Va. Acts (Ritchie),
35-39. Cf., for another treatment Of the state's contri-
kHJtion to internal improvements, Wiley E. Hodges, "Pro-
c3'0vernmentalism in Virginia, 1789-1836: A Pragmatic Liberal
Enittern in the Political Heritage," Journal of Politics,
AUKV'(May, 1963), 346—350.

 

250

is not as finely drawn as might be wished, it seems that
Marshall regarded business corporations which were subsi-
dized by the state as private, primarily because Of the
presence of "funds . . . bestowed by individuals, on the
faith Of the charter." At any rate, he cleared the matter
up in his Opinion for the Court in Bank of the United States v.
Planters' Bank of Georgia, decided in 1824. The BUS had
sued the Planters' Bank, of which the state of Georgia was
a corporator, along with individuals, for payment of some
of Planters' notes. The suit was brought in the United
States Circuit Court for the district of Georgia. The
Planters' Bank challenged the jurisdiction of the court,
in part on the grounds that since the state Of Georgia was
a stockholder, a suit against the bank was really a suit
against the state, which was prohibited by the eleventh
amendment. Marshall rejected this argument. It was, he
wrote,

a sound principle, that when a government be-

comes a partner in any trading company, it devests

itself, so far as concerns the transactions Of

that company, of its sovereign character, and

takes that of a private citizen. . . . As a mem-

ber of a corporation, a government never exercises

its sovereignty. It acts merely as a corporator,

and exercises no other power in the management of

the affairs of the corporation than are [sic.]

expressly given by the incorporating act.
This was precisely the basis on which the Virginia system
0f mixed enterprise had Operated since the 1780's when the
state first subscribed to stock in the James River and

Potowmac Companies, and it was the apparent basis of the

de<:ision by the Virginia General Court in Commonwealth v.

 

1;

 

 

251

President and Directors of the James River Company, decided
in November, 1819.9

Other features of the Virginia corporate system were
similar to those developed in Massachusetts. When chartering
internal improvement corporations, the Virginia legislature
carefully prescribed the rate of toll, and usually reserved
some power to alter the tolls under certain conditions.
As in Massachusetts, the problem was to set the tolls high
enough to attract private funds into the company, but also
to reserve enough power to lower them in order to protect
the future interests Of shippers. Although details varied
from charter to charter, the legislature usually followed
a general pattern. The provision on the regulation of tolls
in the 1816 act establishing the Fund for Internal Improve-

ment is typical for navigation companies. If the average

income from the tolls collected by the company would support

 

9Marshall's Opinion, Dartmouth Collage, 4 Wheaton,
629-630. Bank of the United States v. Planters' Bank of
Georgia, 9 Wheaton 904, 907-908 (1824). The principle
stated in the Planters' Bank case was extended in Bank of
Kentucky v. Wister, 2 Peters 318 (1829), where the Court,
speaking through Justice Johnson, allowed the lower federal
court to take jurisdiction of a suit against the Bank of
Kentucky even though the state was the sole stockholder
in the corporation. Dodd, American Bu31ness Corporations,
40. Commonwealth v. President and Directors of the James
giver Company,'2 Va. Cases 190 (1819). Virginia's Attorney
General brought a no warranto action against the James
River Company for failure to perform its charter Obligations.
The Company argued that the state was barred from bringing
the action because it held more than half the outstanding
Stock. The Attorney General replied that the state had
thus characters, sovereign and stockholder, and that the
State was suing as sovereign. The court held, without
Orrinion, that the state could bring the quo warranto action.
.beign 194, 196, 197. Hereafter cited as James River

W-

 

252
a dividend of more than fifteen per cent per year on the

capital, then the legislature could (but was not required to)
lower the tolls to the point where the income would pay only
fifteen per cent. If the average income paid less than
ten per cent per year dividend (a much more likely possi-
bility), then the Board of Public Works was given authority
to raise the tolls so they would return a minimum Of ten
per cent. The company, however, could not benefit from a
raise in rates without giving up something in return. If
the tolls were raised, the maximum future return could be
lowered from fifteen to twelve per cent. Turnpike charters
had a slightly different pattern, of which the provision
on tolls in the general turnpike corporations act of 1817
is an example. For twenty-one years after the completion
of the road, the Board of Public Works (in earlier charters
it was usually the legislature) was to regulate the tolls
so that the return would not be less than ten nor more than
fifteen per cent per year. For the next thirty years, the
return was to be between eight and twelve per cent; and
thereafter, between six and ten per cent.10

Although the Virginia legislature Often revived or
reorganized defunct enterprises, and Often amended existing
charters at the request of the companies, sometimes balancing

a grant of new privileges with a reduction Of old ones,

e

10Act establishing the Fund for Internal Improvement,
Se<:. 12, Act of Feb. 5, 1816, Dec. Sess., 1815, ch. XVII,
Va, .Acts (Ritchie), 35-39. General turnpike corporations
ac1;, sec. 29, Act Of Feb. 7, 1817, Nov. Sess., 1816, ch.
XXXVIII, Va. Acts (Ritchie), 41—45.

 

253
only one instance has been found in which the legislature

summarily reduced chartered rights over the Objections of

the corporation. The single exception arose from very
special circumstances. In 1804, the legislature incorporated
the Richmond James River Company to improve for navigation

a short section of the James between Warwick and Rockett's
Landing just below Richmond. The company was authorized

to take tolls at set rates from all vessels with a draft

Of five feet or more. However, it soon appeared that this

 

part of the river in its unimproved state was already

navigable for any vessel with a draft of up to seven feet.

 

The small boat owners accordingly objected that the legis-
lature could not make them subject to the company's toll.

It was arguably unconstitutional, since Article IV of the
bill Of rights allowed the legislature to grant the special
privilege of taking toll only in consideration Of public
services. The company would provide the small boat owners
with no service whatsoever because they were already navi-
gating the James. The same idea was expressed in terms of
natural rights. Since the river in its natural state sup-
ported the navigation of small boats, it was an infringement
of the "natural rights" of the boat owners to require them
to pay tolls. The legislature responded to these arguments,
and amended the charter to exempt from toll all vessels
‘With a draft Of seven feet or less. Although the company

c>bjected strenuously, it did not take the matter to court.11

\

11Charter of the Richmond James River Company, eSp.
363(3. 9, Act of Jan. 23, 1804, Dec. Sess., 1803, ch. CIII,

254
Because of the probable illegality of the original grant,

it would be incorrect to view the repeal Of the company's
privilege to take toll from small boats as an infringement

of the general operating principle that chartered rights were
to be honored by the state.

The legislature was not so concerned about retaining
‘control over corporations which were peripheral to the Vir-
ginia economy. The few marine insurance corporations, for
example, Often contained elaborate charter provisions covering
organization and Operation, but the legislature merely set
time limits on the companies' existence and did not reserve
control over specific aspects. The same was true of manufac-

turing and steamboat corporations.12

 

Shepherd, III, 79-82, amended b Act of Jan. 31, 1805, Dec.
Sess., 1804, ch. XXXI, Ibid., 56. Argument of Hay, counsel
for the defendants, in Currie's Administratora_v. Mutual
Assurance Society, 4 Hening and Munford 315, 330 (1809).
Hereafter cited as Mutual Assurance Society. According

to Hay, the reason the company never tested the amendment
was that they were "convinced, that their chartered rights
were not quite so good, as the natural rights on which their
charter had encroached." Ibid. itaIics in original. In
section three Of the 1805 act, the legislature asserted a right
to modify the original charter and the amendment "whenever
it shall be deemed expedient." Another amendment, passed

in 1806, repealed the reservation. Act of Jan. 27, 1806,
Dec. Sess., 1805, ch. LXIX, Shepherd, III, 256-259.

12See, a. g., charters of the "Union Insurance Company
Of Norfolk,“Act Of Jan. 5, 1811, Dec. Sess., 1810, ch. XXXVIII,
Va. Acts (Pleasants), 69-74; "Marine Insurance Company of
Richmond," Act Of Jan. 11, 1813, Nov. Sess., 1812, ch. LI,
Va. Acts (Pleasants), 78-83. The first two marine insurance
Companies chartered, the Marine Insurance Company Of Alexandria,
with which Marshall was associated, and the Marine Insurance
Company of Norfolk, had no time limitations. They were
IKDt chartered “forever" or given "perpetual succession,"
arui were not assigned some lesser limit. See, respectively,
Arr: of Jan. 10, 1798, Dec. Sess., 1797, ch. XX, She herd,
II. 39-92, and Act of Dec. 18, 1802, Dec. Sess.,‘IEE'Z—h, c .

 

 

255

Before 1819, only two charters related to economic
affairs contained general reservations of power to alter,
amend, or repeal the act of incorporation. One was the
charter of the Virginia Insurance Company, a marine insurance
group centered in Norfolk. The act was passed on the same
day in 1805 as the amendment to the Richmond James River
Company charter, and may reflect temporary legislative
displeasure at business resistance to the exercise of
governmental power. The second charter did not establish
a business corporation. It was not too clear just what
the Mechanical Benevolent Society Of the Borough of Norfolk
was supposed to do. The legislature, however, was clear
as to what the society could not do. It could pass no
I'bye-law" which regulated "trade, or the wages of labor,"
or which limited "the number Of apprentices to any trade
or craft." The Republican planter majority, some Of whom
sold lumber and naval supplies to the Norfolk ship-builders,
joined with the manufacturers to make sure that the small
group Of artisans in Norfolk did not organize a union.

The general reservation clause was probably inserted on the
chance that the legislature had omitted something from its

express prohibitions.13

 

XL, Ibid., 437-440. For a typical manufacturing corporation
charter, see the "Halifax Manufacturing Society," Act of

Jan. 3, 1809, Dec. Sess., 1808, ch. XLVI, Va. Acts (Pleasants),
46-49. The "Potowmac Steamboat Company" charter, Act Of

Feb. 6, 1813, Nov. Sess., 1812, ch. LIII, Ibid., 84.

 

13Charter of the "Virginia Insurance Company," sec. 3,
Act Of Jan. 31, 1805, Dec. Sess., 1804, ch. XXII, Shepherd,
III, 130-135. This charter carried no time limit. Probably
the time limits inserted in later marine insurance charters,

 

IL.

256
Before 1819, the Virginia Court of Appeals, the state's

highest court, heard very few cases in which the judges were
called upon to interpret corporate charters or to determine
the limits Of legislative power over business corporations.
Compared to that of Massachusetts, the Virginia supreme
court scarcely made a beginning on the "public law" of
corporations, much less divided corporations into "public"
and "private" categories with relatively SOphisticated rules
as to the extent of legislative power over each type. None-
theless, it is possible to determine the Virginia court's
general attitude with respect to the constitutional power

of the state legislature over private property and vested
rights by examining the few relevant non-corporate and cor-

porate cases which were decided.14

 

which did not have general reservation clauses, represented

a compromise between the legislature's desire to reserve

some control over financial corporations and the merchant
community's desire to be let strictly alone. Charter of

the "Mechanical Benevolent Society Of the Borough of Norfolk,"
secs. 2 and 3, Act of Jan. 19, 1811, Dec. Sess., 1810,

ch. XLIII, Va. Acts (Pleasants), 79. For the Norfolk ship
building business from the 1780's to the period after the

War of 1812, see Thomas J. Wertenbaker, Norfolk: Historic
Southern Port, ed. by Marvin W. Schlegel (2d ed. rev.; Durham,
N. C.: Duke University Press, 1962), 77, 85-86, 146.
Hereafter cited as Norfolk.

 

 

14The following volumes of Virginia reports, covering
the years 1790-1818, with a few miscellaneous earlier cases,
were examined for cases on business corporations: Washing-
ton, vols. I and II; Call, vols. I-VI; Hening and Munford,
vols. I-IV; Munford, vols. I-VI. Corporations sometimes
appeared as parties in cases not involving issues in
corporate law. Otherwise, the following cases involved
the interpretation of charters or amendments: Mutual Assurance
Society, 4 Hening and Munford 315 (1809); Greenhow v. Barton,
1 Munford 590 (1810); Winchester v. President and Directors
of the Bank of Alexandria, 2 Munford 339 (1811); Greenhow v.
Huck, 5’MunfOrd 263 (1816). Of these, only the Mutuai
Assurance Society case has any real significance, and it
is discussed below.

 

 

 

 

257

In at least two cases the Virginia high court held that
legislative acts could not be applied retroactively to affect
legal rights to prOperty. In Turner v. Turner's Executrix,
which came before the Court of Appeals in 1792, the plaintiff
had brought a simple action Of detinue for slaves in 1783.

It was clear that under the provisions of the 1758 act

which covered the case, the plaintiffs would win. However,
in 1787, before the case had been finally decided (the l
Virginia courts were extremely slow), the legislature passed

a new law which changed the picture entirely. Under the

 

1787 revision, the defendants would win. The question was
whether the 1787 act applied. Edmund Pendleton, President
of the Court, announced the judges' unanimous "Resolution"
that it did not.

Having made the law, the legislative [aig.]
have no authority afterwards to explain its Opera-
tion upon things already done under it. . . . For
a legislative interpretation, changing titles
founded upon existing statutes, would be subject
to every Objection which lies to ex post facto
laws, as it would destroy rights already acquired
under the former statute, by one made subsequent
to the time when they became vested [:] A power
to be deprecated,las Oppressive and contrary to
the constitution. -

The second case in which the court considered the
subject of retroactive legislation was Elliott's Executor v.
Lyail, decided a decade after Turner. In 1782, Elliott
and two others had signed a joint bond. In 1798, the holder

of the bond brought suit against Elliott's executor, Elliott

e

lsPendleton's Opinion, Turner v. Turner's Executrix,
4 Call 234, 237 (1792).

258

having died in the meantime. By the common law, which was
in effect when the contract was made, the death of a joint
Obligor on a bond (Elliott, in this case) discharged his
executors. However, in 1786, the legislature changed the
law to make executors of joint Obligors liable. The issue
was whether the 1786 act applied to Elliott's 1782 contract.
Writing seriatim, the four judges Of the Court of Appeals
unanimously agreed that the 1786 act had a prospective
Operation only, and could not affect the 1782 contract.
Judge Spencer Roane emphatically stood "upon this broad
principle, that men, in regulating their contracts, shall
have the benefit of existing laws, and not have them over-
turned Or affected by future laws, which they certainly could
"16

not foresee, or provide against.

Another important case, Turpin v. Locket, decided in

 

1804, has some bearing on the problem. Although the case
ultimately involved the broad politically and emotionally

charged issues of separation of church and state, a subject

 

16Roane's Opinion, Elliott's Executor v. Lyell, 3
Call 268, 279 (1802). Hereafter cited as Lyell. If extended,
the basic principle of the Lyell case would have prevented
the Virginian bankruptcy laws from affecting contracts made
before their passage. Cf., Sturges v. Crowninshield, 4
Wheaton 122 (1819). Hereafter cited as Stur es. For a
short discussion of Virginia's debtor laws, which were
revised in the 1790's, see St. George Tucker, Blackstone's
Commentaries: with Notes Of Reference to the Constitution
and Laws, Of the Federal Government of the United States;
and of the Commonwealth of Virginia. With an Appendix to
Each Volume, Containing Short Tracts upon Such Subjects As
Appeared Necessary to Form a Connected View of the Laws Of
Virginia, As a Member of the Federal Ufiion. 5 vols.
(Philadelphia: William Young Birch and Abraham Small,
1803), III, 161; IV, 412-422 and notes. Hereafter cited as
Blackstone.

 

 

 

 

259
beyond the SCOpe Of this dissertation, the case also con-

cerned the ownership and control of real prOperty. The
Virginia Assembly had legislated many times on the Church
of England, both before and after the Revolution. In
January, 1802, the legislature decided to confiscate for
the use of the state all lands belonging to the EpiscOpal
Church, called "glebe lands" or "glebes" which fit certain
descriptions. Specifically, the land had to be "vacant,"
that is, not presently used to support any Episcopalian
minister, and had to be derived, in most cases, from public
grants. Most "private donations or subscriptions" were exempted
from seizure. Earlier, in 1784 and 1786, the legislature
had incorporated and then disincorporated the Episcopal
Church in Virginia.17

Turpin and others were wardens and vestry men Of the
Episcopal Church of the parish of Manchester, which was
without a minister. They challenged the seizure of the
glebe lands under the 1802 act, charging that the law was
unconstitutional. Rather unsatisfactorily, the court split
two to two on the question Of constitutionality, so that
the act was upheld. Both Spencer Roane and Henry St. George
Tucker thought the act was constitutional. Reaffirming

his position in the Lyell case, Roane said he would "not

 

17Turpiny. Locket, 6 Call 113 (1804). Act of Jan.
12, 1802, Dec. Sess., 1801, ch. V, She herd, II, 314-316.
Incorporation of the Protestant EpiscOpaI Church, Oct. Sess.,
1784, ch. XLIX, Hening, XI, 532-537. Repeal of the 1784
incorporation, Oct. Sess., 1786, ch. XII, Ibid., XII, 266-
267. Cf., Act of Jan. 24, 1799, Dec. Sess., I798, ch. IX,
Shepherd, II, 149. According to Beveridge, during the
1780 3 Marshall took only a languid interest in the religious
struggle." Marshall, I, 222.

 

260
be among those, who assert a right in the government, or

even in the people, to violate private rights, and perpetrate
injustice." He would "not be more tardy, than those who
are more loud and clamorous, to respect the vested rights
of individuals, or societies." The question here was not
whether to respect vested rights, but "in whom the property
in question is vested." After a long analysis, Roane con-
cluded that the Manchester glebes did not belong to the
church, but to the government.18

St. George Tucker took a similar position. He said
that it was a "fundamental principle of our constitution,
that private property shall be sacred and inviolable."
However, the "glebes, as such, were never private property."
St. George Tucker also noticed the problem of the 1784 in-
corporation Of the Episcopal Church, and the subsequent
repeal. The constitution required, he wrote, that every
corporation chartered have "some relation to the community
at large." And because Of this connection with the community,
the legislature was "competent to amend, or repeal its own
act [of incorporation], provided," he hastened to add,
"it do not annul, or avoid any private right, which may
have been legally acquired by any individual in his natural
capacity, under such act."19

Judges Peter Lyons and Paul Carrington were of a

different Opinion. They thought the glebes had always

 

18Roane's opinion, 6 Call, 169-170.

198t. George Tucker's opinion, Ibid., 152, 156.

261
belonged to the church, and that consequently the 1802 act

was an unconstitutional appropriation of private prOperty.
The distinction between corporate rights and individual
rights drawn by St. George Tucker was thought to be unreal,
because "prOperty being a civil institution, the right to it
is, in all cases, conferred by law: Which applies as forcibly
to a society, as to an individual."20

One member of the Virginia court, Henry St. George
Tucker, expressed a general opinion on the subject of cor-
porations in his annotated edition of Blackstone's Commen-
taries, published in 1803. Writing of Virginia corporations
created since the Revolution, he stated that their "several
powers and privileges must . . . depend wholly upon the acts
Of assembly by which they were first established, or such
as have been afterwards made for the special purpose of
limiting or enlarging, their privileges, reSpectively."
This might be interpreted to mean that, in St. George Tucker's
Opinion, the Virginia legislature could limit corporate
privileges at will. However, the statement is extremely
broad, covering all corporations, including boroughs, cities,
and counties, on which the legislature had always acted
without restriction. Moreover, the context makes it clear
that St. George Tucker was not commenting on the extent
Of legislative power, but was merely offering the observation
that in Virginia, the legislature had primary responsibility

over corporations, unlike Blackstone's England, where the

 

20Opinion of Lyons and Carrington, Ibid., 179-186.

 

262

. . . 1
executive -- the Crown -- had this authority.2

The case Of Currie's Administrators v. Mutual Assurance

 

Society was the closest the Virginia supreme court came to
a significant holding on a question of the public law of
business corporations. The Mutual Assurance Society against
Fires on Buildings Of the State of Virginia had been founded
on an experimental basis by a group Of Richmond citizens
in 1794. Within a few years farmers became the majority
interest in the Society. They decided that because of the
high risk and destructive nature Of town fires, the town
members ought to pay more for their insurance. Accordingly,
the majority petitioned the legislature in the name of the
corporation to permit the changes to be made.22
The legislature passed the requested charter amendment
in 1805. The act, however, went far beyond a rational

adjustment Of premiums and destroyed the very basis of mutual

insurance. The "funds" of the Society were, in the words

 

21Tucker, Blackstone, II, 472, n. 2. Cf., Ibid., 467,

 

n. 1.

2Mutual Assurance Society, 4 Hening and Munford 315
(1809). _Eharter Of the Mutual Assurance Society, Act of
Dec. 22, 1794, Nov. Sess., 1794, ch. XXVI, Shepherd, I,
307-310. For the early history of the Society, see
Mordecai, Richmond, 253-257. Some changes in the allocation
of risk were no doubt in order because of the frequency and
extent of town fires. Most of Richmond burned down in 1787.
Beveridge, Marshall, II, 172. Norfolk had disastrous fires
in 1799 and 1804, and would have others in 1805, 1813,

1814, and 1819. Wertenbaker, Norfolk, 128-129. Other fires
occurred in Petersburg and Frederichsburg. Mordecai, Rich-
mond, 255. According to Mordecai, the method Of calculation
of damages encouraged arson, and at least one town was
nearly destroyed as a result Of persons burning buildings
for the insurance. Ibid., 257.

263
of the act, "divided between town and county, in prOportion

to the capital subscribed by the towns and country respec-
tively." Henceforth the two funds would be entirely separate,
with the country funds insuring plantation and farm buildings,
and the town funds insuring urban buildings. The Society's
general meeting Of January 30, 1805, held the day after the
passage of the 1805 act, reorganized the company in accordance
with these principles. The new board Of directors assessed
fixed charges, called "quotas,“ on the town (but not the
country) members, and increased the town members' premiums.
The town members were made liable for the quota and the
initial premium by the 1805 act, even though they were
permitted to withdraw from the Society.23

James Currie, a Petersburg resident whose cost of
insurance had been increased, filed a suit challenging the
validity Of the charter modifications. On appeal to the
state supreme court, counsel for Currie's Administrators
(Currie himself having died before 1809) argued that even
the majority of the members could not themselves, or with
the aid Of the legislature, destroy the original plan of
the corporation. In general, they said, citing the English
example, a "charter" was "not a law, but a compact between
the sovereign authority of the state, and a citizen." In

this case, the original 1794 charter Of the Mutual Assurance

 

23Charter amendment, Mutual Assurance Society, Act
of Jan. 29, 1805, Dec. Sess., 1804, ch. XXIV, Shepherd, III,
145-149, and esp. secs. 2-5, 13, 14, 17. Mutual Assurance
Society, 4 Hening and Munford 315, 316.

 

 

264
Society was a "contract between the state and the original

adventurers." The act Of 1805, by dividing the funds
"among a EEEE and not the yppla of the members" was an
impairment of the Obligation of the charter contract in
violation Of the federal constitution.24

Counsel for the Society contended that the case simply
involved the power Of the majority of a corporation to pe-
tition the legislature for a change in the charter. Even
if the charter were a contract, "the state and the corporation
. . . had a right to alter it by mutual consent." But it
was not admitted that this charter was a contract. There
was "no contract express or implied" by the state in the
1794 charter. Conversely, the Society had "no Obligation
to the state.“ Since neither party had any obligation to
the other, the idea that the charter was a contract was
"absurd." Moreover, he said, citing the example of the
legislative alteration "without ceremony" of the tolls of
the Richmond James River Company, the legislature had
modified its grants before and could do so in this case.25

Only two judges, Spencer Roane and William Fleming,
heard the case. The third, St. George Tucker, did not sit.
Roane and Fleming wrote separate Opinion upholding the

1805 act and the changes it had brought. Although the

 

24Argument of Taylor and Call for Currie's Adminis-
trators, 4 Hening and Munford, 316-319 and, quoted, 317-318.
Italics in original.

25Argument Of Hay for the Society, Ibid., 319-336,
and, quoted, 329, 330, 331. Cf., on the same side, Wickham's
argument, Ibid., 336-344.

 

265
ultimate basis Of decision is not very clear, both empha-

sized the principle that a majority of members controlled
corporate affairs, and, the procedural formalities being
met, had the power to represent the whole organization and
to bind the minority Of members. In this case, the act of
1805 was passed in response to a petition from the majority
group, speaking in the name Of the whole corporation. Since
both public and corporate interests Often required charter
modifications, this was permissible. Furthermore, the
provision in the 1805 act giving any member the right to
withdraw was adequate protection for individuals.26
Judge Spencer Roane went far beyond these points.
He seized the Opportunity to present his views on the whole
matter of legislative control of business corporations.
His statement was all dictum -- not binding on the Virginia
court -- but is important because it is relatively compre-
hensive and because Roane was a powerful judicial and political
leader of the Republican Richmond Junto.27
Roane set forth his views on the general subject of

judicial review. He noted that a member Of the bar had

argued that "the legislature had a right to pass any law,

 

26Roane's Opinion, Ibid., 351-352. Fleming's Opinion,
Ibid., 355-356.

