The citation for this case is 75 US [8 Wallace] 1.
In November of 1864, William Smith and John Hartley purchased land from Jack Thorington near Montgomery, Alabama. The price was $45,000, and they paid $35,000 in confederate money, giving a note to Thorington for $10,000. All parties expected the note to be paid in confederate currency. Near the end of the war, when confederate currency was nearly worthless, Smith and Hartley attempted to pay the note with confederate currency, but Thorington refused to accept that payment and demanded payment in gold, silver, or US currency. Smith and Hartley refused, and in 1867 Thorington filed suit for payment of the $10,000. Smith’s and Hartley’s attorney argued that because the United States didn’t recognize the confederacy as a legal entity, the court couldn’t enforce a contract made with confederate currency. The District Court agreed with this and dismissed the suit. Thorington appealed to the Supreme Court.
Chief Justice Chase delivered the Court’s opinion. He started by laying out the questions before the Court:
“(1) Can a contract for the payment of Confederate notes, made during the late rebellion, between parties residing within the so-called Confederate States, be enforced at all in the courts of the United States?
“(2) Can evidence be received to prove that a promise expressed to be for the payment of dollars was, in fact, made for the payment of any other than lawful dollars of the United States?
“(3) Does the evidence in the record establish the fact that the note for ten thousand dollars was to be paid, by agreement of the parties, in Confederate notes?” [75 US 1, 6-7]
The first question is the one of importance to us. Chase wrote, “It cannot be questioned that the Confederate notes were issued in furtherance of an unlawful attempt to overthrow the government of the United States by insurrectionary force. Nor is it a doubtful principle of law that no contracts made in aid of such an attempt can be enforced through the courts of the country whose government is thus assailed. But was the contract of the parties to this suit a contract of that character? Can it be fairly described as a contract in aid of the rebellion? … It is familiar history that early in 1861, the authorities of seven states, supported, as was alleged, by popular majorities, combined for the overthrow of the national Union, and for the establishment within its boundaries of a separate and independent confederation. A governmental organization representing these states was established at Montgomery in Alabama, first under a provisional constitution and afterwards under a constitution intended to be permanent. In the course of a few months, four other states acceded to this confederation, and the seat of the central authority was transferred to Richmond, in Virginia. It was by the central authority thus organized and under its direction that civil war was carried on upon a vast scale against the government of the United States for more than four years. Its power was recognized as supreme in nearly the whole of the territory of the states confederated in insurrection. It was the actual government of all the insurgent states except those portions of them protected from its control by the presence of the armed forces of the national government.” [75 US 1, 7]
Chase next considered the nature of the confederate government according to the law. “Any definition that may be given may not improbably be found to require limitation and qualification. But the general principles of law relating to de facto government will, we think, conduct us to a conclusion sufficiently accurate. There are several degrees of what is called de facto government. Such a government, in its highest degree, assumes a character very closely resembling that of a lawful government. This is when the usurping government expels the regular authorities from their customary seats and functions and establishes itself in their place, and so becomes the actual government of a country. The distinguishing characteristic of such a government is that adherents to it in war against the government de jure do not incur the penalties of treason, and under certain limitations, obligations assumed by it in behalf of the country or otherwise will in general be respected by the government de jure when restored.” [75 US 1, 8] The examples he cites for this form all consist of governments that took control of the entire country, not just a part of it. That form, then, isn’t applicable. He considered a different form next.
“It is very certain that the Confederate government was never acknowledged by the United States as a de facto government in this sense. Nor was it acknowledged as such by other powers. No treaty was made by it with any civilized state. No obligations of a national character were created by it binding after its dissolution on the states which it represented or on the national government. From a very early period of the civil war to its close, it was regarded as simply the military representative of the insurrection against the authority of the United States. But there is another description of government, called also by publicists a government de facto, but which might perhaps be more aptly denominated a government of paramount force. Its distinguishing characteristics are (1) that its existence is maintained by active military power, within the territories and against the rightful authority of an established and lawful government, and (2) that while it exists, it must necessarily be obeyed in civil matters by private citizens who, by acts of obedience rendered in submission to such force, do not become responsible as wrongdoers, for those acts though not warranted by the laws of the rightful government. Actual governments of this sort are established over districts differing greatly in extent and conditions. They are usually administered directly by military authority, but they may be administered also by civil authority, supported more or less directly by military force.” [75 US 1, 9] The examples he used here involved areas that were occupied by foreign military forces. Chase wrote, “To the extent, then, of actual supremacy, however unlawfully gained, in all matters of government within its military lines, the power of the insurgent government cannot be questioned. That supremacy did not justify acts of hostility to the United States. How far it should excuse them must be left to the lawful government upon the reestablishment of its authority. But it made obedience to its authority, in civil and local matters, not only a necessity but a duty. Without such obedience, civil order was impossible. It was by this government’s exercising its power throughout an immense territory that the Confederate notes were issued early in the war, and these notes in a short time became almost exclusively the currency of the insurgent states. As contracts in themselves, except in the contingency of successful revolution, these notes were nullities, for except in that event there could be no payer. They bore, indeed, this character upon their face, for they were made payable only “after the ratification of a treaty of peace between the Confederate States and the United States of America.” While the war lasted, however, they had a certain contingent value, and were used as money in nearly all the business transactions of many millions of people. They must be regarded, therefore, as a currency imposed on the community by irresistible force. It seems to follow as a necessary consequence from this actual supremacy of the insurgent government as a belligerent within the territory where it circulated, and from the necessity of civil obedience on the part of all who remained in it, that this currency must be considered in courts of law in the same light as if it had been issued by a foreign government, temporarily occupying a part of the territory of the United States. Contracts stipulating for payments in this currency, cannot be regarded for that reason only as made in aid of the foreign invasion in the one case, or of the domestic insurrection in the other. They have no necessary relations to the hostile government, whether invading or insurgent. They are transactions in the ordinary course of civil society, and though they may indirectly and remotely promote the ends of the unlawful government, are without blame except when proved to have been entered into with actual intent to further invasion or insurrection. We cannot doubt that such contracts should be enforced in the courts of the United States after the restoration of peace to the extent of their just obligation. The first question therefore must receive an affirmative answer.” [75 US 1, 11-12] The end result of the case was Chase reversed the ruling of the Circuit Court, saying the payment should be in confederate dollars.
The importance of this ruling is that while Chase affirmed the confederate government was an illegal government, which it would not be if unilateral secession was a legal action, and therefore once again unilateral secession cannot be a legal action, he recognized that the confederacy exercised a de facto supremacy over the territory it controlled, forcing people living there to live by its rules. Indeed, a different ruling would have opened a messy can of worms that would have thrown the legal system into confusion. “Chase understood the importance of the case to the thousands of people in similar positions. He obviously believed that a simple affirmance or reversal of the trial court with nothing more would leave the people who had engaged in these contracts in a state of confusion. It was very apparent that the court had undertaken a full review of the subject when the chief justice defined the issues of the case.” [Robert Bruce Murray, Legal Cases of the Civil War, p. 164] All the sales, wills, and contracts made in the confederate states during the Civil War would not be invalidated.