The U.S. Supreme Court case Mercantile Trust & Deposit Company of Baltimore v. City of Columbus in 1906 revolved around a dispute over municipal bonds issued by the city of Columbus, Georgia. The Mercantile Trust and Deposit Company had purchased these bonds but later discovered that they were illegally issued because the city's debt exceeded its constitutional limit at the time of issuance. As a result, the company sued to recover their investment from the city directly rather than through taxation as was customary for such debts. The court ruled in favor of Mercantile Trust and Deposit Company, stating that while municipalities are generally immune from lawsuits without their consent (a principle known as sovereign immunity), this did not apply when it came to honoring financial obligations like bond repayments which were considered contractual obligations under law. This ruling set an important precedent regarding municipal liability for illegal bond issuances and reinforced investor trust in local government securities.

The dissenting opinion in the case of Mercantile Trust & Deposit Company of Baltimore v. City of Columbus argued that the city had not violated any contractual obligations by changing its taxation policy, as claimed by the plaintiff. The justice contended that there was no explicit or implicit contract between the city and bondholders regarding tax exemption for bonds issued to fund public improvements. He further stated that even if such a contract existed, it would be void because it is against public policy for a municipality to bind itself irrevocably to a specific taxation scheme. This view held that changes in circumstances could necessitate alterations in tax policies and municipalities must retain this flexibility without fear of breaching contracts with bondholders.