Secondly, a corporate charter may be regarded as a franchise constituting a vested or property interest in the hands of the holders, and therefore as forfeitable only for abuse or in accordance with its own terms. This is the way in which some of the early State courts did regard them at the outset.[1617] It is also the way in which Blackstone regards them in relation to the royal prerogative, although not in relation to the sovereignty of Parliament; and the same point of view finds expression in Story's concurring opinion in Dartmouth College v. Woodward, as it did also in Webster's argument in that case.[1618]
The Dartmouth College Case
The third view is the one formulated by Chief Justice Marshall in his controlling opinion in Trustees of Dartmouth College v. Woodward.[1619] This is that the charter of Dartmouth College, a purely private institution, was the outcome and partial record of a contract between the donors of the college, on the one hand, and the British Crown, on the other, which contract still continued in force between the State of New Hampshire, as the successor to the Crown and Government of Great Britain, and the trustees, as successors to the donors. The charter, in other words, was not simply a grant—rather it was the documentary record of a still existent agreement between still existent parties.[1620] Taking this view, which he developed with great ingenuity and persuasiveness, Marshall was able to appeal to the obligation of contracts clause directly, and without further use of his fiction in Fletcher v. Peck of an executory contract accompanying the grant.
A difficulty still remained, however, in the requirement that a contract must, before it can have obligation, import consideration, that is to say, must be shown not to have been entirely gratuitous on either side. Nor was the consideration which induced the Crown to grant a charter to Dartmouth College a merely speculative one. It consisted of the donations of the donors to the important public interest of education. Fortunately or unfortunately, in dealing with this phase of the case, Marshall used more sweeping terms than were needful. "The objects for which a corporation is created," he wrote, "are universally such as the government wishes to promote. They are deemed beneficial to the country; and this benefit constitutes the consideration, and in most cases, the sole consideration of the grant." In other words, the simple fact of the charter having been granted imports consideration from the point of view of the State.[1621] With this doctrine before it, the Court in Providence Bank v. Billings,[1622] and again in Charles River Bridge Company v. Warren Bridge Company,[1623] admitted, without discussion of the point, the applicability of the Dartmouth College decision to purely business concerns.
Classes of Cases Under the Clause
The cases just reviewed produce two principal lines of decisions stemming from the obligation of contracts clause: first, public grants; second, private executory contracts. The chief category of the first line of cases consists, in turn, of those involving corporate privileges, both those granted directly by the States and those granted by municipalities by virtue of authority conferred upon them by the State;[1624] while private debts, inclusive of municipal debts, exhaust for the most part the second line.
Public Grants
Municipal Corporations.—Not all grants by a State constitute "contracts" within the sense of article I, section 10. In his Dartmouth College decision Chief Justice Marshall conceded that "if the act of incorporation be a grant of political power, if it creates a civil institution, to be employed in the administration of the government, * * *, the subject is one in which the legislature of the State may act according to its own justment," unrestrained by the Constitution[1625]—thereby drawing a line between "public" and "private" corporations which remained undisturbed for more than half a century.[1626] It has been subsequently held many times that municipal corporations are mere instrumentalities of the State for the more convenient administration of local governments, whose powers may be enlarged, abridged, or entirely withdrawn at the pleasure of the legislature.[1627] The same principle applies, moreover, to the property rights which the municipality derives either directly or indirectly from the State. This was first held as to the grant of a franchise to a municipality to operate a ferry, and has since then been recognized as the universal rule.[1628] As was stated in a case decided in 1923: "The distinction between the municipality as an agent of the State for governmental purposes and as an organization to care for local needs in a private or proprietary capacity," while it limits the legal liability of municipalities for the negligent acts or omissions of its officers or agents, does not, on the other hand, furnish ground for the application of constitutional restraints against the State in favor of its own municipalities.[1629] Thus no contract rights are impaired by a statute removing a county seat, even though the former location was by law to be "permanent" when the citizens of the community had donated land and furnished bonds for the erection of public buildings.[1630] Likewise a statute changing the boundaries of a school district, giving to the new district the property within its limits which had belonged to the former district, and requiring the new district to assume the debts of the old district, does not impair the obligation of contracts.[1631] Nor was the contracts clause violated by State legislation authorizing State control over insolvent communities through a Municipal Finance Commission.[1632]
Public Offices.—On the same ground of public agency, neither appointment nor election to public office creates a contract in the sense of article I, section 10, whether as to tenure, or salary, or duties, all of which remain, so far as the Constitution of the United States is concerned, subject to legislative modification or outright repeal.[1633] Indeed there can be no such thing in this country as property in office, although the common law sustained a different view which sometimes found reflection in early cases.[1634] When, however, services have once been rendered, there arises an implied contract that they shall be compensated at the rate which was in force at the time they were rendered.[1635] Also, an express contract between the State and an individual for the performance of specific services falls within the protection of the Constitution. Thus a contract made by the governor pursuant to a statute authorizing the appointment of a commissioner to conduct, over a period of years, a geological, mineralogical, and agricultural survey of the State, for which a definite sum had been authorized, was held to have been impaired by repeal of the statute.[1636] But a resolution of a New Jersey local board of education reducing teachers' salaries for the school year 1933-1934, pursuant to an act of the legislature authorizing such action, was held not to impair the contract of a teacher who, having served three years, was by earlier legislation exempt from having his salary reduced except for inefficiency or misconduct.[1637] Similarly, it was held that an Illinois statute which reduced the annuity payable to retire teachers under an earlier act did not violate the contracts clause, since it had not been the intention of the earlier act to propose a contract but only to put into effect a general policy.[1638] On the other hand, the right of one, who had become a "permanent teacher" under the Indiana Teachers Tenure Act of 1927, to continued employment was held to be contractual and to have been impaired by the repeal in 1933 of the earlier act.[1639]
Revocable Privileges Versus "Contracts": Tax Exemptions.—From a different point of view, the Court has sought to distinguish between grants of privileges, whether to individuals or to corporations, which are contracts and those which are mere revocable licenses, although on account of the doctrine of presumed consideration mentioned earlier, this has not always been easy to do. In pursuance of the precedent set in New Jersey v. Wilson,[1640] the legislature of a State "may exempt particular parcels of property or the property of particular persons or corporations from taxation, either for a specified period or perpetually, or may limit the amount or rate of taxation, to which such property shall be subjected," and such an exemption is frequently a contract within the sense of the Constitution. Indeed this is always so when the immunity is conferred upon a corporation by the clear terms of its charter.[1641] When, on the other hand, an immunity of this sort springs from general law, its precise nature is more open to doubt, as a comparison of decisions will serve to illustrate.