In the case of Stanly County v. Cole in 1902, the U.S Supreme Court ruled on a dispute involving bonds issued by Stanly County, North Carolina. The county had initially issued these bonds to fund railroad construction but later refused to pay them off, arguing that they were unconstitutional under state law. However, bondholders argued that this refusal violated their rights under the Contract Clause of the U.S Constitution which prohibits states from passing laws impairing contractual obligations. The Supreme Court sided with the bondholders and held that even if a contract is deemed illegal or voidable under state law due to changes made after its formation (as was claimed by Stanly County), it can still be enforced if it does not violate federal constitutional principles such as those embodied in the Contract Clause.

In the dissenting opinion for Stanly County v. Cole, it was argued that the majority's decision to uphold a North Carolina law taxing bonds issued by counties and municipalities violated the Contract Clause of the U.S Constitution. The dissenting justices believed that this taxation constituted an impairment of contractual obligations as it altered terms agreed upon at issuance, thus violating rights protected under federal law. They contended that when these bonds were issued, they were exempt from state taxation - a condition which formed part of their value and attractiveness to investors. By imposing taxes on them retroactively, North Carolina had effectively changed the conditions under which they were sold without consent from bondholders - an action deemed unconstitutional in light of contract protection laws.