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Corporate personhood is a term used to describe the legal fiction used within United States law that a corporation has a limited number or subset of the same constitutional rights as does a human being. The choice of the word "person" in "personhood" arises from the way the 14th Amendment to the United States Constitution was worded and from earlier legal usage of the word "person."
Corporations as legal entities have always been able to perform commercial actitivies similar to the activities which a person acting as a sole proprietor would be able to do such as entering into contracts or owning property. Therefore corporations have always had some limited amount of "personhood" which was necessary in order for corporations to conduct business while shielding stockholders from financial risk to personal assets which were not invested in the corporation.
The stronger concept of corporate personhood is usually traced to the 1886 U.S. Supreme Court case Santa Clara County v. Southern Pacific Railroad Company (118 U.S. 394). Corporations, being state charted entities, were and are regulated by the state in which they were created (incorporated) and the state(s) in which they operate and much of contract law is actually state law and English Common Law. This is why most legal agreements have a clause in them saying under which state's laws and jurisdiction will the agreement be litigated if such litigation should become necessary. With Santa Clara County v. Southern Pacific Railroad Company, corporations gained some degree of protection from arbitrary state action.
The history of corporate law in the United States can be directly tied to the ebb and flow of the debate first enunciated between Alexander Hamilton and Thomas Jefferson over how centralized should the government of the United States be, how much power should the member states have over their own affairs, and how much say should citizens and citizen organizations have in the affairs of themselves as well as their governments.
While both Hamilton and Jefferson were participants in the creation of the more centralized United States out of the original confederation by the Federalist Party, they had very different ideals as to what the new creation should be. Hamilton believed in a strong central government which he believed necessary for an industrialized nation while Jefferson believed in a de-centralized, more agrarian nation (see Jeffersonian democracy). When Hamilton as Secretary of Treasury created a national bank for the new country (see First Bank of the United States), Jefferson was much against the idea. Later President Andrew Jackson did his best to emasculate the Second Bank of the United States (see Jacksonian democracy).
The Federal Constitution of 1788 did not mention corporations thereby leaving the chartering of corporations to the states since the Constitution did not explicitly say otherwise. In the late 1700s and early 1800s corporations began to be chartered by the states. Corporations already existed in the new nation but these were primarily educational corporations or institutions chartered by the British crown which continued to exist after the new nation was created from the Confederation. Due to experience as British Colonies and the accompanying corporate colonialism from British corporations chartered by the crown to do business in North America, new corporations were greeted with mixed feelings. Thomas Jefferson said, "I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country."
As with banks, so with other corporations, especially perhaps colleges, the degree of permissible interference was controversial from the earliest days of the nation. In 1790, John Marshall, a private attorney and a veteran of the Continental Army, represented the board of the College of William and Mary, in litigation that required him to defend that corporation's right to reorganize itself and in the process remove professors, The Rev John Bracken v. The Visitors of Wm & Mary College (7 Va. 573; 1790 Supreme Court of Virgina). The Supreme Court of Virginia ruled that the original crown charter provided the authority for the Vistors to make changes including the reorganization.
Interestingly enough, Thomas Jefferson in his Autobiography, claimed that he had a hand in the reorganization when he was elected a Vistor of William and Mary after being appointed the Governor of the Commonwealth in June of 1779. His main reason for the reorganization was to move the college from a curriculum rooted in theology to a curriculum rooted in science, fine arts, and languages.
In 1818, the United States Supreme Court heard arguments in another such matter, Dartmouth College v. Woodward 17 U.S. 518 1819. Daniel Webster was the advocate for Dartmouth. He concluded his argument in the following emotional fashion, directly addressed to that same John Marshall, now chief justice. Webster equated the property rights of the donors and their trustees with the cause of literature and science, in short, with civilization itself.
"Sir, you may destroy this little institution; it is weak; it is in your hands! I know it is one of the lesser lights in the literary horizon of our country. You may put it out. But if you do, you must carry through your work! You must extinguish, one after another, all those great lights of science which, for more than a century, have thrown their radiance over our land. It is, Sir, as I have said, a small college. And yet, there are those who love it."
At this point, the Chief Justice is said to have become teary. The following year, he read from the bench the court's decision in that matter.
The key paragraph in the decision is as follows: "The opinion of the Court, after mature deliberation, is that this corporate charter is a contract, the obligation of which cannot be impaired without violating the Constitution of the United States. This opinion appears to us to be equally supported by reason, and by the former decisions of this Court."
