Evening star., 1933-03-12
MORTGAGE s3COLD CLAUSE''
HINGES UPON u. S. COURTS
British Decision Indicates Creditors
Demand Payment on Basis OF
Previous Values.
BY MARK SULLIVAN.

BY MARK SULLIVAN.
TINE writer of this article has hap
pened, through the depression.
to be in position where he
L saw events developing from the
inside. It has been an expert
ence productive of many forms of in
terest, provocative of many reflections.
Among these one of the most frequent
has been to observe how some compare
lively unnnoticed incident, often re-
mote, can have consequences flowing out
In larger and larger circles until every
inhabitant Of every village in America.
every farmer on every farm, felt the ef-
fects.
One Of the present conditions. so far
almost completely unnoticed. but des-
tined shortly to be much talked about.
Is thing called the gold clause" 1t
is with the gold clause" that the pres
ent article deals. And what is said here
will have, I am sure, fascinating inter-
est-n not now, surely in little
while-for every lawyer and banker.
And If can succeed in making 1t clear
enough, 1t may have interest for the
average reader who, sooner or later, Is
going to be affected in his fortunes by
what Is done or not done about the
gold clause" think it likely that
substantially every reader of this article
either owes or has due to him a debt
which Is affected by the gold clause"
Is United States OF Gold Standard?
The question which occupied prac-
tically every important mind In the
country during the past week-and
which vitality affected every mind,
whether important or not and every
person, from the lowest to the highest,
the poorest to the richest-was: Is the
United States off or going of the pres
ent gold standard?
Throughout this depression it has been
almost universally assumed that for a
particular reason America would not
Let us say, almost could not-go of the
gold standard: that there was in Amer
lea a condition which made departure
from the gold standard so inexpedient
as to be practically impossible Great
Britain might 60 off the gold standard,
as it did on September 20, 1881, but
in America there was q condition which
made imitation by us of Britain's ex-
ample so difficult as to be impossible
France might reduce the gold content of
its currency, but America, for partic-
ular reason, could not or must not
The reason, the insuperable condition,
was the presence in billions of Ameri-
can mortgages and bonds of the gold
clause" And to understand something
vital that is just ahead of us, it is de-
slrable to recite briefly the history of
the gold clause" In American bonds
and mortgages.
Bryan Policy Is Revealed.
There was in the United States in
termittently, indeed almost steadily,
from after the Civil War until 1896, the
same question, the same commotion,
that is now bedeviling US. It was de-
mand for "inf1ation,. demand that
paper dollars ito an indefinite number)
be made arbitrarily equal to a gold dol
lar; or that silver dollars of a certain
weight be made arbitrarily equal to a
gold dollar. The demand came to
1896, when William Jennings Bryan
made the Democratic fight upon an
issue which said, In effect, that 16
ounces of silver should be made by law
exactly equal to one ounce Of gold; or
to put it in terms of money, that a gold
dollar should be made equal in value
to a silver dollar Of 16 times the gold
dollars weight.
This 80 years of agitation for in
dation created, as agitation about in
fiation always does, fear that the
paper dollar might become less in value
than the gold dollar; that, indeed, the
enough, might become worth only
few cents in gold or practically nothing.
(As the German mark did in 1924) To
forestall that possibility lawyers drawing
up mortgages during the 1870s, 8os and
COS fell into the way OF writing into
mortgages a gold clause" The COM
mon form was that the mortgagor, the
debtor, promises to pay $1,000 Cor what
ever else might be the sum- in gold dol
lars of the present standard OF weight
and fneness"
The insertion of this gold clause In
all sorts of mortgages, bonds and other
tically universal up to 1896. Many OF
these old mortgages and bond contracts,
written preceding 1896. still exist, es-
pecially in the case of railroads.
But the writing of the gold clause
into mortgages and bonds did not cease
in 1896. Lawyers, in many OF tnelr
mental operations, are an apellke 1olk.
A lawyer subsequent to 1896-indeed as
late as l930-called upon to write
mortgage or a bond. looked up the
language of an existing mortgage or
bond, and faithfully copied 1t word for
word. Through this tradition ana
OIoCcQeQL WkltAlS VI tAAC 6SAN SAs-S'c
into mortgages and all contracts OF debt
became a habit, routine. Thirty years
or more after the fight on the gold
standard, after Bryan was dead, after
the old fights for imitation through
'ereenbackism'' and free silver" had
been forgotten, after the United states
was supposed to be as securely on the
gold basis as English is the common
tongue - after all that time. young
LAWYERS who had not even been born
when Bryan demanded free silver,
lawyers in little county seats IN kansas
and Iowa. and even more the big lawyers
of New York and Chicago. continued 10
write into mortgages and other con-
tracts Of debt the old formula that this
contract shall be payable in gold dol
lars of the present standard Of weight
and fineness."
Creditors Can Demand Gold.
The result is that there are literally
billions of dollars. probably hunoreoS
of billions. of such mortgages ana
bonds in existence. The exception, IN
deed. Is to find a bond or mortgage or
other contract of debt which does not
contain the gold clause. Any reader OF
this article can entertain himself for
few minutes by reading carefully the
language OF any pouo !ic !AoPpoIo
own, or any mortgage he happens 70
owe probably not one person in a
thousand has ever read the complex
legal verbiage of the instrument he
relies relies upon or which he is expected
to pay. If he will read it now he Will
find. in see cases out of 1000, that the
bond or mortgage says "gold collars OF
the present standard OF weight ana
fineness."
Now a gold dollar "of the present
standard Of weight" contains 1922
grains Of gold. That has been the
standard since before the Civil war.
And the gold clause in those billions
of dollars of bonds and mortgages is
supposed to guarantee, beyond the
possibility Of doubt, that the creditor,
the owner Of 81 900 bond. for example.
can, If he chooses, demand and insist
on receiving $1,000 each containing