27For a review of Roane's career, see, generally,
Clyde Christian Gelbach, Spencer Roane of Virginia, 1762-
1822: A Judicial Advocate of States Rights (Unpublished
Ph.D. dissertation, University of Pittsburgh, 1955).
Hereafter cited as Roane. For his membership in the Rich-
mond Junto, see Harry Ammon, "The Richmond Junto, 1800-1824,"
Virginia Magazine Of History and Bio ra h , LXI (Oct.,
1953), 399. Hereafter cited as "Richfiond Junto."

 

 

266

however . . . unjust . . . or unreasonable." This proposi-
tion the judge forthrightly rejected. To accept it, he
wrote, would be "but to lay prostrate, at the footstool of
the legislature, all our rights of person and of property,
and abandon those great objects, for the protection of which,
alone, all free governments have been instituted." Roane
was thus no more in favor of absolute legislative supremacy
on the Parliamentary model than Marshall or most Of the
other great judges Of the early national period. On the
other hand, a legislative act was entitled to a presumption
of constitutionality. Where an act was challenged in court,
the judiciary Ought not to overthrow it unless it was
"palpable and clear" that the act was unconstitutional, or
the rights of an individual had been violated. Where the
case was "equivocal or equiponderant," legislative judg-
ment should prevail.28
The specific question, however, was what powers the
legislature possessed over corporations, and, correlatively,
what legal rights Of individuals and groups Operated to
limit these powers. Roane, like the Massachusetts judges,
refused to accept the contract theory Of corporate charters,
but treated the matter on a more general plane. A charter
was a legislative act and, in general, it was "the character

of a legislative act to be repealable by a succeeding

 

legislature." Nor could "a preceding legislature limit

the power of its successor on the mere ground Of volition

 

28Roane's opinion, 4 Hening and Munford, 346-347, 348.

267

only." More Specifically, under the Virginia constitution,
the Occurrence Of certain conditions would allow the legis-
lature to alter corporate charters. Article IV of the bill

of rights provided that corporations could not be chartered

except "in consideration of public services." If the legis-

lature was deceived or "imposed upon" in the matter of public

service, the legislature certainly had the power to alter
the charter. Perhaps Roane had in mind the Richmond James
River Company situation. If conditions changed after the
grant Of the original charter, the interests Of both the
public and the “associated body" might require a charter
alteration. This was the case before the court, where the
Mutual Assurance Society had requested the change, and the
legislature had granted it. In addition, conditions might
change so drastically that all "consideration of public
service" might cease, in which case the legislature would
have constitutional authority to repeal the charter. (In
private contract law, failure of consideration is a good
defense to a suit to enforce the contract.) Finally, the
mere existence of "those petty inequalities and injuries,

which arise to some individuals or classes of men, under

every general regulation whatsoever;‘"would not be sufficient"

to induce the court to disallow the legislative act.
Currie's complaint seemed to fall within this category.
"[E]ntire and exact justice" simply could not be achieved.29

On the other hand, there were limits on legislative

 

29;pia., 348, 349. Italics in original.

268
power over corporations. In general, these limits could

"only arise from a state of things involving public utility,
which includes the observance of justice and good faith
towards all men." A little more Specifically, no legislative
act on the subject of corporations could violate "the
principles and provisions of the constitution and bill of
rights," "those great rights and principles, for the preser-
vation of which all just governments are founded," or "the
vested rights Of individuals." Roane did not indicate the
precise content or actual severity Of these restrictions,
but it was clear that he would not hesitate to strike down
a legislative act relative to corporations which infringed
judicially declared constitutional, natural, or vested legal
rights.30
Although not as satisfactory as a fully developed line
Of doctrinal authority, the results of the Turner and Eyail

cases together with the various Opinions in the Turpin and

Mutual Assurance Society cases are perhaps sufficient to form

 

valid conclusions as to the general approach of the Virginia
courts to problems of legislative action affecting private
prOperty and corporations. It is clear that these cases
were not resolved exclusively or even primarily according

to generalized values or political positions concerning

democracy, pOpular sovereignty, legislative supremacy or

 

3°Ibid., 347, 348, 349. Italics in original. Cf.,
generally, M. E. Hornsnell, "Spencer Roane and the Property
of Rights: A Post-Revolutionary View," West Virginia History,
XXX (July, 1969), 586-597.

 

269
legislative power over the economy. The Virginia judges,

Republican for the most part, revealed no consciousness
of any division or fundamental conflict between human rights
as defended by the legislature and property rights.

The primary judicial value seems to have been an
elusive "public utility," in Roane's words. This was not
so much a higher law as a higher good to which all public
acts ought to conform. The judges recognized that the legis-
lature had the primary responsibility for the public welfare,
and accordingly erected a presumption of constitutionality
of legislative acts.

But public utility in its broadest sense also included
respect for individual prOperty rights, whether these were
derived from nature, common law, statutory law, the body
of the constitution, or the bill of rights. It was an article
of faith that the public good could not be served by infringing
individual rights. The question was not whether to protect
vested rights, but whether the rights claimed were vested.
This was a judicial question, but as much practical as legal.
The Virginia judges were not marching to the mechanical drum

of the common law Of stare decisis. The question of whether

 

a right was vested and entitled to judicial protection might
depend on the size and importance of the damage complained

of. As Roane indicated, he would not vote to strike down
legislative acts to relieve "petty inequalities and injuries."
In the Turner and Eyaii cases, on the other hand, where the

right claimed was serious, and clearly "vested" according to

270
established legal principles, the judges unanimously moved

to restrict the reach Of the legislative act in order to
protect the individual. Finally, the Turpin case, in which
the problems of separation of church and state were inextri-
cably involved with prOperty questions, illustrated the
possibilities for wide difference of Opinion within the common
philOSOphical framework. All the judges stated their belief
that the judiciary ought to protect prOperty rights from
legislative infringement. But the judges Split down the
middle on the question of whether the rights involved were
actually vested.

On balance, then, the essential features of the Vir-
ginia political economy remained the creation of the legis-
lature and the entrepreneurs, with the courts at most ar-
ticulating the values implicit in the system. The primary
emphasis in legislative policy, eSpecially with regard to
vital internal improvements, was the attraction of private
investment into the incorporated enterprises. Within limits,
narrowed somewhat by the investment of public funds, the
success of this policy generally required that the legis-
lature honor the terms of corporate charters. Moreover,
even when the state subscribed to large amounts of stock
in an individual company, the enterprise remained essentially
private, with the state simply voting its shares and other-
wise claiming only the power reserved in the corporate charter.

John Marshall, as a sponsor of corporations, a stock-

holder, speculator, lawyer, politician, and legislator was

271
familiar with these general features of the Virginia system.

After he went to the federal bench, his perspective shifted
somewhat, but he retained his business investments and his
interest in public affairs. His Virginia experience, however,
was not Of the abstract system conveniently summarized, but
with individual enterprises, the fate Of which was determined
in large part by the interplay of forces generated by geo-
graphical, economic, and political divisions within the
state. The actual deve10pment of various enterprises

within the system was strongly influenced by sectional
rivalries and the division between the agricultural and
mercantile sectors of the state's economy. In order to form
a better idea of the reality of Marshall's experience, it

is necessary to determine the nature and extent of these
divisions in the years after 1780, the way they affected

the projects in which Marshall was interested, and, where
possible, the reactions of the Chief Justice.

Geography played a large part in determining the way
the Virginia system was actually organized and Operated.
Virginia was divided into sections, more or less discreet
geographic and economic units, by a sort of grid of natural
boundaries. The state was divided into four sections by
natural boundaries running generally in a north-south direc-
tion. The tidewater extended westward from the coast to the
fall line; the piedmont extended from the fall line to the
Blue Ridge mountains; the Shenandoah valley and the trans-

Alleghany followed. Virginia was similarly divided, at

272
least east of the Blue Ridge, by a series of major rivers

running irregularly in an east-west direction. Especially
in the matter of internal improvements, which were for the
most part local or regional in character, these divisions
created economic rivalries and sectional jealousies which
influenced development. As if this were not enough, the
river system encouraged rivalries within the sections, such
as the competition between Norfolk and Richmond for the trade
of the upper James River valley; and after Richmond won this
battle, the conflict between Norfolk and Petersburg for the
trade Of Southern Virginia and Northern North Carolina.31
More complex divisions which influenced the Virginia
political economy were the result of the nature and organi-
zation of the state's production and distribution. The
agricultural interest was, of course, overwhelmingly pre-
dominant, as the vast majority Of the peOple were engaged
in the production of tobacco, wheat, corn, livestock,
lumber and naval stores for domestic consumption and export.
To support this economic activity, the Virginians erected
an elaborate system of exchange and credit. Since Specie
was scarce, very little hard currency changed hands. When
"cash" was used, it was one Of several varieties Of circu-

lating paper, such as tobacco or treasury notes. Much

exchange, however, was done on credit, with mortgages, bonds,

 

31Rice, Internal Improvements in Virginia, ch. I,
1-37, and esp. 1-6. Cf., generally,Charles H. Ambler,
Sectionalism in Virginia from 1776 to 1861 (New York:
Russell and Russell, Inc., 1964). Hereafter cited as
Sectionalism.

 

 

 

273

and notes being given in return for land, goods, and ser-
vices. Since the evidence of debt which each credit
transaction generated could itself be transferred in payment
of obligations, this commercial paper served with tobacco
and treasury notes as a form of currency. Moreover, the
extent of these credit Operations was so great that the
volume of circulating paper was very large, and it Often
appeared that everyone in Virginia owed everyone else.32
Although most Virginians had to struggle to survive
economically, a few managed to become wealthy planter
capitalists. These men not only grew tobacco and other
crops on their large plantations, but also engaged variously
in land speculation, trading, manufacturing, processing,
and moneylending. As providers of capital and services to
the larger agricultural society, they served as bankers
and became the major creditor group in Virginia, for a time,

33

the prime beneficiaries of the system. The position Of

 

32Robert McColley, Slavery and Jeffersonian Virginia
(Urbana, Ill.: University Of Illinois Press, 1964), 7-33.
Hereafter cited as Jeffersonian Virginia. Robert E. Brown
and B. Katherine Brown, Virginia, 1705-1786: Democracy or
Aristpgracy? (East Lansing, Mich.: Michigan State Univer-
sity Press, 1964), 96-108, 114-118. Hereafter cited as
Virginia. Aubrey C. Land, "Economic Behavior in a Planting
Society: The Eighteenth-Century Chesapeake," Journal of
Southern History, XXXIII (Nov., 1967), 478-480, 482.
Hereafter cited as "Economic Behavior." The Browns and
Land agree that most Virginia debt was locally held, although
those debts owed the British certainly became more visible.
Brown and Brown, Virginia, 108. Land, "Economic Behavior,"
479, 482. Robert Johnson, Goyarnment Regulatioa of Business
Enterprise in Virginia, 1750-1820 (Unpublished Ph.D. dis-
sertation, University of Minnesota, 1958), 41, 43-44, 49,
51, 63-65, 132, 135, 165-184. Hereafter cited as Business
Enterprise in Virginia. .

33Land, "Economic Behavior," 476-485. McColley,
Jeffersonian Virginia, 27-29.

 

 

 

 

 

 

 

 

 

274
this group was especially strong in the 1780's and the

early 1790's when the mercantile community was in disarray

as a result of the Revolution, and before the Bank of the
United States and the Bank of Virginia had provided the state
with a more modern currency system.

The most prominent representative of these great planter
capitalists, and also the most SOphisticated contemporary
analyst Of the Virginia system, was John Taylor of Caroline,
who published a series Of pamphlets in 1794 and a lengthy
book in 1814. Grounding his analysis in the ultimate basis
Of wealth and economic growth in the state, he defined private
prOperty as land and those accumulations, including roads
and canals, which resulted from the application Of talent
and labor to land or its produce. Commerce was merely sup-
portive of the basic agricultural system, and thus the interests
of commerce and agriculture were, in normal times, the same.
Money, whether Specie or paper, was necessary and useful
so far as it was used to facilitate the exchange of property.
Likewise, a private debt, one subsisting between individuals,
was unobjectionable as an aid to agriculture. Although
there was an unequal distribution of property in Virginia,
this was the result Of natural differences in talent and
industry among individuals. The reliance on individual
effort to distribute wealth was actually a positive good
since it provided incentives for people to work. It followed
that a redistribution Of prOperty by law, a levelling agrarian

division, would be "malignant," an artificial transfer of

275
wealth which would produce Sloth and ignorance among the

peOple. Taylor recognized that Virginia did not in fact
have a fully unified and harmonious economic and social
order based exclusively on agriculture after 1790. Indeed,
the main thrust of his writing was a call to arms against
new disruptive political and economic forces.34 Nonetheless,
his analysis and vision were to a significant degree based
on the economic realities as perceived by the planter
capitalists.

The agricultural interest, including both great and
small planters, did not remain the only economic interest
group in Virginia. An indigenous mercantile class began
to emerge in the 1780's and 1790's as a new force in the
state's political economy. Although very few merchants were
rich enough to do everything, the range of possible activities
was quite broad. A merchant might purchase agricultural
goods from the planters, store them in a warehouse in which
he owned an interest, sell them to a captain looking for
a cargo, or ship them on axessel built in Norfolk, in which
he owned a share, insuring the voyage with a Virginia

company. The same merchant would handle goods imported from

 

34[John Taylor], A Definition on Parties; Political
Effects Of the Papty System Considered (Philadelphia:
Frances Bailey, 1794), 8-9. Hereafter cited as Definition
on Parties. [John Taylor], An Enquiry into the Principles
and Tendengy Of Certain Public Measures TPhiladelphia:
Thomas Dobson, 1794), 16-17. Hereafter cited as En uir .
John Taylor, An Inquiry into the Principles and Policy of
the Government of the UnitedStatea (Fredericksburg, Va.:
Green and Cady, 1814), 113, 116-117, 310, 347, 349, 350, 404,
551, 555, 561, 564, 566, 618. Hereafter cited as Inguiry.

 

 

 

 

 

 

276
Europe, chiefly from England, selling them to planters,

usually on credit. More importantly, merchants also engaged
in a variety of financial activities, loaning money to
planters, sometimes at usurious rates, speculating in foreign
and domestic bills of exchange, government bonds, and western
lands. These financial activities produced an initially
small but growing fund of liquid capital available for
investment in economic enterprise. Numerically insignificant
in Virginia's total pOpulation, the merchants were concen-
trated in a handful Of small urban centers such as Norfolk,
Richmond, Petersburg, Fredericksburg, and Alexandria. A
perceptive travelling French nobleman, the Due de La Roche-
foucauld-Liancourt, found these merchants "absolutely
distinct in their manners and Opinions" from the rural
majority, and concluded that they formed, "finally, a nation
within a nation."35 It was, of course, this mercantile-
financial group in Richmond with which John Marshall was
associated from the late 1780's on.

From the point of View of the merchants, one great
weakness of the Virginia economy in the early 1790's was
the absence of banks and an adequate currency. Individual
promissory notes might facilitate exchange between the
great planter capitalist and his lesser neighbors, but they
lacked the liquidity necessary to support specialized

commercial activity. What was needed was bank notes, which

 

35Due de La Rochefoucauld-Liancourt, Voyage dans les
Etats-Unis d'Amerigue. Fait en 1795, 1796 et 1797 (Paris:
DuPont, 1799), IV, 301-302, 310-311; V, 8-9. Hereafter
cited as Voyage. Johnson, Business Enterprise in Virginia,
311, 360-362.

 

 

277
would have a more solid institutional backing. In addition,

banks would provide expanded credit facilities and new
Opportunities for investment. Thus, as noted above, in
1791 the Richmond merchants petitioned for the establishment
Of a branch of the Bank Of the United States in their town.
When this was unsuccessful, they Obtained a charter for the
Bank Of Richmond from the legislature, but it failed to be
established for a want of subscriptions. Although a bank
was established at Alexandria in the 1790's, this served
the local area only, and central Virginia remained without
state banking facilities until after the turn Of the century.36
In his polemical defense of planter capitalism, John
Taylor of Caroline attacked the emerging Virginia mercantile
community and its demands for reorganization of the state's
economy to favor liquid capital. As Taylor saw it, the major
division in Virginia was not one of class -- he defended
the inequalities which did exist -- but between two "wealthy
classes," one resting on "monied capital or stock," the other
on land and labor. Bank charters and banking privileges,
whether granted by the federal or state government, were a
prime means by which monied capital advanced its ends. Since
Taylor defined private property as land or the accumulations
of labor, it followed that these charters and privileges

were not genuine, substantial property, but "political property,"

 

36"The Bank of the United States. Petitions of Vir-
ginia Cities and Towns for the Establishment of Branches,
1791." "Petition from Richmond, Manchester &c.," Virginia
Magazine of History and Biography, VIII (Jan., 1901),
291-295. Starnes, Banking in Virginia, 19, 21-25.

 

278

an artificial, sham prOperty founded only in law. The income
to bankers amounted to a tax Of ten to twelve per cent on

the people, a legally sanctioned transfer of genuine property
from the producers to the rich and idle stock interest.
Moreover, the paper currency generated by banks merely served
as an instrument for this fraudulent transfer of wealth, and
drove out the Specie which served as an instrument of honest
exchange. Finally, banking molded commerce, which was ordi-
narily linked to agriculture, into a force economically and
politically hostile to the landed interest.37

DevelOpment of political parties in Virginia was
heavily influenced by economic divisions among the different
sections and between the agricultural and emerging mercantile-
financial interests. Although there was not a one-to-One
correlation between party affiliation and geographic location
or occupation of voters, the tendency to divide into parties
along sectional and economic lines was much stronger in
Virginia than in such other states as Massachusetts, where
parties were relatively homogeneous.

From the early 1790's, the basis Of the Republican
"interest" which rapidly became the Republican "party" in
Virginia was the agricultural sector in the state. Eco-
nomically, the Republicans set themselves against Virginian

or federal measures which tended to create large monied

 

37Taylor, Definition oanarties, 5-6, 9. Inguiry,
generally, and eSp. 30, 39, 65, 113, 291, 292, 294, 298,
303, 305-306, 310, 311-318, 321, 328, 329, 347, 349-350,
352, 362-363, 564, 565-566, 635-636.

 

279
interests or to aid urban commercial groups at the expense

of agriculture. Sectionally, the Republicans represented

the most pOpulous areas of the state, the tidewater and

piedmont.38
After the turn of the nineteenth century, the forma-

tion of the Richmond Junto marked the deve10pment Of a new

SOphistication in the Republican party organization, and

led to new departures in the state's political economy.

The Junto, which grew out of a legislative caucus held in

Richmond on January 21, 1800, to organize for the coming

Presidential election, was an informal organization Of about

twenty men, primarily large planters and their lawyer allies,

who lived in or near Richmond for most of the year.

Operating as an unofficial central committee, the Junto

gave the Republican party unity, consistency, and informed

direction. Its major aims certainly included those Of the

Republican party at large, to advance and defend the economic

and political interests of agriculture east of the Blue

Ridge.39 Equally important, however, the Junto promoted

the Special economic interests of its members in at least

two ways. First, it sponsored and then controlled the Bank

of Virginia. Second, eSpecially after the War of 1812 it

sought to promote the commercial deve10pment of Richmond

 

38Harry Ammon, "The Formation of the Republican Party
in Virginia, 1789- -l796," Journal of Southern Histpgy, XIX
(Aug., 1953), 289, 292, 295- -296, 308, 310. Hereafter cited
as "Formation of the Republican Party." See, generally,
Ambler, Sectionalism.

39

 

 

Ammon, "Richmond Junto," 395-397, 399-400, 417-418.

280
and the whole James River valley. These economic aspects

of the Junto's activities, which are treated more fully
below, made the organization a modernizing and moderating
influence in Virginia politics.

The Federalists in Virginia were a varied coalition
of those who were excluded from effective power in the state
government, and who saw their economic interests to be dif-
ferent from those of the Republican majority. Although the
sectional vote fluctuated, the districts most likely to be
Federalist were those on the periphery of the state, the
Eastern Shore, Northern Neck, Shenandoah Valley and other
areas west Of the Blue Ridge, and, occasionally, the area
south and west of the James.40

The mercantile and financial community formed a second
major element of the Federalist party. The Virginia merchants'
association with the Federalist interest in the national
government began in the early 1790's, when the Washington
administration turned to Richmond merchants and Speculators
for support for its economic and foreign policy programs.
Edward Carrington, John Marshall's brother-in-law, was on
close terms with Hamilton in these years, and appears to
have served as a contact between Treasury and the Richmond
community. In December, 1792, James McClurg of Richmond

was made a director Of the Bank of the United States.

 

40Norman K. Risjord, "The Virginia Federalists," Journal
of Southern History, XXXIII (NOV., 1967), 496-500, 505-508.
Hereafter Cited as "Virginia Federalists." Rose, Federalists
in the South, 191.

 

 

281

Responding to a request from the Washington administration,
Marshall himself organized and successfully directed a
Richmond meeting in August, 1793, to protest the activities

of Citizen Genet.41

As the Federalist interest ripened into
a party in the middle 1790's, Carrington, Marshall, and
others in the Richmond mercantile community became important
members of the apparatus. Although the merchant faction

was numerically insignificant at the polls, economic power,
centralized locations, and legal and political competence
offset this deficiency so that the merchants continued to

be influential in Virginia's Federalist party and state
government.

All of these major divisions in Virginia -- geographic,
economic, and political -- affected the course of state
government and necessarily affected too the development of
individual enterprises with which John Marshall and other
members of the mercantile-financial community were associated.
One Of the first new financial institutions to gain the
attention Of the Republican planter majority was the Mutual

Assurance Society against Fire on Buildings. As indicated

in the discussion of the Mutual Assurance Society case

 

 

41Rose, Federalists in the South, 22, 40-44. Ammon,
"The Genet Mission;1| 730-732. The generalization that
Federalists represented an established elite and that the
Republicans were challengers, upward-mobile groups eager to
participate in established economic and governmental insti-
tutions, Fischer, American Conaervatism, App. I, 203-211,
breaks down in Virginia. The Republicans represented
established economic institutions and groups and dominated
the state government. Fischer's biographical list of Virginia
Federalists is hardly a register Of the state's great leaders
and families. Ibid., App. II, 370-387.

 

 

282

above, the plan for mutual fire insurance was drawn up in
the early 1790's by a group of citizens in the Richmond area,
one of whom was John Marshall. Shortly after the Society
was chartered, in 1794, and formally organized, Marshall
took out insurance on his Richmond home.42
A protracted contest for control Of the institution
developed between the urban interest, which was numerically
a minority of the total membership but which held the largest ih_

amount of insurance, and the country interest, which had a

majority Of members but less insurance. At first, the

 

urban Sponsors had effective control. Not only did the
towns-peOple have more insurance, but they also had a superior
knowledge of the business, a capacity to attend general
meetings in Richmond in person, and the foresight to use
proxies from other towns-people who could not attend. The
country members had difficulty making it to Richmond for the
general meetings, and too often neglected to execute proxies.
All this made a difference because both the risks and the
losses Of the towns-people were greater, and it was to their
interest to shift part Of the loss to the country people.

In 1795, the legislature, defending the interests Of the
rural majority as usual, attempted to neutralize the power
of those with the largest amount of insurance by defining

"majority" in the charter to mean either a majority in terms

 

42Beveridge, Marshall, II, 174. Rhodes, Papers Of
Marshall, I, 149, 259. The legislature also chartered the
MutuaI Insurance Company against Fire on Goods and Furniture
in the State of Virginia, Act of Dec. 23, 1795, Nov. Sess.,
1795, ch. LVII, Shepherd, I, 412-414.

 

283

of the number of members or in terms of the amount subscribed.
Whatever this curious definition meant in practice, it did
not solve the rural members' proxy problem. On January 23,
1800, two days after the Republican caucus which led to the
formation of the Richmond Junto, the legislature moved to
correct this difficulty and to intrude itself more directly
into the affairs of the Society. Acting in reSponse to a
"particular request" from the corporation, the legislature
stated that it was "difficult to procure a general meeting"
because of the "dispersed situation" Of the members, and
declared that henceforth members of the legislature would
represent at the general meetings all absent subscribers

who had not appointed their own proxies. Finally, in 1805,
the Richmond Junto took full control of the Society, with
the legislators taking an active part. At the Society's
general meeting, the country majority proposed a basic
revision in the plan of the corporation, and quickly secured
legislative ratification in the form of a charter amendment.
At the Society's meeting held immediately after the passage
of the charter amendment, new directors were elected, and
Alexander McRae, a leading member Of the Junto, was elected
president. The funds and risks Of the Society were divided
into "town" and "country" sections, and the town members
were assessed new quotas, for which they were legally liable,

43
and were also charged higher premiums.

