The Gold Clause Cases are three Supreme Court decisions handed down together on February 18, 1935, that tested whether Congress could wipe out gold-payment promises written into private and public debt contracts. In Norman v. Baltimore & Ohio Railroad Co., Nortz v. United States, and Perry v. United States, the Court split 5–4 on the reasoning but reached the same practical result in every case: creditors got paper dollars, not gold. Congress’s authority over the monetary system was treated as nearly absolute, and even the bondholder the Court said had been wronged walked away with nothing.
Why the Cases Reached the Court
The rulings came out of a rapid sequence of New Deal monetary actions. On April 5, 1933, President Roosevelt issued Executive Order 6102, which forbade private hoarding of gold coin, gold bullion, and gold certificates and required delivery to a Federal Reserve Bank by May 1, 1933, at $20.67 per ounce. Willful violations carried fines of up to $10,000, prison terms of up to ten years, or both.1The American Presidency Project. Executive Order 6102 – Forbidding the Hoarding of Gold Coin, Gold Bullion and Gold Certificates
Two months later, Congress passed the Joint Resolution of June 5, 1933, declaring gold clauses in contracts “against public policy” and providing that any such obligation could be discharged dollar-for-dollar in whatever currency was legal tender at the time of payment.2GovInfo. 48 Stat. 113 – Joint Resolution of June 5, 1933 Gold clauses were standard in corporate bonds and Treasury securities of the era, typically requiring repayment in gold coin “of the present standard of weight and fineness.”
The Gold Reserve Act of 1934 finished the job. It transferred Federal Reserve gold to the Treasury and authorized the President to reset the dollar’s gold value.3Federal Reserve Bank of St. Louis. Full Text of Gold Reserve Act of 1934 On January 31, 1934, Roosevelt raised the official gold price from $20.67 to $35.00 per ounce.4The American Presidency Project. White House Statement on Proclamation 2072 The dollar was now worth roughly 59 percent of its former gold value. If gold clauses remained enforceable, every bondholder in the country could demand about $1.69 for every dollar of face value. Litigation was inevitable.
Norman v. Baltimore & Ohio Railroad: Private Gold Clauses
The first case tested Congress’s power over private contracts. A bondholder demanded payment in gold coin under a railroad bond issued before 1933, and a companion case, United States v. Bankers Trust Co., raised the same question through bonds of the St. Louis, Iron Mountain & Southern Railway Company.5Legal Information Institute. Norman v. Baltimore and Ohio Railroad Co., 294 US 240 (1935)
Chief Justice Charles Evans Hughes, writing for the 5–4 majority, held that contracts touching subject matter under congressional control carry a “congenital infirmity.” Contracts, he wrote, “cannot fetter the constitutional authority of the Congress.” Even agreements that were perfectly valid when made could be prohibited or invalidated if they interfered with a legitimate federal policy.6Justia Law. Norman v. Baltimore and Ohio Railroad Co., 294 US 240 (1935) Private parties, in short, could not contract their way out of Congress’s authority over money.
Nortz v. United States: Gold Certificates
The second case involved gold certificates, paper currency historically redeemable for gold coin. The plaintiff had surrendered $106,300 in gold certificates and received the same face amount in other currency. After devaluation, he argued, his certificates were worth far more than what he had been paid.
The Court disagreed, again 5–4. Hughes concluded that gold certificates “called for dollars, not bullion” and functioned as currency, not warehouse receipts for metal. Even if the Treasury had handed Nortz gold coin, he would have been required to surrender it right back under Executive Order 6102, since he had no license to hold it. The Court found no actual loss and said the Court of Claims was “not instituted to try” a case for nominal damages alone.7Legal Information Institute. Nortz v. United States, 294 US 317 (1935)
Perry v. United States: The Government’s Own Gold Promise
The third case is the one that still gets argued over. Perry held a Fourth Liberty Loan bond that expressly promised payment “in United States gold coin of the present standard of value.” These bonds had been sold to the public during World War I on the full credit of the United States.8Legal Information Institute. Perry v. United States, 294 US 330 (1935)
Here the majority drew a line. Liberty Bonds were obligations Congress had incurred under its constitutional power to borrow money, and Congress could not use one constitutional power (regulating currency) to destroy obligations created under another (borrowing on the nation’s credit). The abrogation of the gold clause on government bonds was unconstitutional.
That win produced no recovery. The Court found Perry had proved no actual damages. Because private gold ownership was banned and only one legal-tender currency circulated, the gold coin he had been promised had no greater domestic purchasing power than the paper dollars he received. Paying him the difference, the Court said, would amount to “unjustified enrichment” rather than compensation for real loss.9GovInfo. Perry v. United States, 294 US 330 (1935) The government had broken its promise and owed nothing.
The Constitutional Reasoning
Hughes grounded the majority opinions in a broad reading of Article I, Section 8. Federal authority over money, he wrote, flowed from an “aggregate of the powers granted to the Congress”: taxing, borrowing, regulating commerce, coining money and regulating its value, and making all laws necessary and proper to carry those powers into execution.10Congress.gov. Constitution Annotated – Congress’s Coinage Power Under this framework, federal control of the monetary system was comprehensive, and gold clauses, however clearly drafted, were subordinate to it.
The McReynolds Dissent
Justice James Clark McReynolds wrote for himself and Justices Van Devanter, Sutherland, and Butler. Departing from his prepared text at the bench, McReynolds said the Constitution “is gone.”5Legal Information Institute. Norman v. Baltimore and Ohio Railroad Co., 294 US 240 (1935) The four dissenters called the rulings a sanction for confiscation of property and repudiation of lawful debts.
Their argument was that the power to regulate money did not include the power to destroy the substance of agreements made in good faith. On Liberty Bonds especially, they warned that allowing the government to break its own solemn promises would corrode the nation’s credit. If Congress could retroactively erase the value of what it had pledged, no federal obligation could be trusted.
Congress Blocks Future Suits
Perry left an opening. A later bondholder, under different economic conditions, might prove real damages from the broken gold promise. Congress closed it. On August 27, 1935, a Joint Resolution withdrew the government’s consent to be sued on claims arising from gold-clause securities, gold coin, or the change in the dollar’s gold content, covering both securities claims and any claim “arising out of any surrender, requisition, seizure, or acquisition” of gold or silver under federal monetary regulations.11GovInfo. 49 Stat. 938 – Joint Resolution Authorizing Exchange of Coins and Currencies and Immediate Payment of Gold-Clause Securities Suits already filed or filed by January 1, 1936, were preserved, along with claims not exceeding face value. Anything else was jurisdictionally barred.
What the Rulings Mean for Gold Clauses Today
The 1933 ban on gold clauses stayed in force for more than four decades. After the United States left the gold standard in 1971 and private gold ownership was restored effective December 31, 1974, Congress lifted the restriction on gold clauses in 1977. Under 31 U.S.C. § 5118, the dollar-for-dollar discharge rule does not apply to obligations issued after October 27, 1977. Contracts entered after that date may tie payment to the value of gold, and courts will enforce those provisions.12Office of the Law Revision Counsel. 31 USC 5118: Gold Clauses and Consent to Sue
The 1933 resolution still governs pre-1977 obligations, which remain dischargeable in legal tender at face value. The Gold Clause Cases have never been overruled, and the principle they established, that Congress’s authority over the monetary system overrides private contract rights that conflict with it, remains good law.