A typical example was the city of Saginaw, which sought and obtained permission by an act of legislature to "issue bonds and loan up to $40,000 to the Amboy, Lansing and Traverse Bay Railroad," subject to approval by local voters.
Writing for the majority, Justice Thomas M. Cooley struck down the law on the grounds that railroads were a private enterprise and the public funding thereof violated the Michigan constitution.
Cooley enunciated three principles which formed the basis of taxation:[8] Cooley rejected the notion that railroads were a "public highway," writing: They are not, when in private hands, the people's highways; but they are private property, whose owners make it their business to transport persons and merchandize in their own carriages, over their own land, for such pecuniary compensation as may be stipulated.
[10]The immediate impact of the decision was to throw the development of railroads in the state of Michigan into chaos and to call into question the validity of all municipal bonds already issued.
The latter question would eventually be taken up by the Supreme Court of the United States, which held in Taylor v. Ypsilanti (1881) that bonds issued prior to the Michigan court's ruling were valid and had to be honored: ... we are of opinion that the rights of the plaintiff, as the owner of bonds issued under a statute which, when passed, was valid by the laws of Michigan, as declared and acted upon by the several departments of its government, are not affected by decisions of the Supreme Court of the State rendered after the railroad company, to whose rights the plaintiff succeeded, has earned the bonds under contract with the city made in conformity with the statute.