 

43Act Of Dec. 23, 1795, Nov. Sess., 1795, ch. XLI,
Shepherd, I, 405-406. Act of Jan. 23, 1800, Dec. Sess.,
1799, ch. XV, Ibid., II, 210. Act Of Jan. 29, 1805, Dec.

284

As a result of these changes, many towns-people no
longer wished to be insured by the Society. One Of those
who exercised the Option to withdraw was John Marshall.
The exact date is not known. However, the "principal agent"
of the Society, Samuel Greenhow, tactlessly pressed Marshall
for a statement of the reasons for his withdrawal. Marshall's
curt reply has survived:

My motive for withdrawing from the company
was Openly given at the time & was I believe stated
in the letter which gave notice of my determination. .
I consider the interference Of the legislature 5
in the management Of our private affairs, whether 4
those are committed to a company or remain under i
individual direction, as equally dangerous and
unwise. I have always thought so & I still think
so. I may be compelled to subject my property
to these interferences, & when compelled I shall
submit; but I will not voluntarily expose myself
to the exercise of a power which I think so improperly
usurped.

 

With a vigorous collection I should if a
member be far from being dissatisfied. The arrears
in my opinion ought to be paid & I should not
require a second intimation on the subject did
I think myself indebted to the company. It is
known that those who withdrew have not considered
themselves as liable to the requisition. The
question is in the court of appeals & we anxiously
wish its decision. Finding it delayed longer
than was expected, & being desirous Of terminating
the dispute as to myself, I offered to pay the
amount of the requisition but was told that the
interest was required in like manner as if the
case had been decided against us. This put an
end to any further proposition on my part.

 

Sess., 1804, ch. XXIV, Ibid., III, 145-149, esp. secs. 1-5,
13, 14. For the election of McRae as president, see Mutual
Assurance Society, 4 Hening and Munford, 316. For McRae's
membership in the Richmond Junto, see Ammon, "Richmond Junto,"
399. In 1807, McRae was Lieutenant Governor of Virginia

and special counsel for the government in the Burr treason
trial, over which Marshall presided. Beveridge, Marshall,
III, 407-408, 437-438, 448, 494-495, 522.

 

 

 

285
I most certainly shall not sit in the cases

which are carried into the supreme court, nor

shall I even look into the records. Concerning

my own case, however, I can, to any person except

the judges, express my4self as freely as I would

on any other subject.

Marshall's motives for withdrawal, and his statement
of reasons, must be interpreted in light Of the events to
which he was referring. The company had been planned and
organized by the urban interest of Richmond to give towns-
peOple some protection against the ravages of fire. Country
peOple were invited to participate, and could do SO if they
agreed to share the losses. By 1805, the situation had
been completely reversed, as the country majority controlled
Society, and had altered the risks and charges so that many
towns-peOple decided that the costs were too high. As a
townsman, a founder of the company, and the subject of
extra charges, Marshall certainly had adequate grounds for
withdrawal. The "interference Of the legislature" to which
he referred could include the whole course of legislative
action since 1795, but probably meant specifically the
explanatory act Of 1795, which Opened the door to control
of the Society by the rural majority, and the act Of 1800,

by which legislators became proxies for absent members.

Effective control of the company, which passed to the legislature

 

44Marshall to Samuel Greenhow, Oct. 17, 1809. Washburn
Papers, Massachusetts Historical Society. Quoted with
permission. The letter nowhere identified Greenhow or the
"company," and does not even state that the company's business
is insurance. Samuel Greenhow is identified as the "prin-
cipal agent" of the Mutual Assurance Society in Greenhow v.
Barton, 1 Munford 590 (1810). The case was argued at the
March term, 1810, and refers to Greenhow as being the
principal agent previous to that time. Ibid., 591.

 

 

286
as a result of the act of 1800, was the "power" which

Marshall thought the legislature had "so imprOperly usurped."
The case in the Virginia Court of Appeals to which

Marshall referred was that of Currie's Administrators v.

 

Mutual Assurance Society. Judges Roane and Fleming, as
noted above, decided against Currie, Marshall, and other
towns-people who had withdrawn from the Society. (Roane,

a leading member of the Richmond Junto, was unlikely to
declare his party's operations illegal.) Unfortunately,

it is impossible to compare the Virginia court's analysis

of the case with Marshall's, because the latter never stated
a legal Opinion. Although Marshall did admit that the
"arrears," but not the interest, "ought to be paid," his
letter to Greenhow was merely an expression Of a personal
opinion. It said nothing directly about the constitutionality
of the Virginia acts of 1795, 1800, and 1805, or about the
technical legality of the company's 1805 requisition.

If Marshall did believe the company's actions illegal,
however, he was alone in this among the judges who considered
the problem and published their Opinions. In 1803, Congress
and the Virginia legislature had authorized the Mutual
Assurance Society to do business in Alexandria, in the Dis-
trict of Columbia. When the company revised its Operations
in 1805, the Alexandria members were hurt as much as those
who lived in Virginia towns. Suits were brought in the
federal court for the District challenging the company's

requisition. These were the "causes . . . carried into the

287
supreme court" to which Marshall referred in his letter to

Greenhow. Since the Supreme Court was sitting as an appel-
late court in a federal jurisdiction, it was not technically
bound by the prior decision Of basically the same issues by
the Virginia court. Nonetheless, in 1810 the Court decided

the companion cases of Korn and Wisemiller v. Mutual Assurance

 

Society and Atkinson v. Mutual Assurance Society in favor

 

of the company. The takeover of the Mutual Assurance Society
by Virginia's country majority may have been unfortunate;
but, the Virginia and United States high courts agreed, it
was not illegal.45

The Republicans and the Richmond Junto were interested
in other financial institutions in the state. Since the
early 1790's it had become apparent that the interests of
most planters in central Virginia might be served by a state
bank. Notes of Maryland banks had been circulating widely
in Virginia, and demands had been raised within the Repub-
lican party for a more adequate local currency. Furthermore,
a state bank under prOper supervision could provide loans

to individuals, capital to finance needed public improve-

ments, and services to the government. Using these arguments,

 

45For the acts permitting the Mutual Assurance Society
to Operate in Alexandria, see Virginia Act of Jan. 27, 1803,
Dec. Sess., 1802, ch. V, Shepherd, II, 406-407; Congressional
Act Of March 3, 1803, Seventh Cong., 2nd Sess., ch. XXIII,
2 Statutes at Large (U. S.) 227. Korn and Wisemiller v.
Mutual Assurance Society, 6 Cranch 192 (1810). Atkinson v.
Mutual Assurance Society, 6 Cranch 202 (1810). The opinion
fOr the court ih each case was written by Justice Johnson.
Although Cranch did not list Marshall as absent in these
two cases, it is probable that he did not sit.

 

 

 

 

288

the JuntO began a campaign for a state bank. On January
30, 1804, the legislature responded by chartering the Bank
of Virginia. Similar to the Bank of the United States, it
had a "mother" bank in Richmond, and branches in Norfolk,
Fredericksburg, and Petersburg. The most important features
of the charter were those giving the state ultimate control
of the corporation. The state was to subscribe to a large
amount of the stock, and the voting in stockholders' meetings
was weighted so the state could elect a majority Of the di-
rectors. In practice, a majority Of the directors were
Republicans, and the major Officers were prominent members
Of the Richmond Junto. By chartering this bank, the Repub-
lican planter majority had compromised with modernity in
financial matters, to the disgust of such die-hard conser-
vatives as John Taylor, but had conceded nothing in the way
of economic power to its merchant adversaries.46
Predictably, the Federalist mercantile community was
hostile to the Bank of Virginia from the beginning. Not
the least annoying aspect Of the enterprise was that the

state's subscription, which assured planter control, was to

 

46Charter Of the Bank Of Virginia, Act of Jan. 30,

1804, Dec. Sess., 1803, ch. CXVIII, She herd, III, 100-108.
Hereafter cited as "Charter of the Bank of Virginia." Ambler,
Ritchie, 26-28. Starnes, Banking in Virginia, 29-36.

Ammon, “Richmond Junto," 401. The only state bank in Opera-
tion in Virginia prior to 1804 was the Bank of Alexandria.
However, this served the Alexandria area only and had little
influence on subsequent policy. Starnes, Banking in Virginia,
21-24. The state and the Junto also retained control Of the
Farmers' Bank of Virginia, chartered by the Act of Feb. 13,
1812, Dec. Sess., 1811, ch. VII, Va. Acts (Pleasants), 7-

15.

 

 

 

289
be financed by the proceeds of sales of merchants' licenses,

which had to be purchased from the state annually. One
Federalist attacked the Bank as a "state engine for state

purposes, and warned merchants that it would be "converted
into an engine for your Oppression." John Marshall's reaction
was no different from that Of many others in the financial
community. He wrote his brother from Richmond on April 1,
1804:
The novel principle introduced into the

law establishing the Virginia bank Of giving

direction of it entirely to the legislature is

so very exceptionable that very few of the monied

men of this place appear disposed to subscribe 47

to it. I would not trust a single dollar to it.

Marshall was concerned with other projects which were
affected by the divisions within Virginia society. The
proposal to construct a trade route to the west had been
seriously advanced as early as the 1780's. As noted above,
Marshall served as chairman of a commission to explore the
possibilities of Opening such a route by connecting the
James with the Great Kanawha and Ohio river by means of
a turnpike and certain river improvements. The Marshall

Report, submitted in December, 1812, told the legislature

that deve10pment of the route was feasible, although it

 

47Charter of the Bank Of Virginia, sec. 12, She herd,
III, 100-108. For the act requiring merchants to purchase
licenses, see Act Of Oct. Sess., 1786, sec. 7, ch. XXVI,
Henin , XII, 286. Virginia Gazette, April 28, 1804, quoted
in Starnes, Banking in Virginia, 33. John Marshall to James
M. Marshall, April 1, 1804. Library of Congress, Beveridge
Collection. Marshall added: "Some . . . think that,
should the bank fill, which is very doubtful, the shares
will not long remain at par."

 

 

 

290

would be expensive. The commission recommended that the

project be undertaken for a variety of reasons. First,

and most important, Virginia ought to enter the competition

for the "interesting prize" of western commerce. The west

was an "extensive and fertile country, a country increasing

in wealth and pOpulation with a rapidity which baffles

calculation." Although the export trade would continue to

flow down the Mississippi, a James River - Ohio River con-

nection might allow Virginia to capture the import trade

of most Of Kentucky and Ohio, and part of southwestern

Pennsylvania. Goods produced in these areas of the west

for consumption in the eastern United States might likewise

flow through Virginia. Second, those who resided within

the western part of Virginia itself would gain easier access

to the James River markets. This would spur the economic

growth Of the region, and check emigration from the state.48
The prOposal to develOp the James River route to the

west received remarkably wide support in the period immediately

following the War of 1812. Key legislative committees and

the new Board of Public Works accepted the recommendations

Of the Marshall Report in principle. Thomas Ritchie's

Richmond Enquirer, the organ of the Junto and always a booster

of Richmond commerce, likewise supported the undertaking.

Nonetheless, adequate legislative apprOpriations were not

 

48"Marshall Report," 87-89. Wayland Fuller Dunaway,
History of the James River and Kanawha Company (New York:
Columbia University Press, 1922), 9-20} Hereafter cited
as James River Compayy. Rice, Internal Improvements in
Virginia, 64-69, 91-93.

 

291

forthcoming. For political reasons, the state's program

Of subsidies to public improvements had to be based on a

careful allocation of funds among all sections of the state,

with most of the total going to those sections east of the

Blue Ridge. The planter majority east of the Blue Ridge

simply refused to spend large amounts Of money on a project

which would directly benefit only the Richmond-Norfolk

commercial interests, and the Federalist farmers and manu- la“

facturers in the western part of the state.49

LE. V-

Before 1819, the degree of improvement of the James ;.

 

River east of the mountains was more Openly controversial
than the proposed route to the west. In 1785, the James
River Company had been chartered to make the river navigable
from the highest point practical near the Blue Ridge to

the tidewater, which in 1785 was at Richmond. Marshall

was a stockholder, served on legislative committees to
examine the organization's finances, and assisted in the
passage of bills to help the company during the 1780's and
1790's when the company was clearing the river and construc-

ting its works. Members of the Republican leadership were

 

49"Report from the Committee on Roads and Internal
Navigation," Richmond Enquirer, Jan. 27, 1818, p. 4, col. 1.
"Annual Report Of the Board Of Public Works," (1816), Ibid.,
Dec. 21, 1816, p. 2, col. 5. Ambler, Ritchie, 64. Risjord,
"Virginia Federalists," 513. Ammon attributed the Richmond
Enquirer's support for turnpikes and canals to the west
to a political desire to keep the west loyal to states rights.
"Richmond Junto," 410-411. However, after the War of 1812,
prominent members Of the Junto speculated in commercial
real estate near Richmond and in corporations chartered to
improve the lower James. The Junto thus had an economic
stake in Opening a route to the west. These projects are
discussed below.

 

292
also involved with the company. Dr. William Foushee, who

became postmaster of Richmond and a prominent member Of the
Richmond Junto after 1800, was president of the company from
1790 to 1818.50
The James River Company's most difficult problems Of
construction were presented by the stretch between the end
of the canal at the basin in Richmond and theJames River
tidewater, which by 1800 had stabilized at Rockett's Landing
about a mile below the city. Since the charter required
completion of the canal to the river and the tidewater
below the Richmond basin, the Company was obligated at least
to make the attempt. The distance was not far, but the
descent was relatively steep, and the ground was soft.
Although the technology of the period was not SOphisticated
enough to solve the engineering problems at a reasonable
cost, the company, under pressure to fulfill its charter
Obligations, hired one Ariel Cooley to attempt the connec-
tion. On October 17, 1811, he proudly opened twelve locks,
and a scow was ceremoniously passed between the basin and
the river. Unfortunately, immense quantities of dirt also
passed from the basin to the river, so that the locks filled

with silt and had to be closed permanently.51

 

50Charter of the James River Company, [Act of Jan. 5,
1785], Oct. Sess., 1784, ch. XIX, Henin , XI, 450-462.
Beveridge, Marshall, I, 217-218; II, 55-57; IV, 42, n. 2.
Rhodes, Papers Of Marshall, I, 96, 236-238. Mordecai,
Richmond, 233-234.

51Rice, Internal Improvements in Virginia, 4, 123-124.
Mordecai, Richmond, 234-235. Niles Weekly RegiSter, I (Nov.
2, 1811), lSI.

 

293

Richmond merchants, some of whom were stockholders
in the James River Company, could not have been unhappy at
the long failure to connect the upper basin with the lower
James. The lack Of a suitable navigation made Richmond a
physical bottleneck and commercial monopoly through which
all produce from upstream and all merchandise from downstream
had to pass to their respective markets. Everything had to
be transshipped at Richmond. If the canal basin were
successfully connected to the river, farmers and shippers
could sail past Richmond and Rockett's without unloading,
depriving the town Of a significant amount of business.

After the War Of 1812, prominent members of the
Richmond Junto and others associated with them undertook
a series of projects designed to capitalize on Richmond's
commercial advantages. In February, 1816, the group
Obtained charters for two internal improvement companies.
One, the Richmond Navigation Company, was to deepen the channel
of the James River from Warwick, a small town about four
miles below Richmond, to the wharves at Rockett's Landing.
The other, the Richmond Dock Company, was to improve the river
from Rockett's to Richmond itself. The purpose of these
improvements was to allow ocean-going vessels and the new
steamboats to sail up the James to Rockett's or Richmond.
Previously, sizable vessels could sail only to Warwick,
and most stOpped at Norfolk. If all vessels could sail to
Richmond, Norfolk and Warwick would be by-passed, and the

Richmond monOpoly would be correspondingly strengthened.

294
At the same time, these entrepreneurs sought partially to

rearrange the commercial patterns of Richmond itself. They
purchased land just below Richmond, and began to construct
new warehouses, docks, and even homes in preparation for
the ocean-going ships.52
Unfortunately, this real estate boom totally collapsed
in late 1818. On September 30, 1818, in another vain attempt
to Open British ports by closing those of America, Congress
embargoed shipping to places in the British Empire which
remained closed to American ships. In Virginia, this meant
a severe curtailment of shipments to the British West Indies,
a significant market for the state's agricultural products.53
The drastic reduction in demand for port facilities doomed
the Richmond real estate ventures. Shortly, the financial
panic of 1819 made a difficult situation worse.
Nonetheless, for about three years after the War of

1812, the Speculative activities of the Junto -- internal

improvement corporations and commercial real estate, in

 

52Charter of the Richmond Navigation Company, Act of
Feb. 22, 1816, Dec. Sess., 1815, ch. LIII, Va. Acts (Ritchie),
87-93. Among those listed as corporators were Spencer Roane,
Thomas Ritchie, William Wirt, and Dr. John Brockenbrough.
Charter of the Richmond Dock Company, Act of Feb. 19, 1816,
Dec. Sess., 1815, ch. LIV, Ibid., 94-103. These were inter-
locking enterprises. Six men served as commissioners to
open subscriptions in both companies. The Richmond Dock
Company also contemplated a connection between the James
River canal basin and the river, but a special charter
provision required that all canal boats going downstream
unload at Rockett's or above. The Richmond monopoly would
be preserved. See also, Rice, Internal Improvements in
Virginia, 8-9, 226-229. Mordecai, Richmond, 217-225.
Callahan, Richmond As a Port City, 55, 62.

53

 

 

Wertenbaker, Norfolk, 146-148.

 

295
addition to banking -- were extremely significant in the

political economy Of Virginia. These ventures represented

the maturation of the Junto from a central committee for

the Republicanplanter majority into a separate economic

force in the state. Politically, the Junto Republicans

moved into an informal alliance with Federalist mercantile
interests and for a time, at least, the Virginian political
landscape looked very much like that Of many northern states.
Although there were attacks from the extremes, some Of which
are discussed below, policy was ultimately set by commercially
minded moderates of both parties.

The farmers along the upper James, who were required
both to send and receive goods through the Richmond bottleneck,
would not be helped much by the Junto's relocation Of the
Richmond docks a mile downstream. They would still have
no choice but to deal with the town's merchants. In 1816,

a movement began to destroy this "odious monopoly, as one
petition called it, by constructing a canal from the head
of the falls above Richmond to the tidewater,along the
south side of the James. Since the James River canal,
Richmond, and Rockett's Landing were on the north side of
the James, the new canal would allow the farmers to by-pass
Richmond altogether. After they got to the tidewater on
the south side Of the James, small boats could easily sail
to Norfolk. The commercial effect would be to create com-

petition between Richmond and Norfolk merchants for the

farmers' business, which, it was believed, would raise the

296
prices paid for agricultural produce, and lower prices paid

for imported consumer goods. Despite Opposition from the
Richmond Junto and some Federalists, the proposal gained
momentum in the legislature. In 1817, the bill to incorporate
the "Manchester Canal Company" failed to pass the House by

a single vote. The next year, the House passed the bill,

93 to 60, but the Senate disagreed, suggesting direct action
against the James River Company instead Of the creation Of

a second corporation.54

The bill to charter a company to construct a new canal
parallel to the old raised important questions concerning
the power of the legislature to reduce the privileges and
profits of corporations. The prOposed canal would acquire
a double benefit at the expense of the James River Company.
It would attract business around Richmond, reducing revenues,
and, since it would not begin until the head Of the falls,
it would benefit from the improvements (such as they were)
made in the upper James by the Old company.

The issues were debated at length in the legislature
and the press from the end of 1816 through the early months
of 1818. Those in favor Of chartering the Manchester Canal
Company stressed the fact that the James River Company was
paying sixteen per cent per year dividends while the charter

requirements had not been met. Many denied that chartering

 

54Rice, Internal Improvements in Virginia, 402-403.
Dunaway, James River Compan , 40-41. The House votes are
in Richmond Enquirer, Feb.)ll, 1817, p. 3, col. 5, and
Feb. 10, 1818, p. 3, col. 5.

 

297
a second company would in any way affect vested rights.

Since the James River Company had failed to comply with
the conditions of its charter it had, according to one legis-
lator, "virtually forfeited" its charter. It was not only
the "right" but also the "duty" of the legislature to charter
a second company.55
The defenders Of the James River Company and the
Richmond monOpoly contended that the legislature did not
have the power to issue the second charter. A report of
the House Committee of Roads and Internal Navigation, dated
December 26, 1816, said that the new canal would represent
a violation of the James River Company's charter. "Publica

Fides, in a letter to the Richmond Enquirer, referred to the

 

James River charter as a "bargain" in which the state granted
toll in return for the improvement of the river. The state
should keep its end Of the bargain by refusing to authorize
the second canal. "Virginian" agreed, but used the language
of contract:
the legislature are one of the contracting parties;
and yet they are modestly asked to take the whole
power and property into their own hands -- to
dissolve the contract without the consent, or a
legal hearing, of the other party . . . .
The writer found that there was no distinction between the

legislature's duty to respect "any . . . private right" and

its duty to uphold "the vested rights of the James river

 

55Richmond Enquirer, Jan. 28, 1817, p. 3, col. 1;
Feb. 13, 1817, p. 3, col. 1 for summaries of the legisla-
tive debates. See also "Juriscola" letters, Ibid., Dec. 13,
1817, p. 4, col. 1; Dec. 18, 1817, p. 4, col. I.

298

company."

The Manchester Canal bill never passed both houses
of the Virginia legislature. Apparently, the votes Of both
Republicans and Federalists who were economically interested
in the Richmond monopoly, or who Opposed on principle the
establishment of a legislative precedent hostile to property
rights, provided the margin Of defeat. As in the north,
moderate sections of both parties combined to protect the
established system from disruption.

Unfortunately, no letter or other private expression
of Opinion has survived to indicate what John Marshall thought
of the proposal to charter the Manchester Canal to compete
with the James River Company. At least it is possible, and
intriguing, to speculate on the impact which the controversy

may have had on Marshall's Dartmouth College Opinion. The

 

Chief Justice wrote this Opinion in Richmond during the summer
Of 1818 before the controversy had been finally settled.
Certainly he did not have to reach into the mists of legal
theory for the idea that a corporate charter was a contract.

He had to go no further than the Richmond Enguirer, edited

 

by his friend and neighbor, Thomas Ritchie. Perhaps this

was why Marshall was so quick to find a constitutionally

 

56Report of the Committee Of Roads and Internal Navi-
gation, Dec. 26, 1816, Richmond Enquirer, Dec. 27, 1816, p. 3,
col. 5. "Publica FidesT“ Ibid., March 6, 1818, p. 3, col. 3.
"Virginian," Ibid., Dec. 30, 1817, p. 4, cols. l, 2. "Vir-
ginian" was a reply to the "Juriscola" letters. Although
Thomas Ritchie, editor Of the En uirer, was associated with
those who wished to preserve the Richhond monopoly, his
paper fairly presented both sides Of the Manchester Canal
controversy.

