Governing People or Governing Property? How Dartmouth College Assimilated the Corporation to Liberalism by Treating it as a Trust

Abstract

Prior to Dartmouth College v. Woodward (1819), all commentators on corporate law in England and America emphasized the governing powers of corporations as the primary advantage of incorporation. Corporate charters put associations under constitutional government with authority to make and enforce rules beyond the law of the land. This governing authority—along with all other corporate rights, such as holding property, contracting, and appearing in court as a single “person”—was granted by the public authority via the charter, and placed in private hands. Corporations were thus neither public nor private, but, like medieval fiefs, a blend. Bringing Dartmouth under the protection of the Contracts Clause, however, required treating the charter not as the constitution of a government, but as a contract about property. To turn this trick, Marshall reinterprets the charter as, in effect, a trust contract, and the college as a charitable trust. First, the in loco parentis authority of schools, whether incorporated or not, allowed Marshall to deny that incorporation brought the college any new governance powers over people. It is, he asserts, just a device for more easily preserving and managing property. Next, he denies that the trustees received their right to control the property from the king’s charter. Instead, Marshall argues (in a way that follows the logic of trust contracts), they received it from the donors. The donors gave their property to the trustees, who stand in the stead of the donors, with rights, powers, and purposes from the donors (not from the state). It is thus a wholly private institution focused on managing and dispensing property. This is a university reduced not just to a charitable college, but to a charitable trust. Though inaccurate, it allowed the Court to place Dartmouth and, by extension, all other “private” corporations under the protection of the Contracts Clause. The effect, however, was to place a spotlight on the corporation’s property powers while putting its governance powers in shadow. The longer-term consequences are then noted. First, moving corporations to the normative category of the private legitimated corporate activities previously discountenanced and waived corporate responsibilities previously assumed. Second, theorizing corporations as private property vessels rather than as governments, primed corporations to received further constitutional rights protecting property. And third, this theorization suppressed a strong argument in favor of granting corporate subordinates—whether these be professors or industrial and service workers—a voice in the management of the corporate governments they are under, as part of the constitutional promise of republican government.