Confederate money transactions

Phillips v. Hooker – North Carolina, 1867 (62 N.C. 193); Dearing’s Administrator v. Rucker – Virginia, 1868 (59 Va. 426); Leak v. Commissioners of Richmond County – North Carolina, 1870 (64 N.C. 133); Dinwiddie County v. Stuart, Buchanan & Co. – Virginia, 1877 (69 Va. 526)

• The issue of whether the Union was perpetual or whether the Confederacy had truly been a separate nation during the war, was debated extensively in “Confederate money cases.”  These cases occupied much time of Reconstruction-era courts, because the consequences of their decisions would shape the balance of economic power between creditors and debtors. 

• Confederate currency depreciated rapidly throughout the Civil War and became worthless with Lee’s surrender in 1865.  After the war, many debtors attempted to pay off wartime obligations in Confederate currency, whereas creditors wanted to be paid in U.S. currency. 

• Reconstruction courts were deeply divided over this issue, but Virginia and North Carolina forged an early middle path which was ultimately adopted by the U.S. Supreme Court in Thorington v. Smith (1869):  transactions that did not directly aid the war effort, such as business transactions in Confederate currency, would be recognized and enforced but acts in aid of the war would not be.  These states solved the currency problem by enacting “scaling laws” converting Confederate-era debts to current U.S. dollars (for example, a loan of 100 Confederate dollars might in 1863 might be valued at $30 US and held payable in that amount in 1866). 

• In Phillips, the leading Reconstruction-era state currency case, North Carolina’s chief justice Richmond Pearson explained that scaling laws reflected economic reality and were not a covert attempt to defy federal authority:  adopting an ab initio rule would lead to economic chaos.  The Virginia supreme court agreed in Rucker.  

• But Southern courts divided over what transctions were unenforceable.  In Leak, Pearson and his colleagues held that persons who loaned money to the county to procure salt during the war were not entitled to repayment:  even though the loan was to promote health of local citizens, its effect was to help the Confederacy.  Virginia’s supreme court strongly disagreed in Dinwiddie, characterizing salt laws as an act of “charity, of humanity and of self-preservation.”  

“Every contract for the payment of Confederate notes was essentially a contract of hazard.” – Justice __ Joynes, in Rucker

Reaction to the new federalism and Virginia’s problems of partition

In Matter of Hughes – North Carolina, 1867 (61 N.C. 58); Antoni v. Wright – Virginia, 1872 (63 Va. 833); Higginbotham’s Executors v. Commonwealth – Virginia, 1874 (66 Va. 627)

• After the war, federal and Southern courts wrestled with whether acts of the now-defunct Confederacy should be given continuing legal effect or should be treated as null and void ab initio (from the beginning).  The question was not academic:  it affected the South’s postwar economy in important ways, and it raised the fundamental question:  Was the American union perpetual, or was the Confederacy truly and independent nation during the war?  In Texas v. White (1869), the U.S. Supreme Court endorsed Lincoln’s belief that the union was perpetual and indivisible, but it and other courts recognized that voiding all Confederate-era transactions would cause many practical problems, and they made accommodations accordingly.

• Hughes, Antoni and Higginbotham illustrate ways in which coastal Upper South courts coped with this dilemma.  In Hughes, North Carolina’s supreme court rejected a challenge to the legitimacy of the state’s restoration government, holding that the federal government had a right to restore political order in the former Confederacy after the war. 

• The problem of how to divide Virginia’s pre-war state debt between Virginia and West Virginia bedeviled both states for years.  Virginia’s Reconstruction legislature offered to pay creditors 2/3 of the total debt with state bonds, but in 1872, a Redemption legislature tried to repudiate the offer.  In Antoni, Virginia’s supreme court struck down the repudiation law; it took the occasion to denounce the federal government for allowing the creation of West Virginia, “an act of violence [Virginia] was powerless to resist,” but commended the state for trying to honor its debts nonetheless. The decision was deeply unpopular – Virginians believed they should not offer to pay debts until West Virginia assumed its fair share - but in subsequent cases the supreme court continued to insist that the debt must be paid.