 

299
protected contract in the Dartmouth College case. "It can

 

require no argument to prove, that the circumstances of

this case constitute a contract," he began. The contracts
clause Of the constitution extended to "contracts respecting
prOperty, under which some individual could claim a right to
something beneficial to himself." The Dartmouth College
charter, he continued, "is a contract made on a valuable
consideration. It is a contract for the security and dis-
position Of prOperty. It is a contract, on the faith of
which, real and personal estate has been conveyed to the
corporation. It is, then, a contract within the letter of
the constitution, and within the spirit also." Logically,
these general prOpositions embrace business corporations,
and it is not too much to suggest that Marshall formulated
them with such corporations as the James River Company
specifically in mind. Indeed, for Marshall, the main prob-
lem in the case was whether the fact that Dartmouth College
was a charitable corporation would "create a particular
exception, taking this case out of the prohibition contained

in the constitution."57

 

57Marshall's Opinion, Dartmouth College, 4 Wheaton,
627, 628, 644. The Manchester Canal controversy was very
Similar to that involved in Charles River Brigge, ll Peters
420 (1837). In that case, the legislature of Massachusetts
chartered a company to construct the Warren Bridge from
Boston to Charlestown right beside the Charles River Bridge.
After the investment in the Warren Bridge was paid off, the
bridge became free, and the Charles River Bridge was forced
out of business. The case was argued before the United
States Supreme Court in 1831, but had to be continued, and
was still pending when Marshall died in 1835. Kutler,
Privilega, 3, 54, 57-58, 173-179. There is no direct, re-
liable evidence concerning Marshall's position on the

 

 

 

300
If the Richmond monopoly had been temporarily saved

by the defeat of the Manchester Canal bill, the James River
Company itself was not. PeOple continued to complain not
only that the corporation had failed to link the basin with
the tidewater, but also that it had failed to improve and
maintain the upper James as required by the charter. While
neglecting charter obligations, the critics pointed out,
the company had collected tolls and paid a dividend of
twelve per cent before the War of 1812, and sixteen per
cent after the War.58
ReSponding to the growing number of complaints, the

legislature, on February 25, 1818, directed the state's

attorney general to institute quo warranto proceedings to

 

determine whether the James River Company had "failed to
perform the conditions, onvhich they were authorized by

the laws regulating their charter, to demand and receive

 

Charles River Bridge case. Kutler, on the basis of indirect
and admittedly unreliable evidence, suggests that Marshall
sided with the Warren Bridge. Ibid., 173-179. Given
Marshall's moderate views on the question of vested rights,
and his own sponsorship of enterprises designed to compete
with existing internal improvement corporations, this is

not at all unlikely. '

8Dunaway, James River Company, 32, 34-41. Rice,
Internal Improvements in Virginia, 403-405. Before 1818,
the legislature had appointed many commissions to inves-
tigate the degree of improvement in the upper James. Most
of these commissions failed to perform their duties, but
one did, in 1812, and informed the legislature that the
James River Company had not improved the river to the
extent contemplated by the charter. Dunaway, James River
Company, 34-35. The legislature gave the company three
years to correct the problem, Act of Feb. 18, 1813, Nov.
Sess., 1812, ch. XXXIII, Va. Acts (Pleasants), 43-44, but
did not enforce its edict after the war.

 

 

 

301
tolls." On September 24, 1818, the attorney general obtained

a rule from the county court at Richmond directing the company
to Show cause why the charter Should not be vacated. The
company appealed this ruling, but lost before the General
Court in November, 1819. Finally, in 1820, the state
purchased the company, and the quo warranto action was

_ , 59
dismissed.

 

Again, no evidence has survived of Marshall's private
Opinion on the state's direct attack on the James River

Company charter by the guo warranto action. Although he

 

may have objected to the destruction of the company itself

on policy grounds, he could have had no legal or constitu-
tional Objection to the course followed by the state.
Corporations in England and America had always been legally
bound to follow the terms of their charters, and if they

did not do so the executive could bring actions against them.
The government's scrupulous regard for these legal processes
in the case of the James River Company meant that no violence

was done to accepted principles Of chartered rights. Nothing

 

59"Resolutions directing proceedings to be instituted
against the James River Company; and a survey to be made of
the James River and its branches," Feb. 25, 1818, Dec. Sess.,
1817, Va. Acts (Ritchie), 225-226. James River Company,
2 Va. Cases 190. Technically, the action was an information
in the nature of a writ of quo warranto. Act of Feb. 17,
1820, Dec. Sess., 1819, ch. LVI, Va. Acts (Ritchie), 39-47.
Dunaway, James River Company, 42-43. Rice, Internal Improve-
ments in Virginia, 406-4I4 passim. At the time of the gap
warranto proceeding, the Commonwealth and such-public cor-
porations as the Board Of Public Works and the Literary
Fund owned 390 of the 700 outstanding shares. James River
Company, 2 Va. Cases, 194.

 

 

 

 

 

302
in Marshall's judicial Opinions suggests that he thought

otherwise.

One other enterprise with which Marshall was associated
should be noted. On February 26, 1818, the legislature
chartered the Virginia Canal and Navigation Company. Seven-
teen commissioners, any four of whom could serve, were
appointed to Open the subscription books in Richmond during
the late spring and early summer of 1818. Others were
appointed to Open the books in Petersburg. First on the
list of those appointed for Richmond was "John Marshall."

His association with the enterprise was not publicized in
print. The announcements of the Opening of subscriptions

at Swan's and Washington's Taverns did not mention his name.
In the tight commercial world Of Richmond, however, this
could have made little difference. It is possible to imagine
Marshall taking a break from his labors on an early draft

Of the Dartmouth College Opinion to urge tavern patrons to

. 60
purchase a few shares in the new venture.

 

 

60Charter of the Virginia Canal and Navigation Com-
pany, esp. sec. 1, Act of Feb. 26, 1818, Dec. Sess., 1817,
ch. LX, Va. Acts (Ritchie), 96-105. Hereafter cited as "Vir-
ginia Canal Co. charter." The company was dominated by the
Richmond faction. The charter itself was apparently uncon-
troversial. Leave to bring in the bill to incorporate the
company was granted by the House on February 12, only two
weeks before its final passage. Richmond Enquirer, Feb. 14,
1818, p. 3, col. 2. No debate is recorded. For some of
the announcements Of meetings of the commissioners and the
Opening Of the books, see Ibid., April 21, 1818, p. 3, col. 6;
May 19, 1818, p. 4, col. 6; May 26, 1818, p. 3 col. 5;
June 12, 1818, p. 4, col. 4; June 16, 1818, p. 4, col. 5.
Aside from the charter, no evidence has been found linking
Marshall with this company. There can be little doubt,
however, that the Marshall named was the Chief Justice.
A search of available materials has revealed no other "John

 

 

303

The charter did not indicate just where the new improve-
ments were to be located. It rather ambiguously authorized
a "Communication . . . between the waters Of Roanoke, or
Chowan river, or any of the tributary streams to the latter,
and James river or the waters thereof" and also connections
"between James River and the Potowmac, or between James
River and any Of the rivers or waters intermediate between
it and the Potowmac." This seems to authorize the construc-
tion of canals and turnpikes almost anywhere between the
North Carolina and Maryland borders.61

It is probable, however, that the Virginia Canal and
Navigation Company represented an alliance between Richmond
and Petersburg commercial interests to save for themselves
part of the commerce which was threatened to be diverted
by the deve10pment of the Roanoke and Meherrin Rivers in
south-central and south-western Virginia. As Richmond
attempted to divert commerce from Norfolk by constructing

a deep water port, Norfolk turned its attention to capturing

 

Marshall" living in the Richmond area at the time. Although
there might have been one, there was certainly none impor-
tant enough to be listed as a Sponsor of a Significant
internal improvement company. Irwin S. Rhodes, compiler

Of The Papers of John Marshall: A Descriptive Calendar,
pointed out that the position of the Marshall name at the
head of a list Of seventeen prominent Richmond citizens

was indicative of his rank and, it may be added, of his
potential value to the enterprise. Letter to the author,
Nov. 21, 1970. Herbert A. Johnson, at the time of this
writing Co-Editor Of The Papers of John Marshall at Williams-
burg is similarly of the Opinion that it ishflmost probable
that the John Marshall involved was the Chief Justice."
Letter to the author, July 31, 1968.

61

 

Virginia Canal CO. charter, secs. 21 and 24.

304
for itself commerce which had usually flowed from southwestern

Virginia over land to Lynchburg and down the James to Rich-
mond. If the Roanoke River was made fully navigable, produce
could flow down the river to Albemarle Sound in North Carolina,
and then northward through the Dismal Swamp Canal to Norfolk
for sale and export. (Albemarle Sound was cut Off from the
sea by sand bars.) Accordingly, the Virginia legislature,
in cooperation with that of North Carolina, chartered the
Roanoke Navigation Company in January, 1817. Richmond, it
appears, retaliated with the Virginia Canal and Navigation
Company, which would construct canals and turnpikes between
the upper Roanoke and the James in order to preserve the
traditional flow Of commerce.62

The nature of the Richmond membership also suggests
that a primary goal Of the Virginia Canal and Navigation
Company was saving commerce for the city. Marshall, Of
course, had always been a promoter of Richmond commerce and
the James as a commercial route. The second individual listed
as a corporator was Joseph Gallego, a wealthy grain miller

whose works were in or near Richmond on the James. When

he died in July, 1818, most of his $154,000 estate was real

 

62On the plan to develop the Roanoke system for the
benefit of the southern part Of Virginia, see Rice, Internal
Improvements in Virginia, 220, 222-226. Rice does not
mention the Virginia Canal and Navigation Company. Charter
Of Roanoke Navigation Company, Act of Jan. 25, 1817, Nov.
Sess., 1816, ch. XLI, Va. Acts (Ritchie), 73-82. On North
Carolina's interest, see Clifford R. Hinshaw, Jr., "North
Carolina Canals before 1860," North Carolina Historical
Review, XXV (Jan., 1948), l, l9-20, 23, 25.

 

 

305
prOperty in Richmond. In his will, dated May 13, 1818,

Gallego had foreseen a decline in the value of his holdings.
Since he would be primarily concerned with preserving the
value Of his estate, Gallego's investment in the company
makes sense only if the project were designed to save com-
merce for the city. Finally, four Of the corporators had
also served as commissioners to take subscriptions in the
Junto's Richmond Navigation Company, and at least one cor-
porator, Alexander McRae (of all peOple), was himself a
member of the Junto.63

The commerce of Petersburg, located on the Appomattox
River above its junction with the James, was also threatened
by the Norfolk Offensive, and this explains the inclusion
of Petersburg merchants in the company. The Roanoke navi-
gation alone would divert some produce from the Appomattox,
but the prOposed improvement of the Meherrin, which was closer
to the Appomattox than the Roanoke, was even more serious.
In 1816, a joint Virginia and North Carolina commission
recommended a route down the Meherrin to the Chowan River
in North Carolina, and from the Chowan to the Dismal Swamp
Canal and Norfolk. In February, 1818, the Virginia legis-
lature chartered the "Upper Meherrin Navigation Company."
A part of the commerce of Petersburg might be saved by a

connection between either the Nottoway or the Meherrin

 

3Virginia Canal CO. charter, sec. 1. On Gallego,
see Mordecai, Richmond, 98, 266. Callahan, Richmond As
a Port City, 45, 46. Gallego's Ex'ors v. Attorney General,
3 Leigh 150, 451-453 (1832).

 

306
(tributaries of the Chowan) and the Appomattox, and Petersburg

merchants were apparently included in the Virginia Canal
and Navigation Company with this project in mind.64

The Virginia Canal and Navigation Company was a strictly
_private affair. Although the state retained an Option to
purchase shares later, it subscribed nothing at the beginning.
Furthermore, the company was given "full power . . . to desig-
nate the . . . routes" Of the new improvement. This amounted
to a statutory declaration of independence from the Board
of Public Works in the matter Of location.65

In other respects the charter was very carefully drawn
to give the company the greatest possible benefits. The
original capital was set at $150,000, but a majority of the
stockholders could increase this amount at any time. The
ratio of capital expended to the amount of toll authorized
for the James River canal was to be applied to set the rates
for the new company. In any event, the legislature committed
itself to set the tolls so the company would return a minimum
of fifteen per cent "clear profit." Unlike most other canal
companies, no maximum return was set. The charter also

contained the standard vesting clause with the perpetual

tax exemption "in consideration of" the stockholders' "expences."

 

64Summary report of the Virginia and North Carolina
commissioners to investigate the Roanoke-Meherrin-Chowan
route, Niles Weeklnyegister, X (July 20, 1816), 342.
Charter Of the "Upper Meherrin Navigation Company," Act
of Feb. 24, 1818, Dec. Sess., 1817, ch. LXI, Va. Acts
(Ritchie), 105-108.

65Virginia Canal CO. charter, secs. 17, 25.

307
The company had to begin construction within eighteen months

of its organization, and was required to finish within ten
years. However, the company could lose only those works

not begun or completed in time, or not constructed according
to other requirements in the charter. The Virginia Canal
and Navigation, unlike the James River Company, could not
lose all of its works for failure to complete a part. On
balance, although no individual charter provision was unique,
with the possible exception of the qualified exemption from
a quo warranto action, the combination gave the new corporation
more beneficial "franchises, privileges, and immunities"

than any other private internal improvement company in the
state.66

Despite the extraordinary number of privileges, it
does not appear that the new company proceeded very far with
the construction Of its canals and turnpikes. The Congressional
embargo Of the fall of 1818 and the panic of 1819 had the
same depressing effect on this as other internal improvement
enterprises in the state.

It is not entirely clear why Marshall chose to sponsor
this particular corporation, among all those he could have
joined. Realistically, he could not have hOped for a large
immediate return on his investment. All internal improve-

ments took a long time to construct, and this company would

 

66Ibid., secs. 8, 19, 20, 21, 24, 26. This charter
was drafted by a master. It may be the work Of Marshall,
but there is no evidence on the matter one way or the other.

308
face stiff competition from the Roanoke and Chowan projects,

reducing the possibility Of large profits. Nonetheless,
Marshall's participation was consistent with his support
for the deve10pment of the James River line Of commerce.
And most important, the Virginia Canal and Navigation Company
was, in terms of finance and control, a strictly private
enterprise in a period of expanding state activity in the
field of internal improvements. The legislature was not
only increasing subsidies to internal improvement corporations,
but was also taking voting stock in them, and requiring
that they be supervised closely by the Board of Public
Works. Yet Marshall had long been Opposed to state partici-
pation in business enterprises. He had Opposed the legis-
lative control Of the Bank Of Virginia when it was founded
in 1804, and had written to Greenhow in 1809 that legislative
interference in corporate affairs was "dangerous and unwise."
The new Virginia Canal and Navigation Company, with its full
complement of legal privileges and substantial independence
from state participation and control, was an experimental
alternative to mixed enterprise, a sort of "model" corporation
to demonstrate the strength and utility of strictly private
corporations. Marshall was simply giving practical expres-
sion to beliefs he had held for half a lifetime.

Finally, it would be difficult to believe that Marshall's
participation in the Virginia Canal and Navigation Company

did not have some influence on his Dartmouth College Opinion.

 

The Chief Justice was in Richmond while the canal company

309

was being organized in the spring and summer of 1818, and
this was at least close to the time when he wrote his Opinion.
The Manchester Canal controversy, in which publicists used
the contract theory of corporate charters to defend the

James River Company, had not yet been put to rest. In a
broader perspective, even though the Virginia legislature

had in the past acted responsibly with regard to business
corporations, the control Of the moderate Richmond Junto

had recently slipped, and the emotional anti-mercantile

bias of the country majority was temporarily in the ascendancy
Fear of future deve10pments, then, might have led the Chief

Justice to formulate his Dartmouth College Opinion with the

 

need to protect business corporations specifically in mind.
Nonetheless, the future had not arrived in 1819, as the
Virginia government continued to use available legal tools,
and Marshall was still protecting an existing system of
political economy rather than judicially creating a new one.
If the above interpretation of Marshall's membership
in the canal company is correct, however, it would be unfair

and an oversimplification to attribute the Dartmouth College

 

 

67Marshall was in Richmond most of the time the new
corporation was getting organized. He was there in late
March and early April, but left to hold his Circuit Court
in Raleigh, North Carolina, which he did on May 12 and 13.
Rhodes, Papers of Marshall, II, 134, 135, 148. Two weeks
later, on May 27,’he deiivered his Opinion for the Circuit
Court in Richmond in United_Statas v. The Schooner Little
Charles, 1 Brockenbrough 347, 350 (1818). He was in town
on June 9, June 24, and July 22. Rhodes, Papers of Marshall,
II, 137, 145, 148. According to Beveridge, the Dartmouth
Colle e Opinion was written "in Virginia" in the summer,
faII, and early winter of 1818. Marshall, IV, 220.

 

 

 

67

310

Opinion solely to Marshall's desire to protect his invest-
ment from direct legislative attack. Rather, on a deeper
level, both Marshall's sponsorship of the company and his

Opinion in the Dartmouth College case proceeded from a core of

 

belief in the superior utility of private, non-governmental
enterprise.

A full review Of Marshall's experience over the four
decades following the 1780's reveals the extent to which
the stated principles Of his Dartmouth College Opinion were
derived from his association with the Virginia political
economy. From the very beginning, Marshall's primary asso-
ciations were with the commercial and financial interests
of Richmond. AS traders in goods, speculators in land, lenders
Of money, providers of liquid capital, and dealers in com-
mercial paper, the merchants had economic interests different
from those Of the planter majority.. Although the technical
legalities were respected, the planter majority Often exerted
its political power in the legislature to control economic
institutions against the wishes of, or even at the expense
of, the merchant minority. The legislature retained control
over the Bank of Virginia and other state banks, assisted
the reorganization Of the Mutual Assurance Society to favor
country members, failed to support adequately the construc-
tion of a trade route to the west, and mounted a concerted
attack on the James River Company and Richmond's advantageous
commercial position. Although the Republican Richmond Junto

moved into commerce and commercial real estate after the

311

War of 1812, and in the process moved into an informal
alliance with merchant groups with similar interests, the
near success Of the campaign to charter the Manchester Canal
indicated that the Junto moderates could not exercise total
control over the planter majority. Certainly Marshall had
some grounds for fear that the future might bring direct,
full-scale attacks on successful business corporations, or
at least on those dominated by Richmond financial interests.

The Dartmouth College decision would protect these corpora-

 

tions at least from the most flagrant and arbitrary legis-
lative assaults.
Nonetheless, whatever Marshall's apprehensions for

the future, his Dartmouth College Opinion so far as it

 

related directly to the law of prOperty was primarily an
adoption Of the essential Operating principles Of the
Virginian political economy as they had developed in the past.
Despite the severe economic and sectional divisions which
agitated state politics from 1785 on, the corporate charter
was the measure of both legislative power and corporate
rights and duties. With a single exception, the legislature
seems never to have reduced summarily the privileges of a
business corporation. Even this exception, the repeal of
the charter provision allowing the Richmond James River
Company to collect tolls from small boats navigating its
canal, was arguably nothing more than the formal voiding

of a grant which the legislature could not constitutionally

make. Otherwise, the legislature exercised control of

312

corporations pursuant to regulations contained in original
charters. Usually, the state participated in the management
of corporations simply by holding stock and exercising its
voting privileges. Although the takeover of the Mutual
Assurance Society by the country interest may have been
regrettable from the standpoint of Marshall and other urban
dwellers, neither the Virginia Court Of Appeals nor the
United States Supreme Court found it illegal. Similarly,

the quO warranto action against the James River Company was

 

the accepted legal means for punishing a corporation which
had failed to perform its charter Obligations. In short,
the principle of respect for chartered rights remained at
the center Of the Virginian practice with which Marshall
was so familiar, and he simply made it the basis for his
constitutional Opinion.

Correlatively, it Should be added at this point,
because the Dartmouth College doctrines as formulated by
Marshall were based on prior Virginian practice, the decision
itself produced no change in the way the state's system of
political economy actually operated. Had it been law as
early as 1790, all the things the legislature did from which
Marshall and his associates suffered could probably have been
done anyway. After 1819, the legislature had only to do
what it had already been doing for forty years in order to
stay within the constitutional limitation.

Marshall's apprOpriation of his state's operating

principle of respect for chartered rights was not a sentimental

313

or parochial elevation of the familiar into American
constitutional law. Rather, the Chief Justice had concluded
on the basis of his own experience that respect for corporate
rights would serve the national interest by promoting the
economic growth Of Virginia and all other states. Since

the early 1780's, Virginia had encouraged the private or-
ganization and financing of internal improvement enterprises
by chartering corporations and granting them rights to take
toll, special tax exemptions, and other privileges designed
to minimize risks and maximize returns. Even after the
creation of the Fund for Internal Improvement and the Board
of Public Works, the primary emphasis continued to be on
private capitalization. While some investment would always
come from those planters who would directly benefit from
individual projects, this source could not provide enough
capital for large scale improvements. Instead, Virginia

had to rely in part on the mercantile and financial com-
munities. As an investor himself, and from his long associa-
tion with the Richmond merchants, Marshall knew that paper
inducements were not enough to attract a significant amount
of mercantile capital out Of commerce, foreign bills Of
exchange, speculation in western lands, and the like.
Merchants also required guarantees that the inducements
would survive success, that the planter-dominated legislature
would not reduce or eliminate corpOrate privileges after
enterprises had matured. In the 1790's, and under the

tutelage of the Junto after 1800, the charter privileges

314

of Virginia's internal improvement corporations had generally
been honored. Marshall, like the Junto, sought to continue
this protection of existing corporations in order to promote
economic growth.

Marshall's Virginia experience likewise influenced
his use Of the contracts clause Of the federal constitution
as the vehicle by which his policies were given effect.
The idea that a business corporation charter was a constitu-
tionally protected contract was a part Of the common fund
Of ideas with which Virginians debated issues of public
policy. In large part, the contract theory followed from
the realities of the chartering process. As early as 1796,
Marshall outlined the system in his argument before the United
States Supreme Court in the case of Ware v. Hylton:

Banks, canal companies, and numerous associations

Of similar description, are formed on the principle

of voluntary subscription. The nation is desirous

that such institutions should exist; individuals

are invited to subscribe on the terms of the

law; and, when they have subscribed, they are

entitled to all the benefits, and are subjectgg

to all the inconveniences Of the association.
This was another way of saying that a charter represented
a freely negotiated bargain, a voluntary agreement between

the legislature and investors with the provision of some

service to the public in mind. Marshall's Dartmouth College

 

Opinion, following the lead Of Virginian lawyers and com—
mentators, simply redefined the Virginian system in terms

of formal contract law in order to give it a logical and

 

68Marshall's argument, Ware v. Hylton, 3 Dallas 199,
212 (1796). Hereafter cited as Ware.

 

315

comfortable position in constitutional doctrine.
Finally, the most remarkable thing about Marshall's

Opinion was that it was so moderate, considering the negative

 

aspects of his Virginia experience. A lesser man than
Marshall might have become embittered by the long series

of legislative attacks on the interests of the mercantile
community, and might have tried to use his judicial power

to free himself and his Richmond associates from all further
legislative harassment, perhaps by Story's expansive reading
of the contracts clause. However, the Chief Justice showed
an extraordinary capacity to view his experience objectively
and to draw from it insightful generalizations as to the
minimum institutional requirements to keep the system
functioning prOperly. Consistently with his theory that the
federal constitution marked only the "great outlines" of
American governmental institutions,69 Marshall subordinated
his own immediate economic interests and personal sentiments
to the broader judicial purpose of defining only the outer
limits of political action with respect to business corpora-
tions. Thus, the Dartmouth College decision left untouched
the normal processes and usual results of democratic politics
at the state level, and reached only those legislative actions
which threatened the integrity of the whole system of political
economy. The decision and Marshall's supporting Opinion is
further evidence that the Chief Justice was a statesman Of

the first magnitude.

 

69McCulloch, 4 Wheaton, 407.

 

VI

THE CHARTER: LEGISLATIVE POWER AND
CORPORATE RIGHTS IN STATES OTHER

THAN MASSACHUSETTS AND VIRGINIA

Despite important differences between the political
economies of Massachusetts and Virginia, a comparison reveals
that the two states were remarkably similar in their treat-
ment of business corporations. Although occasionally each
state saw vigorous political agitation against such estab-
lished corporations as the Massachusetts Bank and the James
River Company, the legislatures of both states successfully
resisted direct legislative repeal of corporate charters.

In practice, charters became the measure of both corporate
rights and retained legislative power.

Ideally, a full analysis should be made of sectional
and economic divisions and partisan contests in each of the
other states in order to arrive at a total picture of the
political economy of each State and, by consolidation, of the
country as a whole. Since limitations of time and patience
make such an extensive investigation impossible, an alter-
native method has been adOpted. This chapter will, first,
survey the broad outlines Of the system of political economy
relative to business corporations before 1819 in states

other than Virginia and Massachusetts, relying on session
316

317
laws and secondary sources. Second, this chapter will examine

in more detail important deve10pments in Pennsylvania, Con-
necticut, North Carolina, and New Hampshire.

