What had happened: In 1851 Congress issued $5 million worth of bonds for use by the state of Texas in settling boundary claims. Many of these were sold to Texas citizens as intended, but the state still had some number of them in its possession when, in 1861, it declared itself to have seceded from the United States.

The U.S. Secretary of the Treasury got word in 1862 that the rebel government of Texas might try to use the remaining bonds to finance the war effort and resolved not to pay them. This was a good move, because Texas did in fact try to use them to finance the war effort: 135 of the bonds were subsequently transferred to a firm called White & Chiles as partial payment for various supplies.

When the war was over, a provisional government took over in Texas, which wouldn't be officially readmitted to the union until 1870. In the meantime, the new administration wanted those bonds, still unredeemed, back from White & Chiles, arguing in an 1866 federal lawsuit that the transfer of the bonds was void, because it had been made to assist the rebellion, and invalid, because the bonds hadn't been properly endorsed.

One of the key issues raised in the case was whether Texas was still a state following its declared secession; by participating in the rebellion, the defense argued, it had relinquished its status as one of the United States and so no longer had standing to sue in federal court.

The Supreme Court didn't buy the argument:

The Constitution, in all its provisions, looks to an indestructible Union, composed of indestructible States. When, therefore, Texas became one of the United States, she entered into an indissoluble relation. All the obligations of perpetual union, and all the guaranties of republican government in the Union, attached at once to the State. The act which consummated her admission into the Union was something more than a compact; it was the incorporation of a new member into the political body. And it was final. The union between Texas and the other States was as complete, as perpetual, and as indissoluble as the union between the original States. There was no place for reconsideration, or revocation, except through revolution, or through consent of the States. . . .

That last sentence is important because most experts agree that there was a previous, more legally effective secession involving this country – the American Revolution.

Justices Grier and Swayne dissented, but they didn't argue the secession was valid. They claimed that Texas couldn't sue because, prior to readmission, it lacked representation in Congress, and was therefore a "conquered province."

The same principles cited by the majority apply under international law. International law does not recognize a right to secession except under very limited circumstances: one is successful revolution, another is secession by agreement. At this point, most scholars recognize that colonized or oppressed populations may secede, and some claim that those who are denied participation in government can secede, too. These last three concepts are fairly recent additions, though, and likely wouldn't have flown in the 1860s.

References:

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Cassesse, Antonio, Self-Determination of Peoples: A Legal Reappraisal (1995)

Crawford, James, The Creation of States in International Law (2006)

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In re Chiles , 89 U.S. 22 Wall. 157 157 (1874): http://supreme.justia.com/us/89/157/case.html

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