Evening star., 1935-01-06
SUPREME COURTS RULING
ON GOLD CASES AWAITED
Sanctity of Contract Clause at Stake in
Suits to Compel Payment of
Obi cations in Metal Value.


Whereas the old gold dollar had been
100 cents, the new gold dollar was de-
creed to be 5906 cents.
This made the gold clause" in old
contracts vital. For the old con-
tracts were payable in old gold dol
lars, gold dollars weighing 25.8
grains.
The lender of $1,000 to the Balti-
more & Ohio Railroad who, in the
present case, asks the Supreme Court
to require the railroad to repay him
in gold dollars of the present (former)
standard, is Mr.. Norman C. Norman
of New York City. Mr.. Norman in
effect admits that the railroad can
not pay him literally in old gold
dollars, because the Government has
seized all the gold-the railroad can
not get its hands on any. But Mr..
Norman asks that the railroad pay
him the paper equivalent of the old
gold dollars. This would mean that
the railroad would pay $3.50 for each
$2250 fixed in the contract.
About the consequences of each OF
the two decisions the court may con-
ceivably make, there is much discus
sion. On one side it is argued that
if all debtors are required to pay
ST. SO for each 81 named In the con-
tract, the addition to the debts owed
by all of us would be intolerable. AS
it is put in the decision of judge
of the lower Federal Court in one OF
the present cases. Judge Faris Of the
eastern district Of Missouri. the total
amount of debt involved in contracts
having the gold clause is between 80
and 125 billion dollars. If the gold
clause be enforced, this amount of
debt would be increased to something
like 200 billion dollars. And the total
wealth of the country is only about
280 billion dollars. If the gold clause
is enforced, the country. says Judge
Faris, may well be bankrupt" This
is an extreme statement. But it is
true that many a man who today
can readily pay 81 900 might be bank
rupt if required to pay s1,690.
On the other side, it is claimed that
this simplifies the situation too much.
Speaking roughly, there are as many
creditors as Debtors as many would
benefit as would suffer. The situation
would soon smooth itself out, there
need be no great commotion. In
England, where the House of Lords
sustained a gold clause similar to the
American one, no widespread bank
ruptcy followed. Ut is doubtful, how
ever, if the gold clause" is as COM
mon in England as in America.)
Moral Effect Feared.
From the standpoint of public in
terest, perhaps the best argument in
favor of the Supreme Court sustaining
the gold clause has to do with the
moral effect. It would be a dramatic
of the sanctity of contracts.
A country, and world. that has been
made "jittery" by widespread ignoring
of contracts, might be restored to sta
bility by the tonic of decision by
the Supreme Court of the United
States saying that a contract Is a
contract, and must be fulfilled.
The sanctity of contracts has been
seriously marred during the past few
years. That is perhaps the gravest
moral consequence of the depression.
Great nations, including Great Britain
and France, have defaulted in their
contracts to pay the United States
with respect to war debts). Ger
many and many other nations have
contracts to pay private in
vestors. Our own Government has
defaulted on its promise to pay gold
to holders of Liberty Bonds.
If, now, as conditions here become
more stable, and there is less excuse
for defaults on contracts-if, now,
The Supreme Court of the United
States should take stand in support
Of the validity of contracts, such an
action might be stimulant to the
whole world. Civilization depends
IN regard for contract, for what the
Germans called a scrap of paper"
more than upon any other one con-
lition.
To speak in detail, or with exact
less of precedents for the case that
will be presented to the Supreme
Court the coming week would carry
his discussion too far into legal
efinement. There were some cases
allied the illegal tender cases" after
he Civil War, but lawyers differ as to
whether those old legal tender" deci-
ions are binding as precedents. AS
ecently as 1888 there was similar,
hough not identical, case in Great
Britain. The holder of a bond pay
Ible in British pounds, containing a
gold clause" sued for gold or its
equivalent. Decisions in the lower
British courts were adverse to the
holder of the bond, but the House
IT Lords. which is the highest British
,ourt, held that the promisee was
entitled to his gold.
Two cases-again similar but not
dentical-were tried within the last
ew years before the Court of Inter-
Justice at The Hague. (On
which court, at that time, the present
Chief Justice Of the United States,
Mr.. Hughes, was member.) In one
,ase the French government sued the
Serbian government for payment in
,old francs of the standard prior to
he devaluation of the franc. In the
'ther case the French government
ued the government of Brazil for
in gold francs of the stand
Ird prior to the devaluation of the
ranc. In both cases the Court in In
Justice found in favor of
he holders of the bonds. Those cases,
While similar to, were not quite iden-
ical with the one about to be heard
" our own Supreme Court.
(Copyright. 1851
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