A profile of legislative action with regard to business
corporations has been constructed. In addition to those of
Massachusetts and Virginia, the following session laws were
examined: New Hampshire and New York, 1780-1818; Connecticut,
Delaware, Georgia, Kentucky, Louisiana, Maryland, New Jersey,
North Carolina, Ohio, Pennsylvania, Rhode Island, South
Carolina, Tennessee, and Vermont, 1815-1818. In addition,
an investigation Of the pre-1815 legislative history of par-
ticular corporations in the latter group of states was made
when the laws, court cases, or other primary or secondary

sources indicated that this would be productive.1

 

1Many secondary sources which discuss relevant aspects
of the development of business corporations have already
been discussed. Among the most important of these are
Davis, American Corporations; Dodd, American Business Cor-
porations; Hurst, Law and the Conditions of Freedom, and
Legitimacy of the Business Corporation. See also, Louis
Hartz, Economic Policy and Democratic Thought: Pennsylvania,
1776-1860 (Cambridge: Harvard University Press, 1948).
Hereafter cited as Pennsylvania. John A. Cadman, Jr., Tag
Corporation in New Jersey: Business and Politics 1791-1875
(Cambridge: Harvard University Press, 1949). Hereafter
cited as The Corporation in New Jersey. Shaw Livermore,
Early American Land Companies: Their_lpfluence on Corporate
Development (New York: Octagon Books, Inc., 1968). Here-
after cited as Early American Land Companies. Benjamin F.
Wright, Jr., The Contract Clause of the Constitution (Cam-
bridge: Harvard University Press, 1938). Hereafter cited
as ContractClause. Milton S. Heath, Constructive Liberalism:
The Role Of the State in Economic DeveiOpment'intGeorgia
to 1860 (Cambridge: Harvard University Press, 1954f.
Hereafter cited as Construgtive Liberalism. Joseph G.
Blandi, Maryland BuSiness Corporations, 1783-1852 (Baltimore:
The Johns HOpkins Press, 1934). Hereafter cited as Maryland
Business Corporations. A good statistical study, useful
chiefly for identification of the numbers and types of business

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

318

Before 1819, the overwhelming majority of business
corporations were chartered by special legislative acts.
Each charter contained, at a minimum, grants of the power
to be a corporation, and of the privileges and franchises
necessary to carry on the particular business. All but the
briefest charters also contained some directions for the
organization and Operation of the company. Some enterprises
received special privileges, such as tax exemptions, or, in
the case of banks, a summary process for collecting debts.

Equally Significant, charters were also the primary
devices by which legislatures controlled the organizations
they sanctioned. Since corporations enjoyed only those rights
enumerated or necessarily implied in the incorporating act,
every grant of power was also understood to be a legal
limit on corporate action. Legislatures Often specifically
required corporations to perform according to the terms of
their charters. Internal improvement corporations had to
build their works to specifications within a stated time,
and maintain them thereafter. In addition, many charters
contained specific restrictions on corporate activity, the
nature of the restriction varying with the type of business.

Banks, for example, were typically forbidden to engage in

 

corporation charters, is George Herberton Evans, Jr.,
Business Incorporations in the United States, 1800-1843
(New York: National Bureau of Economic Research, Inc.,
1948). A Similar study which is confined to Pennsylvania
is William Miller, "A Note on the History of Business Cor-
porations in Pennsylvania, 1800-1860," Quarterly Journal
Of Economics, LV (NOV., 1940), 150-160.

 

 

 

319

trade. Perhaps the most potent legislative control was the
limitation on the duration of charters. After the stated
time limit had expired, the corporation ceased to exist as
a legal entity, and had to go out Of business unless the
legislature took further action.2

In addition to charter obligations, restrictions, and
limits on duration as devices for control of business cor-
porations, legislatures very early began to include reser-
vation clauses in many charters. There were several types.
General reservation clauses reserved legislative power to
alter, amend, or repeal any section Of the charter. Partial
reservation clauses applied only to specific charter provisions,
such as the rates Of toll. Both general and partial reser-
vation clauses might be unconditional or conditional.
Unconditional reservation clauses were exercisable by the
legislature at any time. (Since nearly all general reservation
clauses were unconditional, the term "general reservation
clause" will hereafter refer to an unconditional clause.)
Conditional reservation clauses were operative only after
the passage of time, the receipt by the company of its
original investment plus a designated percentage Of profit,

or the occurrence of some other event. Obviously, the

 

2Livermore, Early American Land Companies, 245-271,
emphasizes the degree to which legislatures could regulate
business through charter provisions, but over-emphasizes the
degree to which these regulations actually impaired business
Operations. Cf., Cadman, The Corporation in New Jersey,
363-368. Hurst, Legitimacy Of the Business Corporation,
13-17, 19-22, 122.

 

 

320
number of possible combinations was nearly infinite.

3

In 1789, Connecticut became the first state to include
a general reservation clause in a business corporation charter,
as the legislature reserved a right to alter, amend, or
repeal the charter of the silk manufacturers of Mansfield.
Thereafter, the state made extensive use of such clauses.
Al least forty other manufacturing company charters issued
before 1819 also had general reservations. The first three
banks chartered by Connecticut contained no such clauses,
but all those chartered between 1796 and 1819 did. Similarly,
all insurance company charters after 1797 contained general
reservations, but a 1795 charter did not.4

Other states also included reservation clauses in

business corporation charters. Massachusetts was the first

to reserve an unconditional power to regulate charges by

 

3Historians and legalists have recognized that reser-
vation clauses existed before 1819, but have generally
recognized neither the extent to which they were used nor
their important implications for the legal theory of business
corporations. An exception is R. N. Denham, Jr., "An
Historical DevelOpment Of the Contract Theory in the Dart-
mouth College Case," Michigan Law Review, VII (Jan., 1909),
esp. 220-221.

 

4Davis, American Corporations, II, 315-316. Most
corporate charters are printed in Private Laws of Connec-
ticut. The charters are arranged By types: Banks, 64ff.
Insurance Companies, 617 ff. Manufacturing Companies, 723 ff.
Turnpike Companies, 1202 ff. Charters listed but not re-
printed: Middletown Manufacturing Society, Oct. Sess., 1810,
Ch. 1, Conn. Laws (Hudson and Goodwin), 41-43. New Haven
Fire Insurance Company, May Sess., 1813, ch. 18, Conn. Laws
(Hudson and Goodwin), 131-134. Derby Bank, Oct. Sess., 1809,
ch. 1, Conn. Laws (Hudson and Goodwin), 17-21. Eagle Bank
of New Haven, Oct. Sess., 1811, ch. 1, Conn. Laws (Hudson
and Goodwin), 65-69. Charter Of the Connecticut Medical
Society, Act of May Sess., 1792, Conn. Acts (T. Green and
Sons), 424.

 

 

 

321

a business corporation. As noted in chapter IV, many other
Massachusetts corporations were subject to reservations.

In New Hampshire, most manufacturing company charters issued
after 1808 reserved a legislative right to alter or to alter
and repeal. The state occasionally used the general reser-
vation in other types of business charters, but partial

and conditional reservations, along with limits on duration,
predominated. Internal improvement company charters Often
set a maximum return on investment, and reserved a power to
reduce the rates of toll when the company's profits were
exceeding the statutory limit. After 1809, general reser-
vation clauses began to appear in Pennsylvania banking,
insurance, and internal improvement company charters. Some
Kentucky manufacturing charters contained general reserva-
tions, while others reserved legislative power to repeal

in case of violations of charter provisions. In 1818, Georgia
reserved full power to alter or repeal the charters of the
new Bank of Darien and the Savannah River Navigation Company.
The other states -- Delaware, Louisiana, Maryland, New York,
North Carolina, Ohio, Rhode Island, South Carolina, Tennessee,
and Vermont -- very rarely or never included general reser-
vation clauses in business charters. However, the charters
of most relatively large and important enterprises did con-
tain a wide variety of partial and conditional reservations,
many designed to protect public and private interests which

would be affected by corporate activities.5

 

5Charter of the Proprietors of the Androscoggin Boom,
Act Of Feb. 13, 1789, Sec. III, Dec. Sess., 1788, Mass. Acts

 

322
After business corporations were chartered, legislatures

as a general rule scrupulously respected their chartered rights.

With the few exceptions noted below, none of the states

seems to have summarily altered substantive chartered rights

of business corporations. What was true of Massachusetts

and Virginia, then, was generally true Of the other states.
It is erroneous, however, to equate respect for

chartered rights with complete corporate independence from

legislative control. Since chartered rights extended only

as far as the charter, the legislatures had ample freedom

of action. Very often, a grant of additional benefits made

at the request of a corporation was conditioned on the accep-

tance of new restrictions. When a charter expired, all

 

and Laws (Adams and Nourse), 773-775. Laws of New_Hampshire,
VI-VIII, assim. Hartz, Pennsylvania, 238-239. (In 1784,
Pennsylvania chartered a school, and provided that its
constitution could not be altered except by the legisla-
ture. Act of Sept. 15, 1784, ch. 1109, Statutes at Large
of Pennsylvania, XI, 372-376. This was plainly not a true
reservation clause, and apparently was not interpreted as such
at the time. Act of Sept. 6, 1786, ch. 1236, Ibid., XII,
260-264. Nonetheless, the Pennsylvania supreme court held
that the clause was a reservation of legislative power to
alter the charter. Commonwealth v. Bonsall, 3 Wharton 559
(1838). For some reason, Kutler, Privilege, 62, thinks the
clause worthy of noteJ Charter of the Petersburg Steam
Mill Company, Act of Feb. 3, 1817, sec. 8, Dec. Sess., 1816,
ch. CVIII, Ky. Acts (Gerard and Kendall), 171. Charter of
the Green Mountain Iron Manufacturing Company, Act of Feb.
4, 1817, sec. 16, Dec. Sess., 1816, ch. CXVII, Ibid., 222.
Charter of the Bank of Darien, Act Of Dec. 15, 1818, Sec.
16, in Lucius Q. C. Lamar, ed., A Compilation of the Laws
Of the State of Georgia, Passed by the Legislature Since
the Year 1810 to the Year 1819, Inclusive (Augusta: T. S.
Hannon, 1821), 102. Hereafter cited as Laws of Georgia.
Charter of the Savannah River Navigation Company, Act of
Dec. 19, 1818, sec. 7, Ibid., 526. Heath, Constructive

Liberalism, 177-179, 314. Cf., Blandi, Maryland Business
Corporations, 57, 61-62.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

323
rights expired with it. The legislature could refuse to

recharter the corporation, or it could revive the company

with a new, more restrictive charter. Reservation clauses

were not often exercised, but they were available for use
against many corporations. Perhaps the most dramatic use

of such a clause was by Pennsylvania. The state's Bank

Act of 1814, passed over the governor's veto, created forty
banks. The charters would expire in eleven years, and in

the meantime section eighteen reserved the power to revoke

any privileges which appeared to be "injurious to the citizens."
By 1819, mismanagement and financial panic made the banks

exceedingly unstable. On March 29, about two months after

the Dartmouth College decision, the legislature greatly

 

increased the banks' liability and provided for the summary
forfeiture of the charter when any bank failed to redeem its
notes in specie. The preamble of the 1819 act pointedly
referred to the legislature's reserved power to alter or
amend the original charters.6 Finally, if a corporation
failed to perform its charter Obligations, or failed to abide
by its charter restrictions, the legislature could direct

the filing of a quo warranto action to have the charter
forfeited, or the executive might take such action on its

own initiative. Taken together, these legal devices, all

consistent with a theory of chartered rights, meant that no

 

6Hartz, Pennsylvania, 238-239. Act of March 21, 1814,
esp. secs. 17, 18, Dec. Sess., 1813, ch. 98, Pa. Acts (Bioren),
154-173. Act of March 29, 1819, Dec. Sess., 1818, ch. 142,

Pa. Acts (Gleim), 224-226.

 

324
corporation was far from some form Of legislative control.

There were a few exceptions to the general rule that
legislatures did not summarily alter chartered rights, but
most of these were qualified by Special circumstances.

Only one clear exception was found after 1810. In 1817,
Georgia repealed the section of the charter of the Marine

and Fire Insurance Company of the City of Savannah which

had granted the company authority to discount domestic bills
Of exchange. The other exceptions are discussed more fully
below, but are mentioned here for completeness. Pennsylvania
repealed the charter of the Bank Of North America in 1785,
but granted another one two years later. The whole episode
was a net gain for chartered rights. North Carolina repealed
the charter of a river improvement company in 1796. However,
the repeal was for a good cause -- the company had not im-
proved the river -- and the same result might have been
accomplished by court action. Finally, the Connecticut
legislature lowered the tolls of two turnpike corporations

in 1799 and 1803. However, no alterations to the detriment
of Connecticut turnpike corporations seem to have been made
after 1810, perhaps because Of an adverse court decision in

that year.7

 

7Charter of the Marine and Fire Insurance Company,

Act of Dec. 16, 1815, Laws of Georgia, 831-833. Repeal Of
Sec. 5, Act of Dec. 12, 1816, Ibid., 835. Charter of the
President, Directors and Company of the Bank of North America,
Act of April 1, 1782, ch. 963, Statutes at Large of Penn-

8 lvania, X, 406-408. Repealed, Act of Sept. 13, 1785, ch.
1178, Ibid., XII, 57-58. Recharter, Act of March 17, 1787,
ch. 1278, Ibid., XII, 412-416. Charter of "The Company for

Opening the navigation of the Catawba River," Act Of Nov.

 

 

325
These few instances of summary alteration Of business

charters are conSpicuous and important only as exceptions.8
Overwhelmingly, legislatures honored the terms of the thou-
sand Or so business charters granted before 1819. They

did so, moreover, without sacrificing legislative control

over important aspects of corporate activity. In short,
judging from the legislative record, the dominant working
principle around the country was that the corporate charter
was the measure of both legislative power and corporate
rights.

This profile of legislative action with regard to
business corporations needs to be supplemented.with accounts
of important deve10pments in several states. Ideas of cor-
porate independence from legislative control in the absence
of charter reservations were first fully articulated in
Pennsylvania in conjunction with a controversy over the
charter of the Bank of North America. The Bank was originally

chartered by the Confederation Congress to manage the country's

finances, but the corporators, uncertain whether Congress

 

Sess., 1788, ch. 16, N. C. Laws (Hodges and Wills), 6-7.
Repealed, Act of Nov. Sess., 1796, ch. 32, N. C. Laws, 32.
Charter of the Oxford Turnpike Company, May Sess., 1795,
amended Oct. Sess., 1799, in Private Laws of Connecticut,
1415-1417. Green Woods Turnpike Company, Oct. Sess., 1798,
amended, Oct. Sess., 1803,2bid., 1282-1283. When the
legislature revised rates of toll so as to allow higher
rates to be collected from some classes of travellers, but
lower rates from others, it is impossible to tell whether
the change resulted in an increase or decrease in company
revenues.

8Cf., Hurst, Legitimacy of the Business Corporation,
119-120.

 

 

326
had the requisite power, sought a charter from Pennsylvania.

After some debate, during which prOposals to limit the
duration of the charter and to reserve a power of repeal
were rejected, the Pennsylvania legislature granted the re-
quest on April 1, 1782. A little over three years later
the legislature repealed the original charter. From 1785
until 1787 the legality and expediency of the repeal were
hotly debated. Finally, in 1787, the legislature granted
a new charter, which was limited to fourteen years and
otherwise less favorable to the Bank than the original.9
During the debate over the repeal of the original
charter, the Bank was capably defended by James Wilson,
Thomas Paine, Peletiah Webster, and Robert Morris, among
others. The basic assumption of all their arguments was that
a legislative charter amounted to a grant Of property rights
to individuals and was therefore qualitatively different
from a general law for the governance of the whole community.
Before the legislature, the defenders of the Bank relied
heavily on a due process argument, alleging that the Bank
had not had a proper Opportunity to be heard and that the

legislature could not in any event deprive the Bank Of its

 

9Charter of the Bank of North America, Act of April

1, 1782, ch. 963, Statutesat Large of Pennsylvania, X,
406-408. Repealed, Act of Sept. 13, 1785, ch. 1178, Ibid.,
XII, 57-58. Recharter, Act of March 17, 1787, ch. 1278,
Ibid., XII, 412-416. Lawrence Lewis, Jr., A History of the
Banh Of North America, the First Bank Chartered in the United
StatesTPhiladelphia: J. B. Lippincott and Co., 1882),
44-46, 63, 66, 73. For brief accounts, see Davis, American
Corpprations, II, 35-44, 310-313. Hartz, Pennsylvania,

68, 78, 236-238.

 

 

 

 

 

 

327
right to a trial in a court Of law without illegally usurping

judicial power. In addition, Wilson, who would attend the
federal constitutional convention in 1787, and later be
appointed to the Supreme Court, argued that the charter was
a "compact" between the legislature and the corporators, a
compact which could not be departed from “consistently with
the rules of good faith." Both Paine and Webster elaborated
the contract theory, but the latter went on to describe

the sorts of legislative acts which he considered contracts.
Included were not only acts incorporating subscribers to

a bank but also acts "granting toll to persons who shall
build a bridge, for which they contribute their money," and
acts "for incorporating churches, universities, hospitals,
schools, &c. in consideration of money paid, or to be paid,

by the contributors."10

These propositions constituted a
remarkable anticipation of both the rationale and the limits

of the Dartmouth College decision.

 

The Bank of North America was not the only corporation
troubled by the Pennsylvania legislature in the Revolutionary
and Confederation period. As noted in chapter III, the

College Of Philadelphia had been founded by numerous prominent

 

10[James Wilson], Considerations on the Bank of North-
America (Philadelphia: Hall and Sellers, 1785), 15-17.
Thomas Paine, Dissertations on Government, the Affairs of
the Bank, and Pa er-Mone (Philadelphia: Charles Cist,
I786), I6-I6, 34. IWebster], Essay on Credit, 23, 34- 38.
Mathew Carey, ed., Debates and Proceedings of the General As-
sembly Of Pennsylvania, on the Memorials Praying a Repeal or

Suapension of the Law Annulling the Charter Of the Bank
TPhiladelphia: Seddon and Pritchard, 1786), passim.

 

 

328
individuals, and had been chartered in the middle 1750's.

In part to avoid difficulty with the legislature, the college

authorities had pressed, successfully, for a confirmatory

clause in the state constitution Of 1776. Nonetheless, the

legislature removed the Officers, trustees, and faculty of

the college in 1779, and installed a new set. It was implied

that the Old authorities were loyalists, and it was specifi-

cally charged that they had violated their charter. The

diSplaced college Officers did not accept the legislature's

action, and the cause of the college became entwined with

that of the bank in the mid-1780's, as both the bank and

the college forces argued that the legislature had exceeded

its constitutional power over corporations. Finally, in

1789, the legislature restored the Old charter, declaring

that the earlier act had been "repugnant to justice, a

violation of the Constitution of this Commonwealth, and dan-

gerous in its precedent to all incorporated bodies." The

revised constitution of 1790 retained the provision confirming

charters of charitable corporations and added a clause

prohibiting the state from impairing its contracts.11
Connecticut was the second state where a theory of

corporate chartered rights received early formulation, perhaps

 

11Cheyney, University oiPennsylvania, 17-52, 120-150.
Pa. Const. of 1776, Frame of’Government, sec. 45; Pa. Const.
of 1790, Art. VII, Sec. 3, Art. IX, Sec. 17, in Thorpe, ed.,
Constiigtions, V, 3091, 3099, 3101. Alteration of the charter
of the College of Philadelphia, Act of Nov. 27, 1779, ch.
871, Statutes at Large of Pennsylvania, X, 23-30. Repeal
of the alteration, Act of March 6, 1789, ch. 1393, Ibid.,
XIII, 187-192.

 

 

 

 

329

in part as a result of President Clap's successful defense
of Yale from legislative investigation in the 1760's. As
noted in chapter III, Zephaniah Swift wrote in 1795 that the
banks of Hartford and New London, the society of physicians,
and Yale were "private corporations." As such, the insti-
tutions could be dissolved only by the voluntary surrender
of their charters, by the death of all their members, or by
a judicially-declared forfeiture for neglect or abuse Of
charter privileges. Public corporations, in contrast, could
be altered or dissolved by the legislature.12 Swift's
analysis was similar to that of the Pennsylvanians, but he
added "private corporations" as a special legal category
distinguished by a unique relationship to the legislature.
The Connecticut legislature, as noted above, occasionally
reduced the amount Of tolls which turnpike corporations could
collect from certain classes of users. The reductions seemed
to favor local users. Where the turnpike shares were widely
held throughout a locality, the corporation would have no
objection to such a change. It may have been that peOple
initially regarded turnpikes as public corporations, subject
to legislative control even in the absence of reservation
clauses. Significantly, perhaps, Swift did not include turn-
pikes in his list of private corporations.

Whatever the original reasons for the charter alterations,

 

lewift, A System of the Laws, I, 225, 223. The 1792
charter of the Connecticut Medical Society, which Swift labelled
"private," reserved legislative power to alter, amend, or
repeal. Act Of May Sess., 1792, Conn. Acts (T. Green and
Sons), 424.

 

330

the practice seems to have ceased after 1810. The reason
may have been the Connecticut Supreme Court's decision in

Inhabitants of the Town of Waterbury v. Clark. The facts

 

of the case were somewhat complicated. A general statute

of long standing required towns to build all "needful" bridges
within their limits, unless some particular person had this
reSponsibility. The charter of the Waterbury River Turnpike
Company, issued in October, 1801, required the company to
build bridges which towns were not liable to build and main-
tain. In October, 1802, the company built a bridge over the
Mad River in the town Of Waterbury, and sued the town for
reimbursement, contending that the town was required to build
the bridge under the general statute. Apparently, no final
decision was reached in this case. Later, the company brought
another action against the town, this one for neglecting to
repair the bridge. Meanwhile, the legislature, in May, 1807,
passed an act which stated that any bridge built by a turn-
pike company would be the reSponsibility of the company, unless
the turnpike charter designated which bridges would be built
by the company and which by the town.13

Waterbury pleaded the 1807 act. Incontestably, the

 

13Inhabitants of the Town of Waterbury v. Clark, 4
Day 198 (I810). Hereafier cited as Clark. For the general
statute regulating bridges, see John Treadwell, Enoch
Perkins, Thomas Day, eds., Thegublic Statute Laws Of the
State of Connecticut. Bogk I. PubliShed by Authority of
the General Assembly (Hartford: Hudson and Goodwin, 1808),
119-120. Waterbury River Turnpike Company charter, Oct.
Sess., 1801, Private Laws of Cpnnecticut, 1482-1485. Act

of May Sess., 1807, esp. sec. 3, Conn. Acts and Laws (Hudson
and Goodwin), 768.

 

 

 

 

331
company had built the bridge. The company replied that the

1807 act was unconstitutional. It was, the company argued,
"a law impairing the obligation of a contract. . . . The
legislature . . . made a grant to a number Of individuals
upon certain conditions. Those individuals accepted the
grant, and performed the conditions." This grant was a con-
tract, with the legislature itself a party. Thus, the legis-
lature could not unilaterally alter the grant without impairing
its obligation.14

Judge John Trumbull wrote an Opinion, concurred in by
six of the other eight judges, upholding the claims of the
company. He gave a strained interpretation of the 1807 act
in order to reach the conclusion that the act did not apply
to the case at hand. This construction was necessary, said
Trumbull, in order to prevent the act "from taking away the
legal rights of the turnpike companies, and abolishing grants

made to them by the legislature."15

The implications Of this
Opinion were clear. If the legislature passed laws which
abridged charter rights of turnpike companies without their
consent, the court would construe the laws as inapplicable,

or strike them down as unconstitutional.

 

l4Argument for the company, Clark, 4 Day, 206.

15Trumbull's Opinion, Ibid., 210. Cf., Canaan v.
Greenwoods Turnpike Company, 1 Conn. l (1814) for further
explanation Of Clark and the 1807 statute. Cf. also,
State v. Tudor, 5 Day 329,133-335 (1812), in which Judge
Jonathan Ingersoll analyzed some functional and legal
differences between business corporations and public cor-
porations. His analysis paralleled that of the Massachu-
setts courts.

 

 

332
The North Carolina legislature, like that of Connecticut,

moved against an existing corporation before 1800, although
under somewhat different circumstances. In 1788, North Caro-
lina chartered "The Company for Opening the navigation of the
Catawba River." Apparently, the company did not perform,
because the legislature repealed the charter in 1796 on
the grounds that the company had not opened the navigation
in accordance with the intention Of the act.16 If the facts
recited in the charter repeal are true, the state could
have achieved the same result, although with some delay,
by means Of a suit for forfeiture of the charter on the
grounds of non-user. For this reason, it is probably in-
correct to treat the 1796 act as an instance of arbitrary
legislative action.

After 1800, the North Carolina appellate courts took

an especially firm stand against legislative tampering with

rights of private property. In Ray v. McCulloch, decided

 

in 1804, the Court of Conference held that at the Revolution
the title and possession of individuals' lands "were irre-
vocably fixed, . . . beyond the control Of any future law."
Apparently unable to stop here, the court went on to declare
that "a line was then drawn between the public and private
property, never thereafter to be violated." The next year,

as noted in Chapter III, the same court struck down the

 

16Charter of "The Company for opening the navigation
of the Catawba River," Act of Nov. Sess., 1788, ch. 16,
N. C. Laws (Hodges and Wills), 6-7. Repealed, Act of Nov.
Sess., 1796, ch. 32, N. C. Laws, 32. It does not appear
that the company challenged the legislative repeal in court.

