Evening star., 1933-03-12

the gold basis ana 1Or tne rTcnCn W
say their franc should contain less gold
than 1t formerly had.
But, as it has been almost uni
yersaliy argued, the United States could
not 90 off the gold standard, nor say
that the gold dollar in the future shall
contain, for example, only is grains,
because the existence Of these billions
of dollars Of old debt contracts would
create too much difficulty, become too
intolerable q hardship ON persons and
corporations obliged to pay their debts
in the old and heavier gold dollar.
Question Up to Supreme Court
Throughout all the discussion ran,
4 course. the question which may be
tated thus: If the United States
.hould 60 of the gold basis, or If the
United States should decree that the
amount of gold-in that event what
would the courts do about the con-
tracts to pay in old gold dollars, gold
dollars of the old standard? To ask
what "the courts" would do about
these old contracts is, in effect, to ask
what the Supreme Court Of the United
States would do, for everybody knows
that the Supreme Court would have
the final say.
In the inner discussions that arose
in several crises in this depression, on
the two or three occasions when the
government was obliged to give con.
sideration at least to the possibility OF
going of the gold standard or being
forced of it. always thought was given
to this question: What would the
courts do about these old contracts OF
debt containing the old clause for pay
IN
The time preceding the present
when we came nearest to going on the
gold standard was in early February.
1882. At that time, though the country
never knew it. and though we pulled
out of the crisis, we were within Few
weeks Of being obliged to 60 of the
gold standard On that occasion, when
it was necessary to consider whether we
might later 60 of the gold standard,
Mr.. Hoover, with his habitual care to
provide for future possibilities, asked
one of his legal assistants to give him
an opinion-which, Of course, could
only be q surmise-as to what the
courts might do about the old gold
clause" contracts in the event that
America should go of the gold stand
ard. The opinion, Of course, could be
only q guess. The courts have never
had occasion to decide the question,
and what the courts might do If
and when the question should arise was
a question as to which the best Of law
yers could only make guess.
We are apparently little nearer to-
day to the same question. What the
courts would do about these billions in
existing mortgages, bonds and other
debt contracts is at this moment a
pretty practical question. The answr,
Of course, now as before, can be only
a surmise, but there has been recent
event which throws greater light on
what the courts might do than any we
have had before.
British Court Answered Question.
The gold clause is, have said, al
most solely an American institution.
In other countries 1t exists hardly at
all, but it turns out that there was at
least one such contract in Great Brit
ain, and that the British courts were
obliged to answer precisely the question
which our own courts will be obliged
to answer II we should 60 of the gold
basis or If we should reduce the guam
tity of gold in the standard dollar. The
chencery division Of the British High
Court answered the question q few
weeks ago. and their answer throws
Light which, incidentally. will be
acutely discomforting to creditors who
have been thinking that they have an
absolute and impregnable right to de-
mand gold dollars of the present
standard of weight and fineness.'
In Great Britain in 1923 a certain
corporation borrowed money and into
the contract for repayment wrote a
clause saying that the sum was pay
able in gold coin of the United King
dom or equal to the standard of weight
and and fineness existing September l.
Three years later Great Britain went
of the gold standard. and the British
pound. formerly worth $486 in gold
became worth some $500. Still later a
came due and the creditor demanded
payment according to the language OF
his contract, in the old gold pounds.
The debtor rendered ordinary paper
pounds. The creditor haughtily re-
fused them. insisting on having his gold,
and went into court to get 1t.
Not Bullion Contract.
What the British courts did to that
gold clause is what Jack Dempsey did
to Jess Willard. They knocked it out
firmly, fatally and finally. This was
mot a bullion contract" said the court; !;
that is. it was not q contract having to
do with mining and calling for gold
bullion as some contract might call
for land or coffee or cotton. Not at all,
said the court. "The contract is a
simple contract TO secure payment Of
a sum Of money. and If the defendants
(the debtor) rendered the sum of money
in question in whatever might happen
to be legal tender at the date the pay
ment was due, they have discharged
their obligation. To attempt
to impose upon the debtor an obligation
to nay in particular form and not any,
thing which Is legal tender is an at
tempt to do something which cannot be
enforced If the contract Is a mere con-
tract for payment Of money"
That decision has most important
bearing on what is apparently about to
arise in the United States II we go of
the existing gold standard. Decisions
OF British courts are, of course, not
binding on American courts. But no
one can read that British decision in
full without coming pretty firmly to the
conviction that the American courts
would take the same position.
The hardly inescapable inference Is
that any American owing a mortgage
or bond or debt on a contract con-
tanning the gold clause, will be able to
pay his debt in whatever is legal tender
at the time the debt comes due. paper
dollars, silver dollars, or any other form,
provided it is legal tender. As respects
creditors the deduction is that any one
who fondly believes he can demand
1922 grains Of literal gold for each dol
iar que him may be as disillusioned as
Shylock was on a similar occasion.
In short, the gold clause" seems like
~ to go the same path as a good many
other institutions hitherto considered
mpregnable. These are tough times for
(Copyrisht, 1933)
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