A public outcry ensued. State courts and legislatures, supported by the people, declared that state governments had an absolute right to amend or repeal a corporate charter. (Richard L Grossman and Frank T. Adams, Taking Care of Business, Citizenship and the Charter of Incorporation (Cambridge: Charter, Ink., 1993), p. 11-12)
Seven years after the Dartmouth College opinion, the Supreme Court decided Society for the Preservation of the Gospel in Foreign Parts v. Town of Pawlet, (1823) in which an English corporation dedicated to missionary work, with land in the U.S., sought to protect its rights to that land under colonial-era grants against an effort by the state of Vermont to revoke the grants. Justice Joseph Story, writing for the court, explicitly extended the same protections to corporation-owned property as it would have to property owned by natural persons.
The notion of corporate personhood, then, has roots in the early history of the republic. Still, as the 19th century matured, manufacturing in the U.S., became more complex as the British Industrial Revolution generated new inventions and business processes which US industry copied. U.S. industry was largely protected by tariffs from British and other foreign competition. The favored form for large businesses became the corporation. And as these corporations came to dominate business life, they also began to dominate America's politicians, lawyers, courts and culture.
The Civil War accelerated the growth of manufacturing and the power of the men who owned the large corporations. The systematic bribing of Congress was instituted by Mark Hanna, sugar trust magnate Henry Havemeyer, and Senator Nelson Aldrich and their associates. (Jonathan Shepard Fast and Luzviminda Bartolome Francisco, Conspiracy For Empire, Big Business, Corruption and the Politics of Imperialism in America, 1876-1907 (Quezon City, Foundation for Nationalist Studies, 1985), p. 92-97).
Beginning in the 1870s corporate lawyers became bolder about using the Webster/Marshall theory of corporations as persons, arguing that as such they were entitled to some of the legal protections against arbitrary state action accorded also to natural persons.
It should be understood that the term "artificial person" was in long use, prior to the Dartmouth College decision, and was in principle distinct from any contention that corporations have the rights of natural persons. "Artificial person" was used because there were certain resemblances, in law, between a natural person and corporations. Both could be parties in a lawsuit; both could be taxed; both could be constrained by law. In fact the corporations had been called artificial persons by courts in England as early as the 16th century because lawyers for the corporations had asserted they could not be convicted under the English laws of the time because the laws were worded "No person shall..."
In the late 1800s railroads were the most powerful corporations in the country. Most of the nation's farmers were dependent on them to haul their produce; even the manufacturing corporations were at their mercy when they needed coal, iron ore, finished iron, or any other materials transported. In four cases that reached the Supreme Court (94 U.S. 155, 94 U.S. 164, 94 U.S. 179, 94 U.S. 180 (1877)) railroads tried to argue that the 14th Amendment prevented states from regulating the maximum rates they could charge. These cases did not rely on just an interpretation of the 14th Amendment as most also tied in the Interstate Commerce clause as well. In each case the Court refused to render an opinion as to whether the 14th Amendment applied to corporations instead couching their decision on the Interstate Commerce clause.
Similarly, in 1877, in Munn v. Illinois 94 U.S. 113 1876, the Supreme Court decided that the 14th Amendment did not prevent the State of Illinois from regulating charges for use of a business's grain elevators, ignoring the question of whether Munn & Scott was a person.
In Santa Clara County v. Southern Pacific Railroad Company (118 U.S. 394 (1886)), at the lower court levels the question of whether corporations were persons had been argued, and these arguments were submitted in writing to the Court. However, before oral argument took place, Chief Justice Waite announced: "The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of the opinion that it does."
Was the 14th Amendment about corporations? One of the 1886 judges, Samuel F. Miller, had not thought so in 1872, only 6 years after the Amendment had become law, when the court was "called upon for the first time to give construction to these articles." In the Slaughterhouse Cases 83 U.S. 36 1872, Miller delivered the majority opinion and discussed the Thirteenth Amendment and the Fifteenth Amendment as well as the Fourteenth as follows:
(Graham, Howard Jay, Everyman's Constitution, State Historical Society of Wisconsin, 1968. See also Graham, Howard Jay, "The Conspiracy Theory of the Fourteenth Amendment," The Yale Law Journal, Vol. 47: 341, 1938)
Later, in Northwestern Nat Life Ins. Co. v. Riggs 203 U.S. 243 1906, having accepted that corporations are a type of people, the court still ruled that the 14th Amendment was not a bar to many state laws that effectively limited a corporations right to contract business as it pleases.
Two Supreme Court judges, Hugo Black and William O. Douglas, later rendered opinions attacking the doctrine of corporate personhood. Quoted here is most of justice Black's opinion:
B Hugo Black, dissenting, Connecticut General Life Insurance Company v. Johnson (303 U.S. 77, 1938)
Justice Black was not alone in his questioning of the legitimacy of corporate personhood. Justice Douglas, dissenting in Wheeling Steel Corp. v. Glander 337 U.S. 562 1949, gave an opinion similar to, but shorter than, the one quoted above, to which Justice Black concurred.
Notable U.S. Supreme Court Cases
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