333
legislature's repeal Of its grant Of escheats to the Univer-

sity of North Carolina. Judge Francis Locke built his
Opinion for the court on the theory that the legislature
could not abridge the private rights which members had in
the corporations to which they belonged.17

Connecticut, in the Specific case of turnpikes, and
North Carolina appear to be the only two states where the
courts may have played more than a marginal role in the
development of the system Of political economy. Although
it is impossible to say what the Connecticut and North
Carolina legislatures would have done with regard to turn-
pikes and other business corporations in the absence of
restrictive judicial decisions, it appears that the course
of rulings may have had a direct impact on the development
of policy by restraining the legislature from amending
corporate charters to the detriment of business enterprises.

If the North Carolina courts enthusiastically protected
private property, they were equally zealous in upholding
the power of the legislature to make grants of privileges

to corporations. In President and Directors of the Bank

 

of Newbern v. Taylor, decided in 1813, the defendant, who

 

owed money on a promissory note, challenged the constitu-
tionality of a charter provision giving the bank the power
to proceed against debtors in a summary way. This provision,

according to Taylor, was a grant of an exclusive or separate

 

1 Cameron and Norwood, 493-494. Foy, 5 Murphey,

334
privilege without consideration, in contravention of the

state's bill of rights. The court upheld the charter:

It is not questioned that the Legislature
had the power to grant the charter to the Bank
of Newbern. The object of this grant was the
public good, which the Legislature had in View
on the one hand, and the grantees had their private
interest in view on the other. To carry into
effect the scheme of the bank, it became necessary
for the parties to enter into arrangements for
that purpose; and one part of the arrangement was,
that debts due to the bank might be recovered in
a summary way. . . . [T]his privilege is not a
gift, but the consideration for it is the public
good, to be derived to the citizens at large from
_the establishment of the bank. It is not for
this Court to say whether the Legislature made
a good or bad bargain; it is sufficient to see
that they contracted under legitimate powers; for
over such contracts, Courts of Justice have no
control.

 

Bank of Newbern was the first judicial holding that
a corporate charter was a legislative contract. Technically,
however, it was not a holding that a charter was a contract
within the meaning of the contracts clause of the federal
constitution. The issue in the case was not whether the
legislature could alter a charter, but whether it could grant
a special charter privilege in the first place. The federal
constitution was not involved. Nonetheless, the North Carolina
court defended the bank's charter privilege on the grounds
that it was a contract right. The federal supreme court

had held three years earlier, in Fletcher v. Peck, that

 

legislative grants were contracts within the constitution.19

 

lsBank_gf Newbern v. Taylor, 2 Murphey 266, 267 (Sup.
Ct. 1813). Italics addedffi Hereafter cited as Bank of_Newbern.
S. C. Carolina Law Repository, I (March, 1813), 246-247.

 

19F1etcher, 6 Cranch 87 (1810).

335

The conclusion that a corporate charter was a contract within
the federal prohibition was logically inescapable.

Parenthetically, it should be noted that Bank of New-

 

bern was very similar to Bank of Columbia v. Okely, which

 

came before the United States Supreme Court in 1819. Mary-
land had chartered the Bank of Columbia in 1793, before the
District of Columbia had come into existence. After the
District was created, the bank continued to do business

there under the Maryland charter. One provision, similar

to that contained in the Bank of Newbern charter, allowed

the bank to proceed against its debtors in summary fashion.
Okely, a debtor, challenged the summary process as a viola-
tion of the Maryland bill of rights and also of the seventh
amendment of the federal constitution, which applied because
the suit arose in the District of Columbia. The Supreme

Court reached the same result as North Carolina, giving

full effect to the charter provision. However, in his Opinion
for the court, Johnson stated that the charter provision in
question, summary process for the collection of debts, was

not a "chartered right" of the bank. It was merely "the remedy,
and not the right," and as such remained subject to Congress's

power to regulate judicial procedure in the District.20

 

zoggnk of Columbia v. Okely, 4 Wheaton 235, 244-245
(1819). Johnson‘s'implicit acknowledgment that the Bank
of Columbia, a business corporation, had some legally defen-
sible chartered rights is further indirect evidence that the
Supreme Court believed in 1819 that the contracts clause
extended to business corporation charters. If the clause
did not extend to such charters, what was the legal source
of the rights to which Johnson referred?

 

336

Johnson's dictum was contrary to the sense and substance
of the North Carolina theory, and to this extent was a much
more moderate position. Under the federal theory, the
summary process provision could be altered or repealed without
infringing the charter. Under the North Carolina theory,
summary process was a part of the legislative contract with
the bank, and thus presumably could not be unilaterally
altered or repealed without abridging the corporation's
chartered rights and running afoul of the federal contracts
clause.

New Hampshire added nothing new to the theory or
practice of business corporations, but is important because

it Spawned the Dartmouth College case. New Hampshire con-

 

sistently respected the chartered rights of business cor-
porations. No instance has been found of the summary altera-
tion of such a charter. When a legislative investigation
showed that three banking corporations had violated their
charters, the legislature requested the executive to bring

a quo warranto action against the offending institutions.

In his first inaugural, delivered June 6, 1812, Governor
William Plumer acknowledged that many acts of incorporation
were "in the nature of grants" and could not "with propriety
be revoked without the previous consent of the grantees."

As for new charters, he counseled the inclusion of a "reser-
vation authorizing the Legislature to repeal them." Reser-
vation clauses appeared more frequently in 1812 than before,

or after. As noted in chapter I, Chief Justice William

337
Richardson, newly appointed by Plumer, labelled chartered

business companies "private corporations" in his Dartmouth

 

College Opinion, and indicated that they would come within
the reach Of the federal contracts clause.21 Thus, in

New Hampshire, as elsewhere, business corporations were
acknowledged to have chartered rights but were also subject
to a variety of legal controls.

In conclusion, this overview Of the system of political
economy with regard to business corporations, combined with
what has been learned in closer examinations of Massachusetts
and Virginia, reveals that the system put together by Americans
in the decades after 1780 was neither a democratic, statist
mercantilism nor the full blown economic liberalism Of the
late nineteenth century. Rather, the system had elements
of both mercantilism and liberalism, and represented an
inventive attempt to harmonize somewhat diSparate political
values and social goals. The transcendant political values
of personal freedom and individual ownership and control of
property were most fully recognized in the voluntaristic
nature Of the business corporation. Aside from a very few
state-owned enterprises, the business corporation was every-
where primarily the result Of private initiative and private
planning. PeOple were not coerced by the government into

these corporations, but could buy stock in them, or not, as

 

21Resolution of June 21, 1811, Laws Of New Hampshire,
VIII, 59-60. Charters issued June and December sessions,
1812, Ibid., 74 ff. Plumer's inaugural, quoted in North,
"Political Background," 198. Richardson's Opinion, Dart-
mouth College, 1 N. H., 111, 115, 116, 120, 122, 134—133.

 

338

they chose. Respect for chartered rights drew something
from the general deference accorded rights Of prOperty, but
also represented a functional concession to the reliance
interests of those who had voluntarily committed their funds
to business enterprises. Economic growth could most easily
be promoted by attracting private capital into important
enterprises with Special governmental grants. These grants
of Special franchises and privileges for the most part had
to be respected if private capital was not to be driven
into socially less desirable Speculative activities. On
the other hand, while conceding much to personal freedom,
private property, and economic growth, the early national
period was aware of the dangers of unchecked and uncontrolled
private power, political or economic. Consequently, when
chartering business corporations, legislatures insisted
on all sorts of Obligations, duties, restrictions, limitations,
and reservations in order to protect those public and private
interests which might be adversely affected by corporate
activity. Since entrepreneurs voluntarily accepted these
restrictions along with the benefits, they could Offer no
legal or constitutional complaints when legislatures sub-
sequently enforced the terms Of the charters. The values
of personal freedom and private prOperty were thus ingeniously
reconciled with a necessary measure Of governmental control
of important economic institutions.

In most states, this system was primarily the creation

Of legislatures and local entrepreneurs, and both the

339

Federalist and Republican parties. The courts played a mar-
ginal role, at best, either not ruling on important questions
at all, as in Virginia and most other states, or merely
rationalizing and perfecting the existing system, as in
Massachusetts. Connecticut and North Carolina were the

only two states found where court rulings might have had

a Significant, direct impact on legislative deve10pment Of
policy.

Marshall's Dartmouth College Opinion represents the

 

highest judicial expression of the dominant principles Of
the early national political economy. Faced with the task
Of supporting the decision for Dartmouth, the Chief Justice
framed his Opinion in terms Of existing general principles
Of private property, charter rights, and public contract
which informed the Operation Of the political economy in
nearly every state. Although his implied analogy between
business and charitable corporations breaks down on close
examination, politically Marshall succeeded in justifying
the Court's decision according to publicly accepted Operational
principles and social values.

Finally, as the Dartmouth College decision was nominally
the product of the political economy, SO it changed virtually
nothing in the system. Certainly state legislatures lost
no powers they had been accustomed to exercising before 1819.
Moreover, the full complement Of charter Obligations, duties,
restrictions, limitations,and reservations remained entirely

untouched. With regard to the political economy of business

340

corporations, at least, Dartmouth College was a model Of

 

judicial restraint and moderation.

VII

DOCTRINAL BASES:

PUBLIC CONTRACTS AND CORPORATE CHARTERS

While the states were creating a workable system of

political economy, the doctrinal foundation for Dartmouth

 

College was being laid in public debate and United States
Supreme Court decisions. This chapter will survey important
deve10pments in the areas Of public contract and corporation
law. In the field of contract, it focuses on general
deve10pments which anticipated the formulation of consti-
tutional doctrine by the Supreme Court, and especially on

the legal and political acceptance Of the general prOposition
that state land grants were constitutionally protected con-
tracts. Because the evolution Of corporation law has received
extensive treatment elsewhere, only a few cases and theoretical
matters are considered here.

Article I, Section 10 of the federal constitution
explicitly prohibits states from enacting laws which impair
the Obligation of contracts. The available evidence does not
indicate how far the founding fathers intended the clause to
reach. It was clearly designed to prohibit certain stay laws
and insolvency acts which benefited debtors at the expense

Of creditors, and was loosely related to the bankruptcy and
341

342
legal tender provisions. Although James Wilson, who attended

the convention, and other Pennsylvanian defenders of the
Bank Of North America had advanced the prOposition in 1785
and 1786 that a corporate charter was a legislative contract,
there is no evidence that the convention discussed the idea.
The contracts clause did not figure prominently in the
debate over the ratification of the constitution. There
were only a few passing references tO the clause as embracing
public contracts.1

In the late eighteenth century and the early part of
the nineteenth century the idea Of contract was expanding
to include a wide variety of individual and collective com-
mitments. Contract was, in the words Of one analyst, an
"omnivorous conception." At one end Of the Spectrum, the social
contract, or compact, was an important part Of the pOpular
political philOSOphy which insisted that government was limited
and ultimately based on the consent of the governed. At
the other end, the legal contract was growing extensively
to embrace many types Of private transactions. John Joseph
Powell, whose English treatise was widely read in America,
stated that contracts were "applicable to all rights . . .
which may lawfully become the subject Of traffic," and
Specifically named "every feoffment, gift, grant, lease, loan,

pledge, bargain, agreement, promise." Similarly, the French

 

1Wright, Contract Clause, 3-16. Warren B. Hunting,
The Obligation Of Contracts Clause Of the United States
Constitution (Baltimore: Johns HOpkins Press, 1919), 15-39,
111-120.

 

 

343
civilian Robert Joseph Pothier, also read and cited by

Americans, found that all things in commerce, and those
acts not prohibited by public policy could be the Objects
of legal Obligation.2 Political philOSOphy and the legal
theory of private enforceable agreements met in the idea
Of public contract. A legislative act which had to be
accepted or relied upon by individuals to be Operative,
which carried express or implied reciprocal commitments to
honor the terms, and from which both Specific individuals
and the state derived benefit was a legal contract binding
both legislature and private parties.

After 1789, land became the first subject of a con-
stitutionally enforceable government contract. Several
factors influenced this deve10pment. In a society which
was still primarily agricultural, the desire to own land was
nearly universal, and real estate Speculation was a major

economic activity. Legally, all private land titles were

 

2Nathan Isaacs, "John Marshall on Contracts. A Study
in Early American Juristic Theory," Virginia Law Review,
VII (March, 1921), 427. Clinton Rossiter, Seedtime of the
Republic: The Origin Of the American Tradition of Political
Liberty (New York: Harcourt, Brace and Company, 1953),
403-409. John Joseph Powell, Essay upon the Law of Contracts
and Agreements, 2 vols. (Dublin: 1796), I, 7, 235. Swift,
A System of the Laws, relied on Powell for his analysis of
contracts, I, 42, 379. Powell was cited in argument before
the Supreme Court in Grant v. Naylor, 4 Cranch 224, 232 (1808),
and Young v. Preston, 4 Cranch 239, 240 (1808). Justice
Washington cited Powell in his concurring Opinion in Dart-
mouth College, 4 Wheaton, 656. Robert Joseph Pothier, A
Treatise on the Law Of Obligations, or Contracts. Trans.
by William David Evans. 2 vols. (London: A. Strahan, 1806),
I, 75-76. In America, A Treatise on Obligations, Considered
in a Moral and Legal View. Translated from the French Of
Pothier. 2 vols. in l. (Newburn, N. C.: Martin and Ogden,

. Probably translated by Xavier Martin.

 

 

 

 

 

 

 

 

 

 

 

 

344
ultimately derived from governmental grant. This would

have been no problem had the conveyance of millions Of

acres of vacant land from public to private ownership been
a slow, orderly process. However, in many states land was
the main stuff Of politics. AS Shifting political factions
favored the interests of squatters, revolutionary war veterans,
hOpeful individuals, and big land companies, they produced
a mass Of contradictory legislation. Some areas, as the
Wyoming section of Pennsylvania and most of Vermont, were
the subject of long-standing jurisdictional quarrels which
generated conflicting public and private claims. Usually,
when a legislature took action which affected the validity
of existing land claims, those injured vigorously protested,
asserting a reliance interest, and decrying the perfidious
attack on vested rights. Reference to the federal consti—
tution added a constitutional element to the claimants'
case, as original grants were alleged to be contracts which
the state could not impair.

The first references to the federal contracts clause
as protecting grants Of land seem to have been made in New
York. For many years, New York and New Hampshire had been
feuding over the territory west Of the Connecticut River and
east Of Lake Champlain. In 1790, the two states appointed
commissioners to compromise the dispute and to superintend
the formation of the area into the new state Of Vermont.

In the Council of Revision, New York's Governor George

Clinton unsuccessfully Opposed the compromise. He objected

345
tO the grant Of discretionary authority to settle the disputed

land claims. This would render titles insecure and deprive
citizens Of the "ordinary course Of justice." Moreover,
Clinton continued, "by this bill, the rights of citizens
under charters and letters patent, which may be ranked among
the highest Species Of contracts, may not only be impaired,
but extinguished, in direct violation Of . . . the Consti-
tution of the United States." About six years later,
Alexander Hamilton gave a legal Opinion in which he stated
that a Georgia land grant Of 1795 was a contract protected
by the federal constitution.3

The principle that a legislative grant was a contract
was more firmly established in legal argument and judicial
decision in a series of Pennsylvania cases which grew out
Of a general act of April 3, 1792, for the sale of vacant
lands in the state. The act required the settlement and
improvement of the lands within two years of the issue of
the original warrant, unless settlement was forcibly prevented
by the enemies of the United States. The Holland Land
Company bought 464,800 acres, but failed to settle the
lands as required. Initially, they were prevented from doing
SO by an Indian war, which was not finally ended until

December, 1795. The Company continued to have difficulty

 

3Clinton's Opinion, March 5, 1790, in Street, Council
Of Revision, 416-417. (1 Peter Magrath, Yazoo: Law and
Politics in the New Republic: The Case Of Fletcher v. Peck
(Providence, R. I.: IBrown University Press, 1966), 20-22.
Hereafter cited as Yazoo. Hamilton's Opinion is reprinted
Ibid., App. D, 149-150.

 

 

346
finding settlers, and two years after the end of the Indian

war a great deal of land remained unsettled. The Company

maintained that this made no difference SO long as the

speculators persisted in their efforts to find settlers.

The Pennsylvania Board of Property agreed at first, but a

change Of administration brought a reversal Of the original

ruling. Thereafter, both the Company and the state took

the problem into court. Even though the 1792 act was general,

nOt a direct grant to the Company, the state's Republican

attorney general, Joseph McKean, argued that the act was

a legislative contract, and that the principles Of contract

law provided the applicable rules of construction. Many Of

the judges agreed, while holding that the Company had not

met the contract's condition precedent of actual settlement

within the required time.4
Having failed to secure satisfactory results in the

state courts, the Company brought several cases in federal

circuit court, and took one, Huidekoper's Lessess v. Douglass,

 

to the Supreme Court. fihere attorney general McKean and

 

4Commonwealth v. Coxe, 4 Dallas 170, 194, 195, 204
(Pa. Sup. Ct. 1800). Attorney-General v. The Grantees,
4 Dallas 237, 239, 244 (Pa. Sup. Ct. 1802). Cf., Morris's
Lessee v. Neighman, 4 Dallas 209 (Pa. Cir. Ct. 1800).
Paul D. Evans, The Holland Land Company, Buffalo Historical
Society Publications, vol. 28 (1924), 31-33, llO-IlZ: 122-
127, 136-137, 141-142. Hereafter cited as Holland Land
Company. Act Of April l 1792, esp. sec. 9, ch. 1624, Statutes
at Large of Pennsylvania, XIV, 232-239. The act is reprinted
in Huidekoper's Lessee v. Douglass, 3 Cranch 1, 1-8 (1805).
Hereafter cited as Don lass. Cf., Van Horne's Lessee v.
Dorrance, 2 Dallas , (U. S. Cir. Ct. 1795) (dictum,
Pennsylvania act quieting and confirming titles Of Connec-
ticut citizens tO land in Pennsylvania not a contract.)

 

 

 

 

 

347

his colleagues again referred to the 1792 act as a "contract,"
as did Alexander Dallas, who represented the Company. In
his Opinion for the Court, Chief Justice Marshall accepted
the theory that the act was a contract and decided for the
Company on the basis Of equitable principles.5

By 1805, then, the Holland Land Company cases had pro-
duced a broad agreement among Pennsylvanian political and
legal authorities and the federal Supreme Court on the
general prOposition that a state land grant was a contract.
If this did not put an end to controversy, the disputants
and the judges had at least created a mutually acceptable
framework within which rational legal argument and informed
public debate might proceed.

More notorious and ultimately more important than the
New York and Pennsylvania difficulties was the political

and legal controversy engendered by the Yazoo Speculation.

On January 7, 1795, the Georgia legislature, heavily bribed

 

5Balfour's Lessee v.‘Meade, 1 Washington C.C. 18,
4 Dallas 363, 2 Fed. Cas. 543 (i. S. Cir. Ct. 1803).
Lessee of HuidekOpery. Burrpg, 1 Washington C. C. 109,
lfiFed. Cas. 840 (U. S. Cir. Ct. 1804). HuidekOper v. M'Clean,
1 Washington C. C. 136, 12 Fed. Cas. 848 (U. S. Cir. Ct.
1804). In his Opinions in all these cases, Bushrod Washing-
ton treated the problem as one Of statutory construction,
not as contract. Douglass, 3 Cranch 1, ll, 44, 52, 70-71.
For the results on remand,]JWashington C. C. 258, 4 Dallas
392, 12 Fed. Gas. 847 (U. S. Cir. Ct. 1805). Warren, Supreme
Court, I, 369-370. Evans, Holland Land Company, 144-145,
I49-154. Douglass anticipated the case Of Fletcher v. Peck
in at least three respects: (1) The plaintiffs were a
"pressure group" appealing to the United States Supreme
Court for support against adverse state action. (2) A state
land grant was found to be a public contract. (3) The Court
used “equitable“ principles to justify a decision for the
pressure group.

 

 

 

 

 

348
or in collusion with the Speculators, passed an act granting

thirty-five million acres Of land, known popularly as the
Yazoo territory, to four land companies for the price Of
a half million dollars. AS the facts surrounding the grant
became known, prominent Georgia politicians condemned the
iniquity of their rivals, and secured, on February 13, 1796,
the repeal Of the grant on the grounds that the 1795 act
had been unconstitutional and rendered void by the fraud
attending its passage. Subsequently, Georgia conveyed the
Yazoo lands to the United States for $1,250,000. Meanwhile,
the original purchasers under the 1795 act had sold large
amounts of the land to northern Speculators, with a large
amount going to the New England Mississippi Land Company,
centered in Boston. Contending that the 1795 grant was
a contract which could not be repealed, and that they were
purchasers for value innocent Of any fraud, the New England
speculators maintained that they, not Georgia or the United
States, owned the Yazoo lands. Although Congress did not
acknowledge the Speculators' title, the 1803 act accepting
the Georgia lands set aside five million acres tO satisfy
outstanding claims. A bipartisan coalition of New England
Speculators lobbied for nearly a decade before Congress
agreed to pay them about five million dollars compensation.6
When the prOposal for compensation of the New England
speculators came before the House Of Representatives in 1804

and 1805, John Randolph, in his first significant break

 

6Magrath, Yazoo, l-36, 97, 99.

349
with the Jefferson administration, mounted a vigorous

Opposition. He Offered a series of resolutions, the major
points of which were that Georgia's 1795 grant had been
invalid, that the 1796 repeal had been prOper, and that the
speculators had no legal or equitable claim to the Yazoo
lands. Although Randolph and his supporters in Congress
Occasionally appealed to unrestricted state sovereignty

to justify the repeal act Of 1796, they more Often accepted
the proposition that a valid state land grant was a contract
which could not be impaired under the federal contracts
clause. "If Georgia has made a valid contract," said
Randolph, "we must execute it." However, Randolph consistently
emphasized that the presence of fraud made the 1795 act void
from the beginning. What was "impudently called a contract,"
he said, "was, in reality, a fraud of unprecedented enormity";
what had been called a “fair bargain" was really "a cheat
upon the people Of Georgia of unparalled audacity and
magnitude." Similarly, Caesar A. Rodney, soon to become
Jefferson's Attorney General, denied that Georgia's repeal
act of 1796 was a violation of the contracts clause, because
there had been "no contract formed, either in a legal or
equitable sense." Although for political reasons the
Jefferson administration desired a compromise with the New
England Yazooists, Randolph's Opposition effectively pre-

vented the passage Of the necessary legislation.7

 

7Ellis, Jeffersonian Crisis, 87-89, 93-94. Henry
Adams, John Randol h (Boston: Houghton, Mifflin and Company,
1883), I02-II2, I25-130. Randolph Speeches, Feb. 20, March

 

350

The New England Speculators had not ignored the courts
as a possible avenue of redress. In 1799, the Massachusetts
supreme court ineffectually declared the Georgia repeal act
of 1796 to be a violation Of the federal contracts clause.
On June 1, 1803, a case was filed in federal circuit court
in Massachusetts. John Peck, Of Newton, Massachusetts, had
sold 15,000 acres of Yazoo land to Robert Fletcher of Amherst,
New Hampshire, and had attached a series of covenants which
stated that the grant of 1795 was valid and the repeal of
1796 invalid. Fletcher brought his action for covenant
broken in order tO test the principal aspects of the Georgia
transactions. After a series of continuances, the circuit
court decided the case for Peck. Fletcher took the case
8

tO the Supreme Court.

Although Fletcher v. Peck was undoubtedly collusive

 

and seemingly recognized as such by the justices, it was
heard by the court. Marshall delivered the Opinion Of the
court, which favored the Speculators on every major point.
The ultimate basis of his Opinion, the general prOposition
that a legislative grant was a contract which could not

constitutionally be repealed, was neither new nor widely

 

7, 10, 1804, in U. 3., Congress, The Debates and Proceedings
in the Congress Of the United States; with an Appendix, Con-
taining Important State Papers and Public Documents, and
All the Laws Ofia PubligINature; with a COpious Index
(Washington: Gales and Seaton, 1852): 8th Cong., ISt Sess.,
1039-1040, 1111, 1136, 1139. Hereafter cited as Annals.

8Derby v. Blake, in Columbian Centinel (Boston), Oct.
9, 1799; Independent Chronicle (Boston), Dec. 12, 1805.
Magrath, Yazoo, 52-56. Fletcher, 6 Cranch 87 (1810).

 

 

351

controversial. What was curious was the intellectual ballet
the Chief Justice had to perform in order to bring the
principle to bear on the case at hand. He tiptoed around
inconvenient points and then jumped to broad conclusions.

