Zane v. Hamilton County

Background

A private buyer sued to collect interest on five coupon bonds that Hamilton County issued to finance the St. Louis and Southeastern Railway Company. The bonds were issued after Illinois laws in 1869 authorized subscriptions and bond issuance; the buyer says she purchased them in good faith and that they created a binding contract.

Reasoning

The central question was whether the Illinois statute under which the bonds were issued was valid and whether bonds issued under it were protected as contracts by the U.S. Constitution. The Court accepted the Illinois Supreme Court’s conclusion that section 20 of the 1869 act violated the State Constitution’s rule that a law must have a single subject clearly expressed in its title. Because that section was void, the bonds were illegally issued and therefore did not form a federal constitutional contract right. The Court reviewed earlier Illinois cases but found they did not justify saving the contested provision.

Real world impact

The ruling means the particular bonds here are unenforceable because the state law that authorized them was invalid. Buyers of such bonds cannot rely on the U.S. Constitution to force payment when the issuance rests on a state law held unconstitutional. Counties and railroads lose an enforceable claim under these specific statutes, and investors face the risk that similar municipal bonds issued under defective state laws may be void.