In 1815, over thirty years after the conclusion of the American Revolution, the legislature of New Hampshire attempted to invalidate or alter Dartmouth's charter in order to reinstate the College's deposed president, placing the ability to appoint positions in the hands of the governor. This effectively converted the school from a private to a public institution. The College's book of records, corporate seal, and other corporate property were removed. The trustees of the College objected and sought to have the actions of the legislature declared unconstitutional.
The trustees retained Dartmouth alumnus Daniel Webster, a New Hampshire native who would later become a U.S. Senator for Massachusetts and Secretary of State under President Millard Fillmore. Webster argued the college's case against William H. Woodward, the state-approved secretary of the new board of trustees. Webster's speech in support of Dartmouth (which he described as "a small college," adding, "and yet there are those who love it") was so moving that it apparently helped convince Chief Justice John Marshall, reportedly bringing tears to Marshall's eyes.
The Court ruled that the College's corporate charter qualified as a contract between private parties, the King and the trustees, with which the legislature could not interfere. Even though the United States are no longer royal colonies, the contract is still valid because the Constitution says that a state cannot pass laws to impair a contract. The fact that the government had commissioned the charter did not transform the school into a civil institution. Chief Justice Marshall's opinion emphasized that the term "contract" referred to transactions involving individual property rights, not to "the political relations between the government and its citizens.
The decision was not without precedent. Earlier the Court had invalidated a state act in Fletcher v. Peck, , concluding that contracts, no matter how they were procured (in the case of Fletcher v. Peck, a land contract had been illegally obtained), cannot be invalidated by state legislation. Thus, the court, though working in an early era, was treading on familiar ground when it handed down Dartmouth.
Dartmouth was not a popular decision at the time, and a public outcry ensued. Thomas Jefferson's earlier commiseration with New Hampshire Governor Plumer stated essentially that the earth belongs to the living. Popular opinion influenced some state courts and legislatures to declare that state governments had an absolute right to amend or repeal a corporate charter.
Today opinion on Dartmouth remains mixed; for some it is viewed positively as one of the most important Supreme Court rulings, strengthening the Contract Clause and limiting the power of the States to interfere with private charters, including those of commercial enterprises; for others, it is viewed as a problematic extension of individual contract rights to artificial corporate entities.