He declared that the 1795 grant was a contract, but refused
to allow the original fraud to impair its validity. His
protestations that it was too difficult as a matter Of law
to determine the types and degree Of corruption necessary

to impeach a legislative act were vitiated by his later
insistence that the Georgia legislature should have gone to
court or followed court procedures tO have the 1795 act
judicially annulled. Marshall went on to state that the
question of legislative corruption could not be brought
"collaterally and incidentally" before the court in a suit
on a private contract. Such an inquiry "would be indecent,
in the extreme." Yet he ruled on the constitutionality Of
the 1796 repeal act, apparently finding neither inconsis-
tency nor indecency in the fact that this issue, too, was
brought collaterally and incidentally. Throughout his Opinion,
the Chief Justice emphasized that the New England Speculators
were innocent third persons, purchasers without notice Of
the original fraud, and therefore equitably entitled to the
lands. Equating the 1795 legislators with the people of
Georgia, Marshall casually dismissed the contention that

the people and state of Georgia were as much the victims

Of legislative corruption as the New England Speculators.

All things considered, Fletcher v. Peck, which Operated to

 

352

validate the speculators' title against the United States,
was a truly remarkable performance.9

After their victory in court, the New England Yazooists
still had tO secure compensation from Congress. Severe
Opposition in the House, led by George M. Troup Of Georgia
and Samuel Farrow Of South Carolina, blocked passage of the

compensation bill until 1814. Fletcher v. Peck was the focus

 

of attack. It should not have been decided at all, the anti-
compensation forces maintained, because it was a feigned

case got up between speculators to decide a question of
right between them and the United States, which was not a
party and which could not constitutionally be a party without
the consent of Congress. Moreover, the merits of the case
were re-examined, in much the same terms used by RandOlph

a decade earlier. The anti-compensation forces did not
complain that the Supreme Court had invalidated a State
legislative act, but that the Court had invalidated the
wrggg act. If the 1795 act was "lawful," said Farrow, "no
subsequent act could rescind or impair contracts made under
it." He and Troup consistently emphasized that the 1795
grant was Obtained through fraud and corruption, and was

therefore void from the beginning.10 In the end, whatever

 

9Magrath, Yazoo, 54, 65-69. Marshall's Opinion,
Fletcher, 6 Cranch, l30-l39. Justice Johnson wrote a separate
Opinion, agreeing that a state could not revoke its own
grants and that the Court could not void a legislative act

which had been Obtained through fraud. Ibid., 143-144.

1°Troup Speeches, Jan. 20, 1813, Annals, 12th Cong.,
2d Sess., 857, 859; March 8, 1814, Ibid., 13th Cong., 2d
Sess., 1840-1843, 1848. Farrow Speeches, March 8, 23, 1814,
Ibid., 1850, 1896-1897.

353

the specific problems Of Fletcher v. Peck, the anti-compen-

 

sation forces had accepted the Supreme Court's general
constitutional principles. A bona fide legislative grant
Of lands for a consideration was a public contract which
could not be constitutionally impaired by a subsequent act,
and which the Court, in a proper case, had the authority tO
enforce.

The final case before 1819 in which the United States
Suprme Court applied the contract clause to invalidate a

legislative act was New Jersey v. Wilson. In a treaty with

 

the Delaware Indians, the provincial government of New Jersey
agreed to purchase lands for the Indians in return for the
cession of lands south Of the Raritan. The act of 1758
executing this treaty included a provision exempting the
lands purchased for the Indians from all taxation. In 1801,
the Indians sold their lands and moved to New York. In
December, 1804, the New Jersey legislature repealed the

tax exemption. When the assessor tried to collect the new
taxes, twenty-two purchasers challenged the repeal Of the
exemption in a mandamus action brought in the name Of the
state. After the New Jersey Supreme Court ruled that the
tax exemption applied only to the Indians, the case was
taken to the federal Supreme Court. Marshall held that the
original tax exemption was part Of a contract between New
Jersey and the Indians. Since the exemption was annexed to
the land, and increased its value, it went with the land to

the purchasers. AS assignees of the Indians, the purchasers

354

could claim the benefit of the original contract, and the
state could not impair it.ll
Considered on its facts alone, Wilson was a rather
narrow holding. The principle that a state might make an
enforceable contract concerning land had been firmly estab-
lished in Fletcher. For Marshall, at least, the Wilson
holding might have had another dimension. Most important
Virginia internal improvement corporations were tax exempt
by the terms of their charters, and Virginia, unlike most
states, usually labelled Shares of internal improvement

corporation stock "real estate." Clearly, the principle

Of New Jersey v. Wilson would not have to be extended very

 

far to invalidate an attempt by the Virginia legislature
to repeal the tax exemption.

By 1815, the Pennsylvania cases, Fletcher v. Peck

 

and its aftermath, and New Jersey v. Wilson had firmly es-

 

tablished in constitutional law that a legislative grant
was a contract protected by the constitution. AS in the
deve10pment of corporate law traced in other chapters,
public debate, legislative action, and state judicial deci-
sions preceded and informed the deve10pment Of federal law,
so that the Suprme Court's decisions rested on fundamental
constitutional principles accepted by legal authorities

and political leaders Of both major parties at all levels

 

11Wilson, 7 Cranch, 166, rev'g State v. Wilson, 1
Pennington 300 (N. J. 1807). Wright, Contract Clause,
34-370

 

355
of government. Although in retrospect it is clear that

the Supreme Court had also by 1815 established its institu-
tional authority to enforce the public contract in an ap-
prOpriate case, there continued to be disagreements as to
what constituted an appropriate case, and what limits the
constitution imposed on federal judicial power.

While contract was expanding as a legal concept, the
corporate form was rapidly becoming the favorite organizational
basis of many types Of social institutions. Most Of the
corporation cases which came before the federal Supreme
Court involved religious, charitable, or economic organiza-
tions. Although the roots Of the law ultimately lay in
legislative and corporate practice, specific cases required
the court to articulate general conceptions about the cor-
poration in order to support its decisions. Because SO much
has already been said about the Court's corporate decisions,
here it is necessary to review only the few important doctrines
and decisions which have not received adequate consideration
elsewhere.

Legalists have Often debated the question Of whether
the corporation is really an association Of individuals
for Special purposes, or a fictional person, an abstract

12

legal entity existing apart from individual members. In

 

12See, generally, Frederick Pollock, "Has the Common
Law Received the Fiction Theory of Corporations," Law Quar-
terly Review, XXVII (April, 1911), 219-235. Lubasz, "The
Corporate Borough," eSp. 228-229. Dodd, American Business
Corporations, 65-66, concluded that early state court
decisions on the private law Of corporations followed the
entity theory.

 

 

356

the federal Supreme Court, where most cases involved the
public law Of non-governmental corporations, the associa-
tional theory was usually the basis of decision.

The first cases in which the Supreme Court clearly

advanced the association theory were Bank of the United

 

States v. Deveaux, and its companions, HOpe Insurance CO. v.

 

 

Boardman, and Maryland Insurance CO. v. Woods. The Deveaux

 

case involved a suit by the first Bank of the United States
to try the right Of the state of Georgia to impose a tax

on the Savannah branch. Although it was averred that the
Bank was composed solely Of citizens Of Pennsylvania, and
that the defendants were all citizens Of Georgia, the federal
district court ruled that it did not have jurisdiction over
the parties, and that no federal question was involved.

The other cases involved similar jurisdictional problems.
Boardman was a citizen Of Massachusetts, and the Hope
Insurance Company was averred to be incorporated by Rhode
Island. Woods was a citizen Of Pennsylvania, and the Maryland
Insurance Company was averred to be composed Of citizens

Of Maryland. The basic problem in all the cases was the
basis of federal jurisdiction where a corporation was a
party.13

The Court ruled that the requisite diversity of

 

13Deveaux, 5 Cranch 61 (1809), rev' 2 Fed. Cas 692
(1808). HOpe Insurance CO. v. Boardman, Cranch 57 (1809).
Maryland Insurance CO. v. Woods, 5 Cranch 61, 78 (1809).
Dudley O. McGovney, IA Supreme Court Fiction," Harvard Law
Review, LVI (May, 1943), 864-865. Hereafter cited aSiIA
Supreme Court Fiction."

 

357

citizenship would exist when all the shareholders Of a cor-
poration had state citizenship different from that of the
Opposing parties. In his Opinion for the Court, Marshall
emphasized that a suit involving a corporation was "sub-
stantially and essentially" a suit between the individual
members of the corporation and the Opposing party. Con-
sidering the relatively small size, local nature, and limited
purposes Of most corporations in the early nineteenth century,
this “associational theory" was completely realistic.
Although the Supreme Court followed the association
theory in most cases, the universal necessity for a legis-
lative charter, or at least a legislatively authorized
charter, forced the Court to accept the idea that the
corporation was also the creature of law. This view was
first set forth in Head and Amory v. Providence Insurance
92; in 1804. The basic issue was the degree of formality
necessary for the cancellation Of a marine insurance policy.

In his Opinion for the Court, Marshall held the corporation

 

4Deveaux, 5 Cranch, 88-89, 91. McGovney, "A Supreme
Court Fiction," 865-869. For a good short discussion of
Marshall's theory Of corporations, see Dodd, American
Business Corporations, 35-38, 42-44. Cf., Gerard C. Hen-
derson, The Position of Foreign Corporations in American
Constitutional Law:r_A Contribution to the History and
Theory of Juristic Persons in Anglo-American Law (Cambridge:
Harvard University Press, 1918), esp. 55-57. Since most
corporations were probably composed Of citizens Of a single
state in the early nineteenth century, Deveaux probably
did not exclude many corporations from federal court where
substantial diversity existed. The Supreme Court brought
the second Bank of the United States under federal juris-
diction by finding that all judicial questions relating
to it were federal in nature. Osborn v. Bank Of the United
States, 9 Wheaton 738 (1824).

 

 

 

358
to the formalities set forth in the charter. The charter

was an "enabling act" which granted the corporation all its
powers and Specified the manner in which they could be exer-

cised.15

In short, the charter was the measure Of the legal
power Of the associated individuals.

Whether the corporation was an association Of indi-
viduals or a legal entity, it was merely a legal tool used
by corporators to promote their Special interests and chartered
by the government with the ultimate intent Of advancing
the public good. This view received its most complete
formulation in McCulloch v. Maryland. Counsel for the state
had argued that Congress did not have the authority to
charter the Bank Of the United States because the power of
creating corporations was not among Congress's enumerated
powers. Marshall based his Opinion for the Bank on the
conclusion that incorporation was never an end in itself,
but always the means of accomplishing some socially useful

purpose. Corporators, he correctly Observed, never sought

a charter as an end in itself, but always as a means for

 

15Head and Amory 2:7Providence Insurance Co., 2 Cranch
127, 167-169 (1804). Cf., Marshall's argument, Ware, 3 Dallas,
212-213 (1796). In the absence of controlling charter pro-
visions, the common law rule was that corporations could
only contract by instruments under seal. This was relaxed
in Bank Of Columbia v. Patterson's Adm'r, 7 Cranch 299 (1813).
In a somewhat ambiguous dictum in his Opinion in this case,
Justice Story foreshadowed the adoption Of the contract
theory of the corporate charter. "[A] ll duties imposed
on them [corporations] by law," he wrote, "and all benefits
conferred at their request, raise implied promises, for the
enforcement Of which, an action may well lie." Ibid., 306.
Cf., Dodd, American Business Corporations, 94-95.

359

16 This, too, was a realistic

accomplishing something else.
view of the nature Of corporations.

The Supreme Court did not pass directly on the ques—
tion of legislative control Of corporations until the 1815

case of Terrett v. Taylor. Because the case is important,

 

and sometimes misinterpreted, it requires some examination.
The case arose in the District of Columbia. The original
plaintiffs, Taylor and others, were members of the vestry
of the Episcopal Church of Alexandria, which had been in
Virginia until the establishment of the District. The vestry
claimed equitable title to certain lands in the District,
and originally sought injunctions against two groups Of
defendants. First, they sought a decree Of sale against
the church wardens who held the land in trust for the Epis-
copal congregation, but had refused to sell. Second, the
vestrymen asked the court to declare that their title was
good as against the overseers Of the poor of Fairfax County,
Virginia, and to enjoin the overseers from ever claiming
the church lands in question. These county officials, said
the vestrymen, were wrongfully claiming the lands under

the Virginia act Of 1802 which authorized overseers to sell
EpiSOOpal lands and apply the proceeds to the support Of
the poor. Since neither group Of defendants answered the
bill, the vestrymen's allegations Of fact were deemed to

have been admitted, and the lower court granted the injunctions.

 

lsMcCulloch, 4 Wheaton, 411, 421-422 (1819).

 

360
The overseers alone appealed to the Supreme Court.

17
Justice Story wrote the Opinion Of the Court. He could
have disposed Of the matter very briefly by concluding that
the material allegations on the face Of the bill established
sufficient title to enable the vestrymen to bring the suit
to enjoin the overseers from interfering with their efforts
to sell. The overseers had no valid grounds for claiming
the land themselves, since their claim was based exclusively
on the Virginia act Of 1802, which, as Story admitted, could
have no Operation in the District Of Columbia.18
However, Story took the Opportunity to examine fully
the legal and equitable title Of the Episcopal Church Of
Alexandria to the lands in question under Virginia law.
This entailed a sweeping review Of Virginia legislation es-
tablishing and then disestablishing the Episcopal Church
during the colonial, confederation and early national periods.
Story concluded that all the relevant grants and confirmations
of organizational privileges to the Episcopal Church since

the Revolution were still Operative, and all the repeals

were void. This amounted to an attack on the decision Of

 

17Terrett, 9 Cranch 43 (1815). Justices Johnson and

Todd were listed as absent.

18Ibid., 52. The overseers claimed under the Virginia
Act of Jan. 12, 1802, Dec. Sess., 1801, ch. V, She herd, II,
314-316. Art. I, Sec. 8 Of the U. S. Constitution granted
Congress exclusive jurisdiction over the District Of Columbia.
Congress first exercised this jurisdiction on Feb. 27, 1801,
thereby assuming its constitutional control and excluding
Virginia. Cf., Young v. Bank of Alexandria, 4 Cranch 384
(1808) (held, Virginia could iegislate for the District
until Feb. 27, 1801).

 

361
the Virginia Court of Appeals in Turpin v. Lockett, which
19

 

had upheld the act Of 1802 and its predecessors.
During the course Of his Opinion, Story set forth
general principles governing the relationship between states
and corporations. AS noted earlier, he drew the distinction,
previously elaborated in Massachusetts, between public and
private corporations. The franchises of the former were
subject to legislative alteration, but the legislature could
not "repeal statutes creating private corporations, or con-
firming tO them property already acquired under the faith Of
previous laws . . . without the consent or default Of the
corporators." Story stood "upon the principles of natural
justice, upon the fundamental laws Of every free government,
upon the Spirit and letter of the constitution of the United
States, and upon the decisions of most respectable judicial
tribunals."20
Parenthetically, it might be noted that the consti—
tutionality Of the Virginia acts disestablishing the EpiscOpal
Church again came before the Virginia courts. In 1827, the
members of an EpiscOpal church challenged the seizure of
their lands by the county overseers Of the poor under the
act of 1802. The church based its case largely on Story's
Opinion in Terrett. In the lower court, Henry St. George

Tucker denied that Terrett had any application to Virginia.

 

19Terrett, 9 Cranch, 46-52.

20Ibid., 52. Story did not refer to the contracts
clause, perhaps because even he could not find a contract
to support the Virginia Episcopal church.

362

In the first place, the Supreme Court had no jurisdiction
to make a ruling based on the Virginia act Of 1802, since
that act was not in force in the District Of Columbia, where
Terrett arose. Story's comments were wholly gratuitous,
without legal effect. Even if the act Of 1802 were in force
in the District, said Tucker, Story's constitutional pro—
nouncements were irrelevant Since the title of the EpiSCOpal
church to Virginia lands had been totally annihilated by

1786, before the constitution had been written. Significantly,
however, Tucker accepted Story's basic distinction between
public and private corporations. Story had merely erred in
calling the Virginia Episcopal church private. Since it had
been established by law and supported with tax revenues it

was a public corporation, subject to legislative control.21

With Story's flight in Terrett, groundwork was finally

laid for the Dartmouth College decision. In terms Of American

 

doctrine, Dartmouth College represented the intersection Of
the line Of public contract cases with the growing field

of corporate case law. The contract cases had decided that
legislative grants for a valuable consideration were consti-
tutionally protected contracts. The corporation cases deter-

mined that business and some charitable corporations were

 

21Henry St. George Tucker, Commentaries on the Laws
Of Virginia, Comprising the Substance Of a Course of Leo-
tures Delivered to the Winchester Law School: By Henry St.
George Tucker, Chancellor Of the Fourth JudiEial Circuit.
2 vols. (2d ed.; Winchester, Va.: 1836), I, Book I, 162;
II, App., "The Opinion Of Chancellor Tucker in the Case of
Selden and Others against the Overseers of the Poor of
Loudon and Another," l-6, ll-12, 15. On appeal, Tucker's
decision was affirmed er curiam. Selden v. Overseers Of
the Poor, 11 Leigh 127ETI840).

 

 

 

 

 

363
governmentally sanctioned associations Of individuals for

socially useful purposes, and Terrett and several state deci-
sions had suggested that private corporations were constitu-
tionally protected. From a political standpoint, the fundamen-
tal prOpositions which made up both contract and corporation
doctrine were widely, if not universally, accepted by govern-
mental authorities at both the state and federal levels.

Thus, it was neither logically nor politically difficult

to proceed to the conclusion that the charter Of a private
corporation represented a legally enforceable contract.

The voluntary commitment of private property to the new or-
ganization and the performance Of socially useful functions
was, technically, adequate consideration Of the corporators,
and invited the finding Of a reliance interest in the charter.
The legislative grant Of legal privileges and special fran-
chises was the public's consideration. If the corporators
were bound by the terms of the charter, not merely its
benefits but also its restrictions and Obligations, symmetry
required that the legislature also be bound. Hence, the
charter became the measure Of both corporate rights and

legislative power, all under the legal umbrella of contract.

VIII

CONCLUSION: THE SUPREME COURT AND THE

DARTMOUTH COLLEGE DOCTRINE

Two related questions have prompted examination Of
the law Of corporations and contracts in the early national
period, the American experience with business and charitable
corporations before 1819, and the major elements Of the

arguments and various judicial Opinions in the Dartmouth

 

College case. The first and primary question is, Why did
the Supreme Court decide that the charter Of a private
corporation was a constitutionally protected contract?
The second, What was the substance and meaning of the

Dartmouth College decision in the context Of the early

 

national period? This chapter will review the background
of and summarize the reasons for the Court's promulgation
of the Dartmouth College doctrine.

Law can be Of considerable intellectual, and thus
practical, significance in a difficult constitutional case.
At the threshold, lawyers and judges use law in a most
fundamental way to define the elements of the problem and
the issues which are presented. Standard legal analysis
suggests the values which ought to inform the result, and
Offers a means for rationalizing the final decision in terms

Of prevailing values and existing legal institutions. The

364

365
English law Of corporations and the American law Of contracts

contributed in these ways to the resolution of the Dartmouth

 

College case.

Dartmouth College involved a corporation, an insti-

 

tution recognized by all the participants in the case as
thoroughly the creature Of law. In the absence Of a fully-
developed American law Of corporations, the English treatises
and cases were plumbed for the necessary and fundamental
legal conceptions which could provide the starting point

of analysis. Marshall's celebrated definition of a cor-
poration in his Opinion for the Court was thus merely
derivative from English law, different from the others only
in completeness and style.

At another level of SOphistication, Dartmouth College

 

involved not merely a corporation in its abstract essence,

but a charitable corporation. In this area, too, American

 

law was seriously deficient, and British doctrine had to
fill the gap. However, neither lawyers nor judges could
agree upon the correct interpretation and application of
the English law of charitable corporations.

The attorneys for the college made the most imaginative
use of the English law of charities. Their Opponents rather
simplistically contended that charitable corporations were
by legal definition and in fact performing public services,
and that therefore the state legislature, representing the
public interest, had both the right and the duty to regulate

them. Mason, Smith, Webster, and HOpkinson reached deep

366

into English law to redefine the whole case in terms of
private property. Essentially, they argued that founders
of charitable corporations had a perpetual property right
in their donations and that charitable corporations founded
with private funds were legally "private," beyond the juris—
diction Of the royal courts for most purposes and not
subject to control by the Crown. Although the English cases,
as applied to the case at hand, did not support all the
elements of the college attorneys' argument, it was none-
theless true that the English had traditionally given a
considerable degree of independence to charitable corpora—
tions, and had identified this independence with the founders'
property rights. By extension, the college attorneys per-
suasively contended, American private charitable corporations
were constitutionally beyond arbitrary control by state
legislatures.

The Justices Of the federal Supreme Court certainly
were persuaded by the college attorneys' arguments, but,
if the Opinions are any indication of the judges' mental
processes, different Justices were persuaded in different
ways. Story not only accepted the basic elements Of Webster's
case, but Offered an elaborate Opinion complete with a mas-
Sive accumulation Of English citations. This was no doubt
tactically sound, as it gave the impression that there
was a firm doctrinal basis for each Of his major points.
However, closer examination reveals that Story misapplied

English cases and butchered accepted legal.categories in

367

order to support broad conclusions which were not required
by the case before the Court.

Marshall likewise responded to arguments based on
English law, but his response was qualitatively different
from that Of Story. The Chief Justice viewed the English
law not as a collection Of detailed prescriptions, but as
a form Of institutional history which had particular
relevance to America. Thus Marshall accepted the basic

idea that Dartmouth College involved the property rights

 

Of the founders. Yet even though this prOposition was in
part derived from English law, it in no sense represented

a mechanical application Of antique precedents. The rest

Of his Opinion similarly owed something to English law,

but the Chief Justice carefully and correctly avoided ex-
plicit reliance on common law technicalities.

American doctrinal developments in the area of contract

were as important as English corporation law for the reso-

lution Of the Dartmouth College case. Since the idea Of

 

contract was nearly ubiquitous in political philOSOphy and
public debate during the early national period, courts were
prompted to use it in a wide variety Of Situations. The
Supreme Court made its first innovative application Of
contract principles in a series of cases which held that
state land grants were constitutionally protect contracts.
Although this exercise Of federal judicial review was novel,
wide acceptance Of the fundamental values implicit in the

contract theory blunted political attacks on the Court.

368
Even those who disagreed with the results in some Of the

early cases subscribed to the general proposition that a
state's valid "public contracts" could not be impaired by
legislative action.

Although before 1819 no American court had held that
the charter Of a corporation was within the contract clause
Of the federal constitution, the trend was clearly in this
direction, at least with respect to business corporations.

A North Carolina court had upheld the grant Of special
privileges to a banking corporation on the grounds that the
legislature was free to make any contract it wished with

the corporators. Whenever the privileges Of existing
corporations were threatened by legislative action, corporate
defenders asserted that charters were public contracts

which could not constitutionally be impaired. In Massachusetts,
where the question Of legislative power over business cor-
porations was relatively well litigated, courts declined

the invitation to declare that a charter was a contract,

but nonetheless decided the cases consistently with a contract
rationale. On the federal bench, Justice Story consolidated
the Massachusetts deve10pments, articulating the distinction
between public corporations which were subject to comprehen-
sive legislative regulation and private corporations which
were not.

Although five of the Justices agreed to extend con-
stitutional protection at a minimum to privately founded

charitable corporations, they disagreed among themselves

369
as to whether to extend the reach of the contracts clause

any further. In his opinion for the Court, the Chief
Justice acknowledged the detrimental effect Of legislative
interference with established institutions, but he insisted
that the law Of prOperty and the traditionally accepted
purpose of the contracts clause together set apprOpriate
limits to the Court's ruling. As a general prOposition,
said Marshall, the contracts clause extended only to con-
tracts respecting prOperty. Dartmouth was within the clause
because it was privately founded, and, by extension, other
privately founded charitable institutions would likewise
be protected. However, the Court refused tO move beyond
a doctrinal position which was supportable in terms Of the
received law; publicly founded institutions remained outside
the protection Of the contracts clause.

Justice Story, supported by Livingston, argued for
a much wider extension Of the contracts clause than the
majority was willing to permit. Story wanted to break
the clause away from a confining exclusive application to
private prOperty, and erect it into a general limitation
on state legislative activity. He took this advanced
position in part because he felt more strongly than most
Of the other Justices a need for such a general restriction.
Story privately expressed fears that demagogic political
leaders whom he saw emerging after the War Of 1812 might
Sponsor destructive legislative attacks upon all sorts

of established institutions. He had personally witnessed

 

‘ _ —-——-— L".'I.Li'l.. 0 '“.II
1
-. 7
‘ .

J!

