In the 1933 case of Chase National Bank v. City of Norwalk, the United States Supreme Court ruled in favor of Chase National Bank. The bank had purchased bonds issued by the city and later sued when it discovered that they were illegally issued due to a violation of Connecticut state law which limited municipal indebtedness. The court held that even though the bonds were unlawfully issued, since they were negotiable instruments - securities that are transferable by delivery with full title passing to the transferee - and because Chase was an innocent purchaser for value without notice of their illegality, it could recover from Norwalk on them. This decision reinforced legal principles regarding negotiable instruments and protected innocent purchasers who acquire such instruments without knowledge or reason to know about any irregularities associated with their issuance.

In the dissenting opinion for Chase National Bank v. City of Norwalk, Justice Stone argued that the majority's decision was inconsistent with previous rulings and principles of constitutional law. He contended that there was no legal basis to exempt federal bonds from state taxation when they were owned by a national bank, as this would give an unfair advantage to these banks over other taxpayers. Furthermore, he believed it was not within the Court's power to create such exemptions unless explicitly stated in legislation passed by Congress. In his view, allowing states to tax federal bonds held by national banks did not interfere with any governmental function or violate any provision of the Constitution; therefore, it should be permitted under existing laws and precedents.