In the case of City and County of Denver v. New York Trust Company, 1912, the Supreme Court was called upon to decide on a dispute involving bonds issued by the city and county of Denver. The local government had issued these bonds as part of an effort to fund public improvements but later sought to avoid payment on them due to allegations that they were fraudulently obtained. The New York Trust Company, which held some of these bonds, sued for payment. In its decision, the Supreme Court sided with the trust company stating that even if there was fraud involved in obtaining those bonds initially; it did not affect their validity or enforceability against subsequent innocent purchasers such as New York Trust Company who bought them in good faith without knowledge about any alleged fraudulent activity associated with their issuance.

In the dissenting opinion for the case City and County of Denver v. New York Trust Company, Justice Holmes argued that there was no legal basis to prevent a municipality from issuing bonds in order to pay off its existing debt. He disagreed with the majority's interpretation of Colorado law, stating that it did not explicitly prohibit such actions by municipalities. Furthermore, he contended that if a city could issue bonds for public improvements or other purposes beneficial to its citizens, then it should also be able to do so in order to manage its debts more effectively. In his view, this would serve the public interest just as much as any other use of bond funds might do. Therefore, he believed that Denver had acted within its rights when it issued new bonds and used them to repay older ones at lower interest rates.