Gold Clause Cases
The Gold Clause Cases refer to a series of legal disputes in the United States during the Great Depression, primarily dealing with the government's ability to invalidate contracts that required payment in gold. In response to economic turmoil, Congress enacted laws permitting payments in devalued currency instead of gold, which led bondholders to argue that this action violated their rights to property and constituted a breach of contract. Chief Justice Charles Evans Hughes, writing for the majority in a narrow 5-4 decision, asserted that Congress had the constitutional power to regulate the monetary system, and thus the changes were legitimate. However, he did identify an error in Congress's decision to rescind gold clauses related to government bonds, stating that these bonds must still be honored, albeit with limitations on the damages recoverable by bondholders. The dissenting opinion, notably by Justice James C. McReynolds, expressed strong concern about the implications of contract abrogation, warning it could lead to financial instability. The outcomes of these cases continue to inform discussions about government powers in economic crises and the protection of contractual obligations.
Gold Clause Cases
Norman v. Baltimore and Ohio Railroad Co.;Nortz v. United States;Perry v. United States
Date: February 18, 1935
Citation: 294 U.S. 240; 294 U.S. 317; 294 U.S. 330
Issue: Fiscal and monetary powers
Significance: The Supreme Court’s ruling allowed Congress to pass laws abrogating various contracts that called for payment in gold because the contracts, if honored, would have harmed the U.S. economy.
All three cases were argued and decided together, with Chief Justice Charles Evans Hughes writing the opinion for the 5-4 majority. In fighting the Great Depression, Congress passed laws allowing the abrogation of contracts requiring payment in gold, allowing them to be paid in devalued currency. Bondholders challenged these laws as depriving them of property without due process and as a breach of contract. Writing for the Court, Hughes stated that the gold clause simply provided for payment in money. He further stated that Congress had the constitutional authority to regulate the monetary system and its enactments were within the scope of that authority, although he did find Congress erred in rescinding the gold clauses in its own government bonds. These must be paid, but the bondholders could recover only nominal damages and could not use the court of claims to pursue their loss. Justice James C. McReynolds dissented vehemently in each case, calling this abrogation of contracts a seizure of property and suggesting financial chaos would result.
