Tuesday, April 27, 2021

Blair on the Dartmouth College Case and Early Corporation Law

Margaret M. Blair, Vanderbilt University Law School, has posted How Trustees of Dartmouth College v. Woodward Clarified Corporate Law:

The U.S. Supreme Court decided Trustees of Dartmouth College v. Woodward (17 U.S. 4 Wheat 518) in 1819, just as the corporate form of organization was rapidly becoming the preferred legal form for organizing and carrying out a wide range of business activities. The case is most widely-known for its decision that the charter by which the privately-funded eleemosynary institution – Dartmouth College – was founded constituted a “contract” between the state and the founders, thereby bringing it within the jurisdiction and protection of the “Contract Clause” of U.S. Constitution which provides that “No state shall pass any Law impairing the obligation of contracts” (U. S. Constitution, Article 1, Section 10). But the case was arguably more important for clarifying and settling a critical question about the corporate form: it confirmed, unequivocally, that for an “association” to receive the special privileges available to corporations, it must have a government-issued charter. Those privileges include separate entity status, which was especially important for receiving, holding and transferring land, for continuity in contracting, for clear lines of succession, and for litigation to enforce contracts. Prior to this case, courts in the U.S. struggled with deciding what rules to apply to a variety of voluntary associations that lacked government-issued charters. 

--Dan Ernst