Trustees of Dartmouth College v. Woodward

In Trustees of Dartmouth College v. Woodward, 17 U.S. 518 (1819), the Supreme Court recognized that the prohibition on state legislation impairing the obligation of contracts does not proscribe legislative interference with contractual rights of public corporations. In deciding that Dartmouth College was a private charity whose corporate charter was subject to the protection of the Contract Clause, the court relied on a distinction between public and private corporations. In his opinion for the court, Chief Justice Marshall acknowledged that "the framers of the Constitution did not intend to restrain the States in the regulation of their civil institutions, adopted for internal government." Id. at 629. Accordingly, Chief Justice Marshall reasoned that "if the act of incorporation of Dartmouth College be a grant of political power, if it create a civil institution, to be employed in the administration of the government, or if the funds of the college be public property, . . . the subject is one in which the legislature of the state may act according to its own judgment, unrestrained by any limitation of its power imposed by the Constitution of the United States." Id. at 629-30. Chief Justice Marshall went on, however, to conclude that Dartmouth was not such a "civil institution" but was instead "a private eleemosynary institution," the funds of which "consisted entirely of private donations." Id. at 632-41. Chief Justice Marshall explained that the grant by government of a "charter of incorporation" did not determine the "character of the institution." Id. at 638. It thus could not be concluded that Dartmouth had the character of a civil institution simply on the ground that it had been granted a royal corporate charter. "The incorporating act" did not "change the character of a private eleemosynary institution" into a civil institution. Id. at 638-39. In elucidating this conclusion, Chief Justice Marshall observed: "The character of civil institutions does not grow out of their incorporation, but out of the manner in which they are formed, and the objects for which they are created. The right to change them is not founded on their being incorporated, but on their being the instruments of government, created for its purposes. The same institutions, created for the same objects, though not incorporated, would be public institutions, and, of course, be controllable by the legislature." Id. at 638 . Chief Justice Marshall thus accepted the view that "laws concerning civil institutions . . . must change with circumstances, and be modified by ordinary legislation" and that such laws "deeply concern the public." Id. at 627. "To preserve good government, the public judgment must control" with respect to such laws. Id. If the Contract Clause were allowed to encroach into the realm of a state's regulation of its civil institutions, "the clause would be an unprofitable and vexatious interference with the internal concerns of a State." Id. at 628.