Perry v. United States, 294 U.S. 330 (1935)

U.S. Supreme Court PERRY v. UNITED STATES, 294 U.S. 330 (1935)

[Page 294 U.S. 330, 349]

to assure one who lent his money to the government and took its bond that he would not suffer loss through depreciation in the medium of payment.

The government states in its brief that the total unmatured interest- bearing obligations of the United States outstanding on May 31, 1933 ( which it is understood contained a 'gold clause' substantially the same as that of the bond in suit), amounted to about twenty-one billions of dollars. From statements at the bar, it appears that this amount has been reduced to approximately twelve billions at the present time, and that during the intervening period the public debt of the United States has risen some seven billions (making a total of approximately twenty-eight billions five hundred millions) by the issue of some sixteen billions five hundred millions of dollars 'of non-gold-clause obligations.'

Second. The Binding Quality of the Obligation. The question is necessarily presented whether the Joint Resolution of June 5, 1933, 48 Stat. 113 (31 USCA 462, 463), is a valid enactment so far as it applies to the obligations of the United States. The resolution declared that provisions requiring 'payment in gold or a particular kind of coin or currency' were 'against public policy,' and provided that 'every obligation, heretofore or hereafter incurred, whether or not any such provision is contained therein,' shall be discharged 'upon payment, dollar for dollar, in any coin or currency which at the time of payment is legal tender for public and private debts.' This enactment was expressly extended to obligations of the United States and provisions for payment in gold, 'contained in any law authorizing obligations to be issued by or under authority of the United States,' were repealed. [Footnote 1] Section 1(a), 31 USCA 463(a).

[Page 294 U.S. 330, 351]

and the power of the Congress to alter or repudiate the substance of its own engagements when it has borrowed money under the authority which the Constitution confers. In authorizing the Congress to borrow money, the Constitution empowers the Congress to fix the amount to be borrowed and the terms of payment. By virtue of the power to borrow money 'on the credit of the United States,' the Congress is authorized to pledge that credit as an assurance of payment as stipulated, as the highest assurance the government can give, its plighted faith. To say that the Congress may withdraw or ignore that pledge is to assume that the Constitution contemplates a vain promise; a pledge having no other sanction than the pleasure and convenience of the pledgor. This Court has given no sanction to such a conception of the obligations of our government.

The binding quality of the obligations of the government was considered in the Sinking Fund Cases, 99 U.S. 700, 718, 719 S.. The question before the Court in those cases was whether certain action was warranted by a reservation to the Congress of the right to amend the charter of a railroad company. While the particular action was sustained under this right of amendment, the Court took occasion to state emphatically the obligatory character of the contracts of the United States. The Court said: 'The United States are as much bound by their contracts as are individuals. If they repudiate their obligations, it is as much repudiation, with all the wrong and reproach that term implies, as it would be if the repudiator had been a State or a municipality or a citizen.' [Footnote 2]

[Page 294 U.S. 330, 353]

be not the practice of economy, but an act of repudiation.'

The argument in favor of the Joint Resolution, as applied to government bonds, is in substance that the government cannot by contract restrict the exercise of a sovereign power. But the right to make binding obligations is a competence attaching to sovereignty. [Footnote 3] In the United States, sovereignty resides in the people who act through the organs established by the Constitution. Chisholm v. Georgia, 2 Dall. 419, 471; Penhallow v. Doane's Administrators, 3 Dall. 54, 93; McCulloch v. Maryland, 4 Wheat. 316, 404, 405; Yick Wo v. Hopkins, 118 U.S. 356, 370, 6 S.Ct. 1064. The Congress as the instrumentality of sovereignty is endowed with certain powers to be exerted on behalf of the people in the manner and with the effect the Constitution ordains. The Congress cannot invoke the sovereign power of the people to override their will as thus declared. The powers conferred upon the Congress are harmonious. The Constitution gives to the Congress the power to borrow money on the credit of the United States, an unqualified power, a power vital to the government, upon which in an extremity its very life may depend. The binding quality of the promise of the United States is of the essence of the credit which is so pledged. Having this power to authorize the issue of definite obligations for the payment of money borrowed, the Congress has not been vested with authority to alter or destroy those obli-

[Page 294 U.S. 330, 355]

riched. Plaintiff seeks judgment for $16,931.25, in present legal tender currency, on his bond for $10,000. The question is whether he has shown damage to that extent, or any actual damage, as the Court of Claims has no authority to entertain an action for nominal damages. Grant v. United States, 7 Wall. 331, 338; Marion & Rye V. Railway Co. v. United States, 270 U.S. 280, 282, 46 S.Ct. 253; Nortz v. United States, , 55 S.Ct. 428, decided this day.

