Texas v. White

In the years immediately following the Civil War, debate was furious over what rights the states of the former Confederacy would retain or be forced to forfeit before they were reintegrated into the Union. The U.S. Supreme Court settled a fundamental part of this issue based on the result of a lawsuit over the unlikely matter of a bond transfer.

On 1 January 1851, the U.S. government paid the state of Texas $5,000,000 in federal bonds to settle boundary claims. Most of the bonds, which were redeemable in 15 years, were sold by the Texas state government to investors. However, some of the securities were channeled into the state treasury as a school fund. These bonds were still in the treasury when Texas seceded from the Union on 4 March 1861 and joined the Confederacy.

After the members of the sitting state government of Texas either resigned or were ejected from office, the new Confederate Texas legislature passed a bill requiring any securities in the treasury to be sold to pay for munitions. A military board entrusted with this duty sold and delivered 135 bonds to the investment firm of White & Chiles on 15 March 1865. Seventy-six more bonds were transferred to English bankers in return for a delivery of cotton cards and medical supplies to be handled by White & Chiles.

At the outbreak of the Civil War, the U.S. Treasury had been warned that the Texas military board might sell the securities. The bonds were easily identifiable, since each bore a number and was to be endorsed by the governor of Texas. Ultimately, the U.S. Treasury did not have to decide whether or not to honor most of the bonds sold by the rebel military board. In October of 1865, four months after the Civil War ended, an agent of the state of Texas, G. W. Paschal, told the New York Herald that the bond transfer was a conspiracy between the Confederate Texas government and White & Chiles. Judge Paschal, who had remained faithful to the Union, warned the public that he considered the transaction to be illegal and would ask the U.S. Treasury to refrain from making any payments on the bonds. Paschal announced through the press that the bonds were still the property of the state of Texas.

By that time, a re-formed non-Confederate Texas government had passed a law authorizing the state's governor to recover the sold securities. The new Texas government filed suit for recovery of the bonds, claiming that they had been seized by persons hostile to the United States, who had acted in concert with White & Chiles with the aim of overthrowing the federal government. The suit also noted that the bonds were overdue at the time of transfer and had never been endorsed by any governor of Texas. The suit asked for an injunction preventing White & Chiles and the other purchasers from receiving any payment from the U.S. government so that the bonds might be returned to Texas.

The Texas claim presented a problem that was both legal and political, because secession had left the state's relation to the Union without a clear definition. In the Reconstruction Acts passed by the U.S. Congress in March of 1867, Texas was no longer considered to be a state. Responding to the lawsuit, George White and John Chiles--who had already sold the bonds--argued that Texas had forfeited its statehood and was in no legal position to sue anyone. They believed that the bonds were negotiable on their face value. So did the purchasers named in the suit, who claimed under oath that they had no idea Texas had a claim against the bonds when they were purchased.