370

the detrimental effects Of the Massachusetts legislature's
attempts to control Harvard, a publicly founded institution
from which he had graduated and with which he became per-
sonally associated. The Justice apparently saw no good
reason for protecting privately founded corporations such
as Dartmouth while failing to protect publicly founded chari-
table institutions which were functionally Similar to the
private and which were equally valuable, equally threatened,
and equally vulnerable. Nonetheless, Story's colleagues,
less personally involved, less fearful Of the future Of
American democracy, and more sensitive to the political
need for judicial restraint, held the line for a doctrinally
moderate ruling.

In addition to law, the American experience with business
and charitable corporations played a Significant role in
the Dartmouth College case. "Experience" in a discussion
Of the processes of judicial decision making is merely a
short-hand reference to the judicial assessment of the
equities Of the case at hand, Of the larger requirements
of the economic, political, and social systems, and of the
lessons Of history, apart from purely legal considerations
or the intellectual apparatus Of the law. From the stand-
point Of the individual judge, bringing experience to bear
on the processes Of decision necessarily requires the ap-
plication of both personal value judgments and more Objective
social analysis.

The American experience Specifically with business

371

corporations contributed to the formulation Of a rationale

to support the Dartmouth College decision. Although there

 

were minor variations from state to state, the contours

Of experience since 1780 were nearly everywhere the same.

The process by which entrepreneurs and legislators created
business corporations had all the attributes Of a private
commercial bargain which resulted in the formation of a

legal contract. In the crucial area of internal improve-
ments, entrepreneurs planned individual projects and Offered
to construct them if the legislature granted permission and
the necessary legal privileges. Legislators, anxious to
promote economic growth, usually accepted entrepreneurial
Offers, but added a variety of charter Obligations, limi-
tations, and restrictions in order to protect public and
private interests which might be adversely affected by
corporate Operations. Although there was intermittent public
agitation for summary alteration or repeal Of particular
charters, legislatures in practice respected chartered

rights of internal improvement corporations because a contrary
course might drive away scarce capital and thereby inhibit
economic growth. In the field of banking, the dynamics of
the chartering process and the policy considerations.were
different. Since banking charters proved so lucrative, the
problem was not to attract investors, but to keep the number
Of charters within reasonable limits, and to police effectively
the existing banking corporations. Nonetheless, the equally

pressing need to avoid a drastic fluctuation in personnel

372
and economic policies in the banking system led to the same

results as in the area of internal improvements. By 1816,
then, there was a widespread, if not universal, agreement
that a business corporation charter was the measure Of
both corporate rights and retained legislativepower.

In their Dartmouth College Opinions, the Justices

 

Of the Supreme Court suggested that the policy reasons for
protecting business corporations applied also to privately
founded charitable corporations. Legally and logically,

the major link between business and charitable enterprises
was private property. Charitable donations were regarded

as private prOperty over which donors exercised a special
and continuing control to the exclusion of the state.

Just as American practice and embryonic case law protected
the prOperty interests of investors in business corporations
to the extent that charters allowed, SO, the Court reasoned,
law ought to protect private founders' interests in main-
taining the organizational integrity Of charitable institu-
tions. Functionally, too, analogous considerations recom-
mended the substantial protection Of both business and
charitable corporations from governmental control. Private
investment and economic growth was effectively promoted in
the long run by honoring legislative grants Of property

and privileges to business corporations. The private founda-
tion Of educational and other charitable corporations was
likewise stimulated, said the Court, so long as founders and

donors could be assured that their purposes would continue

373

to be respected by the government. Conversely, if all
charitable donations were held to be merely gifts to the
government, subject to unrestricted legislative control,
then private individuals would be effectively deterred from
making this type Of contribution to the public welfare.
Essentially, the Court was supporting its new law in the area
Of charitable corporations with a well-calculated appeal
to the familiar and publicly accepted Operational principles
which underlay the system Of political economy.

Although the Court's focus on the founders' property

rights for the purposes Of rationalizing the Dartmouth

 

College decision was, perhaps, technically legitimate,
realistically the property element was only peripheral to
the case. The trustees Of Dartmouth College, the plaintiffs,
had no property interests Of their own in the corporation
and consequently suffered no economic loss by the charter
amendment. The identification Of the original donors'
interests with those of the trustees would have been strained
in any case which arose a half century after the founding

Of the charity, but it was especially questionable in the
Dartmouth College case where a large part Of the original
endowment had not even been intended for the founding Of

the college. Moreover, the state did not convert any Of

the corporate property to its own use; none of Dartmouth's
endowment was diverted from the essential purpose for which
it had been given, education. Finally, the major property-

related policy arguments used to support a decision for

374
Dartmouth were of questionable validity and doubtful relevance.

Whatever the policies necessary to promote the growth Of
business enterprise, there was no empirical evidence that
allowing founders of charitable enterprises a perpetual
property right in their donations would significantly affect
the level Of charitable giving in the United States. The
motives for creating a charitable foundation are strong,
unlikely to be defeated completely by the mere possibility
Of future legislation tampering with the charity's organiza-
tional structure. And even if the number Of charitable
enterprises would be reduced by allowing legislatures tO
control them, there remained alternative means available
to fulfill important social needs.

In fact, the real and primary conflicting interests
in the Dartmouth College case concerned neither property
nor charity, but were political. The central issue was
whether the legislature could control eil educational
corporations, and thus control virtually all Significant
formally institutionalized education. Although conceding
that a legislature might found, endow, and control a state
university, Marshall squarely posed the issue, "Is education
altogether in the hands Of government?"1 More particularly,
could a state government dominated by one major party seize
control Of a college corporation administered by members
of the other major party, even though the college had been

1
privately founded and had existed for a half a century as

 

lMarshall's Opinion, Dartmouth College, 4 Wheaton, 634.

 

 

375

an independent institution?

Since there was in 1819 no developed constitutional
law Of civil liberties which would enable the Court systema-
tically to canvass in legal terms the broad political issues

which the Dartmouth College case presented, the Court was

 

forced to rely almost exclusively upon the prior American
experience with higher education in order to reach a decision
on the merits of the central issue. Fortunately, an Objective
consideration of the record of relations between government
and colleges left little doubt as to the appropriate lessons
to be drawn. Since the 1760's, colonial and state legis-
latures had threatened or actually attacked Yale, the College
Of Philadelphia, William and Mary, Harvard, Columbia, the
University Of North Carolina, and, of course, Dartmouth.

The cause Of higher education had in each case been harmed,

as fragile institutions had always been unsettled and some-
times positively disrupted. Although political leaders

and factions Often gained temporary advantages in these
affairs, in the long run no legitimate public or govern-
mental interests seemed tO be served by allowing these
legislative raids to continue. AS Marshall concluded,

the "fluctuating policy, and repeated interference" Of
legislatures had "produced the most perplexing and injurious
embarassments."2

Primarily on the basis Of the American experience

with higher education, then, the Court decided to use its

 

2Ibid., 648.

376

constitutional power to turn back New Hampshire's assault

on Dartmouth and to prevent legislative attacks on Similar
institutions in the future for the purpose of advancing the
cause Of education. Although this was essentially a political
decision in a political case, the Justices in their Opinions
appealed to the law of property and traditional interpretation
Of the contracts clause in order to justify its decision

to the public in familiar and acceptable terms, in order
nominally to preserve the Court's role as a legal, adjudicatory
institution, and, finally, in order to set rational limits

on its ruling.

Dartmouth College applied tO both business and charitable

 

corporations, but it applied in different ways. Since it
represented an adOption Of the current working principles

Of the nation's political economy, the decision forced no
immediate changes in the way states customarily treated
business corporations. In order to Obey the prescripts of

the ruling, states had only to continue the general practice
Of the preceding four decades, respecting privileges expressly
granted by charter, and regulating by means Of charter limits,

restrictions, reservations, and quo warranto proceedings,

 

all Of which remained constitutionally available. Thus,
until political and economic changes generated popular
demands for significant alterations in the system, the

Dartmouth College doctrine was of little importance in the

 

actual Operation of the nation's economy.

However, Dartmouth College did resolve important

 

 

377
outstanding questions about the relationship between govern-

ment and educational corporations. Although the Court's
Opinion was framed in terms Of prOperty rights, the effect

Of the decision was to guarantee the organizational integrity
and political independence Of privately founded educational
corporations. The ruling not only protected existing private
schools, but laid a firm constitutional foundation for the
subsequent deve10pment Of a dual system of education, in
which a public sector was governmentally financed and publicly
controlled, and an alternative private sector was largely
free from political interference. Thus, the decades between
1820 and 1860 saw a rapid expansion of the private sector

of higher education, as both state and federal courts inter-
preted Dartmouth College broadly to protect private schools

3

from governmental intrusion. By 1860, Dartmouth College

 

and its progeny had created a constitutional and Operational
tradition that education would not be altogether in the
hands of government, a tradition perfectly suited to the

pluralistic, democratic society.

 

3Tewksbury, American Colleges, 55-56, 64-65, 69-71,
90, 150-151. Hofstadter and Metzger, Academic Freedom,
209-274, assim. For cases in which the courts struck down
state legislation directed at colleges, see Allen v. McKean,
l Sumner 276, l Fed. Cas. 489 (U. S.Cir.-Ct.1833); Regents
g£_the University Of Maryland v. Williams, 9 Gill and Johnson
365 (Md. 1838); Board Of Trustees_for§he Vincennes University
y. Indiana, 14 Howard 268 (U. S. Sup. Ct. 1852); City of
Louisville v.iPresident and Trustees_9f the Univers1ty Of
Louisville, 15 B. Monroe 642 (Ky. 1855). Cf., Sage v. Dillard,
15 B. Monroe 340 (Ky. 1854).

 

 

 

 

 

 

 

BIBLIOGRAPHY

BIBLIOGRAPHY

LIST OF REFERENCES

 

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379
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380
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381

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382
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{I

‘32:...“

383

Proceedings against St. Mary Magdalen College‘in Oxford,
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384

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385

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(Kentucky)
Session Laws. 1815-1818.
(Louisiana)
Session Laws. 1815—1818.
(Maryland)
Session Laws. 1815-1818.
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(Pennsylvania)

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387

(Rhode Island)

Session Laws. 1815-1818.

(South Carolina)

Session Laws. 1815-1818.

(Tennessee)

 

Session Laws. 1815-1818. é

(United States)

 

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Tucker, St. George. Blackstone's Commentaries: yith Notes
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Boyd, Julian P., ed. The Papers Of Thomas Jefferson. 15
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Press, 1950 - .

 

Brown, Samuel Gilman, ed. The Works of Rufus Choate, with
a Memoir Of His Life. 2 vols. Boston: Little, Brown
and Company, 1862.

 

Ford, Paul Leicester, ed. The Works Of Thomas Jefferson.
12 vols. New York: G. P. Putnam' 3 Sons, 1904-11905.

 

Story, Joseph. The Miscellaneous Writings, Literary, Critical,
Juridical, and Political, Of Joseph Story, LL.D., Now
First Collected. Boston: James Munroe and Company,

1835.

Story, William W., ed. Life and Letters Of Joseph Story,
Associate Justice of the Supreme Court Of the United
States, and Andlrofessor Of Law at Harvard University.
2 vols. Boston: Charles C. Little and James Brown,
1851.

Webster, Fletcher, ed. The Writings and Speeches Of Daniel
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Pamphlets

The Additional Charter Granted to the Governors Of the College
of New-York, in America. New-York: Parker and Weyman,
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391

An Answer to a Pamphlet, Entitled, 'Considerations onlthe
Public Expediency of a Bridge from One Part of Boston
to Another.‘ Boston: E. Lincoln, 1806.

 

Baldwin, Loammi. Thoughts on the Study Of Political Economy
as Connected with the Population, Industry and Paper
Currency of the United States. Cambridge: Hilliard
and Metcalf, 1809.

 

Carey, Mathew, ed. Debates and Proceedings of the General
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Repeal or Suspension Of the Law Annulling the Charter
Of the Bank. Philadelphia: Seddon and Pfitchard, 1786.

 

 

The Charter Of the College Of New-York, in America. New
York: Parker and Weyman, 1754.

Clap, Thomas. The Annals or History Of Yale-College, in
New Haven, in the Colony Of Connecticut, from the First
Founding Thereof, in the Year 1700, to the Year I766:
With an Appendix, Containing the Present State of the
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John Hotchkiss and B. Mecom, 1766.

 

. The Religious Constitution of Colleges, Especially
of Yale-College in New-Haven in the Colony of Connec-
ticut. New-London: T. Green, 1754.

[Dana, Samuel Whittelsey]. Yale-College Subject to the

General Assembly. New-Haven: Thomas and Samuel Green,
1784. 7

Paine, Thomas. Dissertations on Government, the Affairs Of
the Bank, and Paper-Money. Philadelphia: Charles
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Sullivan, James. The Path to Riches. An Inquiry into the
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[Taylor, John]. A Definition Of Parties; Political Effects
of the Party System Considered. Philadelphia: Francis
Bailey, 1794.

[———————_J. An Enquiry into the Principles and Tendency Of
Certain Public Measures. Philadelphia: Thomas Dobson,
1794.

[Webster, Peletiah]. An Essey on Credit, In Which the Doc-
trine of Banks IS Considered: And some Remarks are
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[Wilson, James]. Considerations on the Begk of North-America.
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Reviews

"A Complete History Of Connecticut, civil and ecclesiastical,
from the emigration Of its first Planters from England
in 1630, to the year 1764, and to the close Of the
Indian Wars. By Benjamin Trumbull, D.D. 2 vols.

8 vo. pp. 1166. New Haven, Maltby, Goldsmith & Co.
and Samuel Wadsworth, 1818." North American Review and
Miscellaneous Journal, VIII (Dec., 1818), 72-118.

 

 

[Dutton, Warren]. "Report of the case of the Trustees Of
Dartmouth-College against William H. Woodward, argued
and determined in the Superior Court of Judicature
Of the State Of New Hampshire, November, 1817: and on
Error, in the Supreme Court of the United States,

1819. By Timothy Farrar, Counsellor at Law. Portsmouth,
N.H. Published by John W. Foster and West, Richardson
and Lord, Boston. J. J. Williams, printer, Exeter."
[Etc.]. North American Review and Miscellaneous

Journal, X (Jan., 1820), 83-115.

 

"First, Second, Third, Fourth and Fifth Reports Of the Select
Committee to Inquire into the Education of the Lower
Orders in the MetrOpOliS, and to report their Observa-
tions thereupon, together with the Minutes of the
Evidence taken before them from time to time, to the
House: and who were instructed to consider What May
Be Fit to Be Done with Respect to the Children of
Paupers Who Shall Be Found Begging in the Streets in
and near the Metropolis, or who shall be carried about
by Persons asking Charity, and whose Parents, or other
Persons who they accompany, have not sent such Children
to any Of the Schools provided for the Education of
Poor Children. 1816-1818." [Etc.]. Quarterly Review,

-XIX (July, 1818), 492-569.

 

"A Letter to Sir Samuel Romilly, M.P. from H. Brougham, Esq.
M.P.F.R.S. upon the Abuse of Charities. Eleventh
Edition. London, Longman & Ridgway. Edinburgh,
Constable. 1818." [Etc.]. Edinburgh Review, XXXI
(March, 1819), 497-549.

 

"The Speech Of Henry Brougham, Esq., M.P. in the House of
Commons, May 8th, 1818, on the Education of the Poor,
and Charitable Abuses. Ridgway, 1818." Edinburgh
Review, XXX (Sept., 1818), 486-502.

 

393

[Story, Joseph]. "Laws of the sea with reference to mari-
time commerce during peace and war -- from the German
of Frederick J. Jackson, advocate, Altona, 1815. By
William Frick, Counsellor at Law. Baltimore; E. J.
Coale, 1818. pp. 636." North American Review and
Miscellaneous Journal, VII (Sept., 1818), 323-34*.

 

"Theology; explained and defended, in a series Of sermons;
by Timothy Dwight, S.T.D.L.L.D. late president of
Yale College. With a Memoir of the Life Of the Author.
Middletown, Con.; Clark and Lyman; 1818. 5 vols.
vol. i. 8 vo." North American Review and Miscellaneous
Journal, VII (Sept., 1818), 347-364.

 

Newspapers

Boston Gazette. 1804.

 

Columbian Centinel (Boston). 1792, 1804, 1805, 1812.

 

Independent Chronicle (Boston). 1804, 1805, 1806.

 

New England Palladium (Boston). 1804, 1805.

 

Niles Weekly Register (Washington). 1811, 1816.

 

Richmond Enquirer. 1816, 1817, 1818.

 

Manuscript Letters

John Marshall to James M. Marshall, April 1, 1804. Beveridge
Collection, Library Of Congress.

John Marshall to Joseph Story, April 28, 1819. Berg Collection,
New York Public Library.

John Marshall to Samuel Greenhow, Oct. 17, 1809. Washburn
Papers, Massachusetts Historical Society.

Miscellaneous

"The Bank Of the United States. Petitions of Virginia Cities
and Towns for the Establishment Of Branches, 1791."
Virginia Magazine of History and Biography, VIII (Jan.,
1901), 287-295.

 

 

394

Charters Granted to the East-India Company, from 1601; also
the Treaties and Grants, Made with, or Obtainedfrom,
the Princes and Powers in_India, from the Year 1756
to 1772. n.p. n. d. [1773T.

 

 

 

Great Britain. Acts Of the Privy Council Of England, Colonial
Series. Edited by W. L. Grant and James Munroe.
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Hargrave, Francis, ed. A Complete Collection of State-Trials,
and Proceedings for High-Treason, and Other Crimes

and Misdemeanors. 11 vols. 4th ed. London: 776-
1781.

 

 

 

Marshall, John. An Autobiographical Sketch by John Marshall Via
Written at the Request Of Joseph Story and Now Printed F «
fOr the First Time from the Original Manuscript Preserved
at the William L. Clements Library, Together with a
Letter from Chief Justice Marshall to Justice Story
Relating Thereto. Edited by John Stokes Adams. Ann
Arbor: The UniVersity Of Michigan Press, 1937. L_J

 

 

 

 

 

 

Prothero, G. W., ed. Select Statutes and Other Constitutional
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James I. 4th ed. Oxford: Clarendon Press, 1913.

 

Richardson, Leon Burr, ed. An Indian Preacher in England,
Being Letters and Diaries Relating to the Mission Of
the Reverend Nathaniel Whitaker to Collect Funds in
England for the Benefit Of Eleazar Wheelockis Indian
Charity School, from Which Grew Dartmouth College.
Ihnover, N. H.: Dartmouth College Publications, 1933.

 

Street, Alfred B. The Council Of Revision Of the State Of
New York; Its History, a History Of the Courts with
Which Its Members were Connected; Biographical Sketches
of Its Members; and Its Vetoes. Albany, N.Y.: William
Gould, 1859.

 

Thorpe, Francis Newton, ed. The Federal and State Constitutions,
Colonial Charters, and Other Organigiiaws Of the States,
Territories, and Colonies Now or Heretofore Forming
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A Study of the Regents of the University of the State
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Adams, Henry. John Randolph. Boston: Houghton, Mifflin
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Akagi, Roy H. The Town PrOprietors of the New England
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Ambler, Charles H. Sectionalism in Virginia from 1776 to
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Ambler, Charles H. Thomas Ritchie: A Study in_yirginia‘
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Amory, Thomas C. Life Of James Sullivan: with Selections
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4". -. v" ‘

 

Bailyn, Bernard. Education in the Forming Of American Society:
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Bass, Herbert J., ed. The State Of Americen History.
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Battle, Kemp P. Historyof the_UniversityOf North Carolina
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Baxter, Maurice G. Daniel Webster and the Supreme Court.
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Bell, Sadie. The Church, the State, and Education in
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Beveridge, Albert J. Life Of John Marshall. 4 vols. Bos-
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Blandi, Joseph G. Maryland Business Corporations, 1783-
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Bruce, Philip Alexander. History Of the University of
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396

Cadman, John W., Jr. The Corporation in New Jersey: Business
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Carr, Cecil T., ed. Select Charters Of Trading Companies,
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Chase, Frederick. A History Of Dartmouth College and the
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Cheyney, Edward Potts. History Of the University Of Penn-
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Cooke, Colin A. Corporation Trust and Company: An Essay
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Dangerfield, George. Chancellor Robert R. Livingston of
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Davis, Joseph Stancliffe. Essays in theEerlier History
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Dodd, Edwin Merrick, Jr. American_Business Corporations
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DuBois, Armand B. The English Business Company after the
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Dunaway, Wayland Fuller. History of the James River and
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Dunne, Gerald T. Justice Joseph Story and the Rise Of the
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Durrenberger, Joseph A. Turnpikes: A Study Of the Toll
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land. Valdosta, Ga.: Southern Stationery and Printing
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Ellis, Richard E. Theihffersonian Crisis: Courts and
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Ernst, Robert. Rufus King: American Federalist. Chapel
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397

Evans, George Herberton, Jr. Business Incorporations in the
United States, 1800-1913. New York: National Bureau
of Economic Research, Inc., 1948.

 

 

Evans, Paul D. The Holland Land Company. Buffalo, N. Y.:
Buffalo Historical Society, 1924.

 

Faulkner, Robert K. The Jurisprudence of John Marshall.
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Fischer, David Hackett. The Revolution of American Conser-
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Frankfurter, Felix. The Commerce Clause under Marshall,
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Friedman, Leon, and Israel, Fred L., eds. The Justices Of
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Gegenheimer, Albert Frank. William Smith, Educator and
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Gilpatrick, Delbert Harold. Jeffersonian Democracy in North
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Goodman, Paul. The Democratic-Republicans of Massachusetts:
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Goodrich, Carter, ed. The Government and the Economy, 1783-
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Gras, Norman S. B. The Massachusetts First National Bank
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Haines, Charles Grove. The Role Of the Supremegourt in
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Hammond, Jabez D. The History Of Political Parties in the
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Hartz, Louis. Economic Policy and Democratic Thought:
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Heath, Milton S. Constructive Liberalism: The Role Of the
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Henderson, Gerard Carl. The Position of Foreign Corporations “'
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Hobson, Elsie Garland. Educational Legislation and Admi-
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Hofstadter, Richard, and Metzger, Walter P. The Development
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Holdsworth, William S. A History Of English Law. 16 vols.
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Holmes, Abiel. The Life Of Ezra Stiles, D.D.LL.D. A Fellow
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Honeywell, Roy J. The Educational Work Of Thomas Jefferson.
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Hough, Franklin B. Historical and Statistical Record Of the
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Hume, David. The History Of England, from the Invasion Of
Julius Caesar to the Revolution in 1688. 8 vols.
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Hunting, Warren B. The Obligation Of Contracts Clause of
the United States Constitution. Baltimore, Md.:
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Hurst, James Willard. Law and the Conditions Of Freedom
in the Nineteenth-Century United States. Madison:
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399

. Law and Economic Growth: The Legal Historyof
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. Law and Social Process in United States History:
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. The Legitimaey Of the BusinesevCOrporation in the
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Irwin, Ray W. Daniel D. Tompkins, Governor of New York and
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Johnson, Allen; Malone, Dumas; Starr, Harris E.; Schuyler,
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Jordan, W. K. Philanthropy in England, 1380-1660: A Study
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Jones, W. Melville, ed. Chief Justice John Marshall: A
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Kass, Alvin. Politics in New York State, 1800-1830. Syracuse,
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Kutler, Stanley I. Privilege and Creative Destruction:
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Levin, Jennifer. The Charter Controversy in the City Of
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Lewis, Lawrence, Jr. A History Of the Bank Of North America,
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Lewis, William Draper, ed. Great American Lawyers. 8 vols.
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Livermore, Shaw. Early American Land Companies: Their
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Lockridge, Kenneth A. A New England Town: The First Hundred
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400

Lord, John K. A History of Dartmouth College: 1815-1909.
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McCallum, James D. Eleazar Wheelock, Founder of Dartmouth
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Matthews, Brander, ed. A History of Columbia University,
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Mayo, Lawrence Shaw. John Wentworth: Governor of New Hamp-
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Miller, Howard S. The Legal Foundations Of American
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Mordecai, Samuel. Richmond in By-Gone Days: Being Remini-
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Morgan, Donald G. Justice William Johnson: The First Dis-
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Morgan, Edmund S. The Gentle_Puritan: A Life of Ezra Stiles,
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Morison, Samuel Eliot. The Life and Letters of Harrison
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New, Chester W. The Life Of Henry Brougham to 1830. Oxford:
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Paige, Lucius R. History of Cambrigge, Massachusette, 1630-
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. The History Of Harvard University. 2 vols.
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Richardson, Leon Burr. History of Dartmouth Colle e. 2
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Rose, Lisle A. Prologue to Democracy: The Federalists in
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Scott, William Robert. The Constitution and Finance Of
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Shirley, John M. The Dartmouth College Causes and the Supreme
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Starnes, George T. Sixty Years of Branch Banking in Vir-
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! 4

.h-

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