Plaintiff computes his claim for $16,931.25 by taking the weight of the gold dollar as fixed by the President's proclamation of January 31, 1934 (No. 2072, 31 USCA 821 note), under the Act of May 12, 1933, 43(b)( 2), 48 Stat. 52, 53, as amended by the Act of January 30, 1934, 12, 48 Stat. 342, (31 USCA 821), that is, at 15 5/21 grains nine-tenths fine, as compared with the weight fixed by the Act of March 14, 1900, 1, 31 Stat. 46 (31 USCA 314), or 25.8 grains nine-tenths fine. But the change in the weight of the gold dollar did not necessarily cause loss to the plaintiff of the amount claimed. The question of actual loss cannot fairly be determined without considering the economic situation at the time the government offered to pay him the $10,000, the face of his bond, in legal tender currency. The case is not the same as if gold coin had remained in circulation. That was the situation at the time of the decisions under the legal tender acts of 1862 and 1863. Bronson v. Rodes, 7 Wall. 229, 251; Trebilcock v. Wilson, 12 Wall. 687, 695; Thompson v. Butler, 95 U.S. 694, 696, 697 S.. Before the change in the weight of the gold dollar in 1934, gold coin had been withdrawn from circulation. [Footnote 4] The Congress had authorized the prohibition of the exportation of gold coin and the placing of restrictions upon transactions in foreign exchange. Acts of March 9, 1933,

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In that case it would seem to be implicit in our decision that the prohibition, at least in the present situation, is itself a constitutional exercise of the power to regulate the value of money.

I therefore do not join in so much of the opinion as may be taken to suggest that the exercise of the sovereign power to borrow money on credit, which does not override the sovereign immunity from suit, may nevertheless preclude or impede the exercise of another sovereign power, to regulate the value of money; or to suggest that, although there is and can be no present cause of action upon the repudiated gold clause, its obligation is nevertheless, in some manner and to some extent not stated, superior to the power to regulate the currency which we now hold to be superior to the obligation of the bonds.

Mr. Justice McREYNOLDS, Mr. Justice VAN DEVANTER, Mr. Justice SUTHERLAND and Mr. Justice BUTLER, dissent. For opinion, see Norman v. Baltimore & O.R. Co., 294 U.S. 240, 55 S.Ct. 407, at page 419. Footnotes

Footnote 1 And subdivision (b) of section 1 of the Joint Resolution of June 5, 1933, provided: 'As used in this resolution, the term 'obligation' means an obligation (including every obligation of and to the United States, excepting currency) payable in money of the United States; and the term 'coin or currency' means coin or currency of the United States, including Federal Reserve notes and circulating notes of Federal Reserve banks and national banking associations.' 31 USCA 463(b).

Footnote 2 Mr. Justice Strong, who had written the opinion of the majority of the Court in the Legal Tender Cases (Knox v. Lee), 12 Wall. 457, dissented in the Sinking Fund Cases, 99 U.S. page 731, because he thought that the action of the Congress was not consistent with the government's engagement, and hence was a transgression of legislative power. And, with respect to the sanctity of the contracts of the government, he quoted, with approval, the opinion of Mr. Hamilton in his communication to the Senate of January 20, 1795 (citing 3 Hamilton's Works, 518, 519), that 'when a government enters into a contract with an individual, it deposes, as to the matter of the contract, its constitutional authority, and exchanges the character of legislator for that of a moral agent, with the same rights and obligations as an individual. Its promises may be justly considered as excepted out of its power to legislate, unless in aid of them. It is in theory impossible to reconcile the idea of a promise which obliges, with a power to make a law which can vary the effect of it.'

Footnote 3 Oppenheim, International Law (4th Ed.) vol. 1, 493, 494. This is recognized in the field of international engagements. Although there may be no judicial procedure by which such contracts may be enforced in the absence of the consent of the sovereign to be sued, the engagement validly made by a sovereign state is not without legal force, as readily appears if the jurisdiction to entertain a controversy with respect to the performance of the engagement is conferred upon an international tribunal. Hall, International Law (8th Ed.) 107; Oppenheim, loc. cit.; Hyde, International Law, vol. 2, 489.

Footnote 4 In its Report of May 27, 1933, it was stated by the Senate Committee on Banking and Currency: 'By the Emergency Banking Act and the existing Executive Orders gold is not now paid, or obtainable for payment, on obligations public or private.' Sen. Rep. No. 99, 73d Cong., 1st Sess.