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Gold Clause Cases

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(1935), common collective name for three companion cases of the New Deal era: Norman v. Baltimore & Ohio Railroad Co., 294 U.S. 240; Nortz v. United States, 294 U.S. 317; and Perry v. United States, 294 U.S. 330. All three argued 8–11 Jan. 1935, decided 18 Feb. 1935 by vote of 5 to 4; Hughes for the Court, McReynolds in dissent in each case. As part of the New Deal program to conserve gold reserves during the economic emergency of the Great Depression, Congress in 1933 abrogated the clauses in private and public contracts stipulating payment in gold. Consequently, such obligations could be paid in devalued currency. In these three cases, bondholders challenged this action as a breach of the obligation of contract and a deprivation of property without due process.

Speaking for the Court, Chief Justice Charles Evans Hughes sustained the power of Congress to regulate the monetary system. He ruled that the gold clauses in private contracts were merely provisions for payment in money. Further, Hughes concluded that Congress could override private contracts that conflicted with its constitutional authority over the monetary system. With respect to the gold clauses in government bonds, however, Hughes found that Congress had unconstitutionally impaired its own obligations. However, he determined that the bondholders could recover only nominal damages for breach of contract and thus could not sue in the Court of Claims. In a bitter dissenting opinion, Justice James C. McReynolds charged that the congressional action portended confiscation of property and financial chaos. He extemporaneously declared that “this is Nero at his worst.”

Although the Supreme Court in effect permitted Congress to impair existing contracts, the Gold Clause Cases reaffirmed comprehensive congressional power over monetary policy. Moreover, as a practical matter, enforcement of the gold clauses would have had a deleterious impact on the depressed national economy.

James W. Ely, Jr.

Subjects: Law

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