Perry v. United States

Supreme Court of United States
294 U.S. 330 (1935)

ELI5:

Rule of Law:

While Congress acts unconstitutionally by invalidating a 'gold clause' in the government's own debt obligations, a bondholder may not recover damages for the breach without proving an actual loss in purchasing power, which is impossible when gold has been withdrawn from circulation and its private possession is prohibited.

Facts:

Perry was the owner of a $10,000 Fourth Liberty Loan bond issued by the United States government.
The bond contractually stipulated that the principal was 'payable in United States gold coin of the present standard of value.'
At the time the bond was issued, the 'present standard of value' for a U.S. gold dollar was statutorily defined as 25.8 grains of gold, .9 fine.
In 1933, Congress passed a Joint Resolution declaring all gold clauses to be against public policy and unenforceable.
Subsequently, the U.S. government devalued the dollar by reducing its gold content to 15 5/21 grains and withdrew gold coins from circulation, prohibiting their private ownership.
When his bond was called for redemption in 1934, Perry demanded payment equivalent to the original gold standard, which amounted to $16,931.25 in the new, devalued currency.
The United States refused this demand, offering only to pay the bond's face value of $10,000 in legal tender currency.

Procedural Posture:

Perry filed a lawsuit against the United States in the U.S. Court of Claims, seeking damages for breach of contract.
The United States filed a demurrer, arguing that Perry's petition failed to state a valid cause of action.
The Court of Claims, finding the legal questions difficult, certified two questions to the Supreme Court of the United States for a binding decision.

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Issue:

Does the holder of a United States government bond, which contains a clause promising payment in gold coin of a specific standard, have a right to recover damages from the United States for an amount in currency exceeding the bond's face value after Congress has invalidated such clauses and devalued the dollar?

Opinions:

Majority - Mr. Chief Justice Hughes

No. The holder of a U.S. government bond with a gold clause is not entitled to recover damages in currency exceeding the bond's face value. Although Congress exceeded its constitutional authority by attempting to repudiate its own contractual obligations, the bondholder cannot demonstrate any actual damages to warrant a recovery. The power to borrow money on the credit of the United States implies the power to create binding obligations, and the Fourteenth Amendment confirms that the 'validity of the public debt... shall not be questioned.' Therefore, the Joint Resolution of 1933 was unconstitutional as applied to the government's own bonds. However, the plaintiff's lawsuit is for breach of contract, which requires proof of actual loss. Since Congress, acting within its monetary powers, had lawfully withdrawn gold coin from circulation and prohibited its private ownership, the plaintiff could not have legally used the gold even if he had received it. His damages must be measured by his loss of purchasing power in the domestic economy, and he failed to show that $10,000 in legal tender currency could purchase less than $10,000 in gold coin would have at the time of the contract. Awarding the plaintiff the amount he demands would constitute an 'unjustified enrichment,' not a recoupment of loss.

Dissenting - Mr. Justice McReynolds

Yes. The bondholder is entitled to recover the full value of the gold promised in the contract. The majority's holding allows the government to repudiate its national obligations, which just men regard with abhorrence. The majority's reasoning—that there are no damages because the government made it impossible for the bondholder to legally possess the gold—is circular and self-serving. This amounts to a declaration that the government may give with one hand and take away with the other, making default both easy and safe. The contract was clear: to pay in gold of a certain standard or to discharge the debt by paying the value of the thing promised in currency. The government's actions prevented the former, but not the latter. The loss of reputation for honorable dealing will bring unending humiliation.

Concurring - Mr. Justice Stone

No. The plaintiff is not entitled to recover damages, but the Court should not have declared the government's action unconstitutional. The opinion should be confined to answering the certified question about damages. The government, through its sovereign power to regulate money, has rendered itself immune from liability for its action, just as it did for private obligors. It is unnecessary and undesirable for the Court to declare that the government acted unconstitutionally, as this creates a principle of an 'inviolable right' for which there is no remedy. It will not benefit this plaintiff, to whom we deny any remedy, to be assured that he has a right that he cannot enforce. The holding that there is no damage is sufficient to dispose of the case.

Analysis:

This decision established the paradoxical legal principle of a 'right without a remedy.' The Court morally condemned the government's action as an unconstitutional repudiation of its own debt but provided no relief to the creditor, effectively validating the government's default. The ruling demonstrates the immense scope of Congress's monetary powers, showing that even a direct, contractual obligation of the United States can be functionally nullified by subsequent monetary legislation. By shifting the focus from the government's breach of contract to the plaintiff's inability to prove concrete damages in a government-controlled market, the Court set a precedent that makes it nearly impossible to hold the government financially liable for changes in monetary policy that alter its debt obligations.

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