Opinion ID: 427595
Heading Depth: 2
Heading Rank: 2

Heading: There's Gold In Them Thar Bills

Text: 17 A straightforward application of the statute convinces us that the devaluation provision in Steinhardt's ground lease is a gold clause. As mentioned, devaluation of the dollar occurs when the government increases the official price of gold. 19 The provision in the Steinhardt lease escalates rental payments in proportion to such devaluations. The payments represent the same number of ounces of gold (as determined by the official price) as they did on March 2, 1970. The value of each payment is, in effect, measured by a quantity of gold. Section 463 forbids 18 [e]very provision which purports to give the obligee a right to require payment in ... an amount of money of the United States measured [by gold]. 19 31 U.S.C. Sec. 463. Therefore, the statute on its face proscribes Steinhardt's devaluation clause. 20 20 Our prospector responds, however, that we are confusing iron pyrite with true gold. Steinhardt argues that the devaluation clause is not within section 463, because the clause keys rental payments to the official price of gold rather than the market price. He claims that the gold clause prohibition applies only to obligations which require payment in an amount of money measured by the market value of gold. Section 463 was enacted at a time when gold was still traded among individuals; and they would have used the market price. Arguably, Congress only contemplated gold clauses based on the market price. 21 Steinhardt also points out that there is a great disparity today between the market value of gold and the official price. The increase in rents because of the devaluation clause was less than if the rents had been tied to the market price of gold. Steinhardt concludes that section 463 should not apply. 22 We disagree. Section 463 does not ignore rent clauses triggered by official devaluations of the dollar. On the contrary, one purpose of the statute was to prevent creditors from enforcing gold clauses to increase payments after the 1934 devaluation. 21 Thus, the Supreme Court, in Holyoke Water Power Co. v. American Writing Paper Co., 300 U.S. 324, 57 S.Ct. 485, 81 L.Ed. 678 (1937), invalidated a lease provision having the same practical effect as the Steinhardt devaluation clause. The Holyoke lease provided for rental payments of 23 a quantity of gold which shall be equal in amount to fifteen hundred ($1500) dollars of the gold coin of the United States of the standard of weight and fineness of the year 1894, or the equivalent of this commodity in United States currency. 24 Id. at 333, 56 S.Ct. at 487 (emphasis supplied). The Court decided that both options--payment in gold or the equivalent in American currency--violated Section 463. 25 It is the latter alternative which interests us here, because the Court of Appeals had determined that the provision mandated an escalation of rental payments from $1500.00 to $2539.69--i.e. in proportion to the 1934 dollar devaluation. Id. at 486; Holyoke Water Power Co. v. American Writing Paper Co., 83 F.2d 398, 401 (1st Cir.1936). 22 The Supreme Court held that a provision increasing rents in proportion to the devaluation of the dollar was a gold clause within section 463. 26 [T]he evil to be remedied ... includes transactions whereby a debt is to be discharged ... in dollars, if the number of the dollars is to be increased or diminished in proportion to the diminution or the increase of the gold basis of the currency. 27 300 U.S. at 339, 57 S.Ct. at 489-90. 300 U.S. at 339, 57 S.Ct. at 489-90. 28 Therefore, Steinhardt cannot contend that a devaluation clause would never have come within section 463. His argument must be that Holyoke is no longer applicable because of the current disparity between the official and market prices of gold. Again, we do not accept the distinction. There is no indication in the statutory language or legislative history that Congress intended to limit section 463 to gold clauses tied to any particular price. Rather, the Joint Resolution condemned every obligation which requires payment in an amount of money measured by gold. The Steinhardt devaluation clause clearly measures rental payments by an amount of gold. Whether or not that measurement is the same that the market would provide is irrelevant to the application of section 463. 29 Furthermore, to distinguish between official and market prices would frustrate one of the basic policies of section 463. In outlawing gold clauses, Congress intended to provide certainty to debtors and prevent debt payments from increasing when the dollar depreciated. As the Supreme Court stated: 30 The comprehensive language of the Resolution was intended--as by its terms it did--to close legal loopholes contributing to dislocation of the domestic economy which would be caused by such a disparity of conditions in which, it is insisted, those debtors under gold clauses should be required to pay $1.69 in currency while respectively receiving their taxes, rates, charges, and prices on the basis of $1 of that currency. Here, the admitted purpose of the [creditors' gold clause] was ... to afford creditors of United States obligations contractual protection against possible depreciation of United States money.... 31 The mischief Congress intended to end will not end if the ... provision of these bonds is held to be unaffected by the Resolution. Congress sought to outlaw all contractual provisions which require debtors, who have bound themselves to pay United States dollars, to pay a greater number of dollars than promised. The Resolution intended that debtors under obligation to pay dollars should not have their debts tied to any fixed value of particular money, but that their entire obligations should be measured by and tied to the actual number of dollars promised, dollar for dollar. 32 Guaranty Trust v. Henwood, 307 U.S. 247, 257-58, 59 S.Ct. 847, 852-53, 83 L.Ed. 1266 (1939) (emphasis added), quoting Norman v. Baltimore & Ohio Rail Co., 294 U.S. 240, 315-16, 55 S.Ct. 407, 419, 79 L.Ed. 885 (1935); see also Joint Resolution of June 15, 1933, ch. 48, Sec. 1, 48 Stat. 113 (preamble announcing the declared policy of Congress to maintain at all times the equal power of every dollar); Holyoke Water Power Co. v. American Writing Paper Co., supra, 300 U.S. at 339, 57 S.Ct. at 489 (same). 33 In the present case, the devaluation provision would require the unit owners to pay a greater number of dollars in rent than they originally paid under the lease. Such a result would frustrate the policy of section 463. Therefore, we decline to apply the asserted distinction between official and market prices of gold; we hold that the devaluation provision is a gold clause in violation of section 463. 23