Evening star., 1935-01-06
BY MARK SULLIVAN.


The suits arising under the
steps taken by President Roosevelt
about gold, are of several kinds. For
clarity I dismiss, in this article, all
except the kind of case that comes up
the coming week. Likewise in the in
terest of clarity shall describe the
case in terms which do not pretend to
conform to legal Technology, but
which will enable the reader to un-
derstand the application of this case
to his personal situation, the principle
involved, and the consequences OF a
decision, one way or the other:
In the year 1880 man who had
saved $1,000 loaned it to the Balti-
more & Ohio Railroad. The railroad,
as evidence that it had borrowed the
money, as evidence of its obligation,
gave the lender bond promissory
note, of the kind familiar to every
one. The bond given by the railroad
promised to repay the principal, and
promised to pay the interest at the
rate of Az per cent semi-annually.
That is, the railroad promised to pay
s22.50 on the first of each February
and August.
Those are the elementary facts In
the particular case now coming before
the Supreme COUNT Zone of two, the
other being case in which the bor-
rover is the Missouri Pacific Rail-
road. There are literally millions OF
such situations, with variations in the
dates and the rates of interest. All
Uill be affected by the precedent which
the court will make in its decision in
the present case. 1t should be eSpeci-
ally noted that the date of the lend
ing in the present case is immaterial;
1t could have been any date preceding
1898: in the other situations which
will be decided by the present case,
the lending transactions took place,
some in every year since soon after
: the Civil War.
Promised Pay in Gold.
The Baltimore g. Ohio Railroad in
the present case, and practically all
other borrowers in all the like cases,
promised to repay in gold. All the
promises contained what is known as
the gold clause" The gold clauses"
in all bonds are substantially identical.
I quote one from bond I happen to
have access to: 1t reads "+ Prom
ise to pay 1000 in gold coin Of the
United States of America of or equal
to the present standard OF weight and
fineness and to pay interest thereon
- = in like gold COIN
Few persons have ever read that
"gold clause" Yet it or one substan-
TALLY identical, appears in scores of
millions of bonds mortgages and other
contracts. The precise wording does
not matter. Many of them read gold
coin of the present standard" mean
ing the standard existing at the time
the contract was made, any time from
1888 back as far as 1865.
The habit of writing the gold clause
into contracts arose soon after the
Civil War. At that time, for period
of about IS years, there was. as now,
much talk and controversy about cur
rency. imitation, "greenbacks," silver
coinage, paper money" In conse-
quence of fear, the same sort of fear
that exists now, lawyers began to write
the gold clause into contracts.
I should say off-hand that fully
three-fourths, perhaps more, of all
the bonds, mortgages and similar con-
tracts in the United States con-
tain the gold clause. Some do not.
Apparently some lawyers came to feel
so confident, during the long years
when We seemed as securely welded
to the gold standard as to the Eng
1ish language, that they did not in
sert the gold clause. But nearly all
lawyers continued to insert it. Any
reader of this article who happens
either to own a bond or owe a mort
gage is apt to find If he reads it
carefully, that the gold clause is
there. Many insurance policies con-
tain it. Practically every reader,
though few may be aware of it, is
either under an obligation to pay
gold in satisfaction of his mortgage
and the interest on it, or is entitled
to receive gold.
Change Occurs Suddenly.
For as long as younger readers can
remember, as far back as 35 years at
least, this gold clause did not matter
until June S, 1888. Neither the debtor
nor the creditor paid any attention
to it. They did pot, in the legal
phrase, insist on Specific perform |
ance" by payment in gold. The cred
itor was willing to receive, and for
the debtor it was more convenient to
pay. ordinary paper dollars or bank
checks. Hundreds of thousands of
persons have freely accepted billions
of dollars in paper money or bank
checks, without ever even knowing
they were entitled to demand gold.
The reason was that paper money had
the same value as gold money.
At all times (until 1889 man
having paper dollar could take 1t
to the Treasury, or to a Federal Re
serve bank, or as practical matter
to any bank, and exchange it for a
gold dollar. The Government always
stood ready to make the exchange.
That is what was meant by the cur
rency of the United States being on
gold basis" And just because any,
body could make the exchange nobody
cared to make it. We were for nearly
half a century-as far back as the
currency controversies, similar to the
present, that followed the Civil War
in the happy condition of a nation
whose citizens knew that every paper
dollar was the equivalent of gold
dollar. And so, the gold clause came
to have no practical effect. But the
lawyers who drew mortgages and
wrote bond contracts continued to
write the gold clause in.
Then, in 1888, President Roosevelt |
took the country "off gold" That is,
he decreed that the Government |
would no longer stand ready to give
gold in exchange for paper dollars.
AS incidents of that action he took,
among others, two steps. On June
5, 1888, he had Congress enact that
the pre-existing gold clauses are
against public policy" and that every
obligation payable in gold shall be
discharged upon payment in any
currency which at the time of pay
ment is legal tender" That is, Con-
gress enacted that the lender in the |
present case, and all others in the |
same situation, must accept ordinary |
lo11arc