In re Missouri Pac. R. Co.

• Decision Date: 20 June 1934
• Docket Number: No. 6935.,6935.
• Citation: 7 F. Supp. 1
• Parties: In re MISSOURI PAC. R. CO.
• Court: U.S. District Court — Eastern District of Missouri

7 F. Supp. 1

In re MISSOURI PAC. R. CO.

No. 6935.

District Court, E. D. Missouri, E. D.

June 20, 1934.

Alexander & Green and James H. McIntosh, all of New York City, Fordyce, White, Mayne & Williams, of St. Louis, Mo., for Bankers' Trust and W. H. Bixby, trustees of St. Louis, I. M. & S. Ry. Co.

Edward J. White, of St. Louis, Mo., for trustees.

Davis, Polk, Wardwell, Gardiner & Reed, of New York City, Allen C. Orrick, of St. Louis, Mo., and Edwin S. Sunderland and Leighton H. Coleman, both of New York City, for trustees of First & Refunding Mortgage.

Green, Henry & Remmers and Max O'Rell Truitt, all of St. Louis, Mo., Cassius M. Clay, and Stanley F. Reed, both of Washington, D. C., for Reconstruction Finance Corporation.

Orris Bennett, Sp. Atty., Bureau of Internal Revenue, and Angus D. MacLean, Asst. Sol. Gen., both of Washington, D. C., and Harry C. Blanton, U. S. Dist. Atty., of Sikeston, Mo.

FARIS, District Judge.

The sole question presented here is the validity, vel non, of what I shall call, for brevity and convenience, the gold clause of the bonds secured by the mortgage in which interveners are trustees. This clause provides that these bonds shall be payable in "gold coin of the United States of the present standard of weight and fineness." The word "present," refers to the date of issue of the bonds, which was May 1, 1903.

Interveners contend, and their numerous adversaries, including the trustees of the debtor, deny, that Public Resolution 10, now section 463, title 31, U. S. C. (31 USCA § 463) passed by the Congress on June 5, 1933, is invalid, for that it offends against the Federal Constitution.

No formal pleading points out the part or clause of the organic law, which stand, as a prohibiting monitor to oppose the validity of the above resolution. But the trend of the argument convinces that the "due process" provision of the Fifth Amendment must have been held in mind by counsel for interveners.

So far as is presently pertinent here, section 463, supra, reads thus:

"Every provision contained in or made with respect to any obligation which purports to give the obligee a right to require payment in gold or a particular kind of coin or currency, or in an amount in money of the United States measured thereby, is declared to be against public policy; and no such provision shall be contained in or made with respect to any obligation hereafter incurred. Every obligation, heretofore or hereafter incurred, whether or not any such provision is contained therein or made with respect thereto, 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."

A few words of almost ancient history may add faint light to the case. Prior to the Civil War, it was a common custom to write into obligations for the payment of money, even into promissory notes, the provision that the debt should be payable in specie. The reason for this precaution was that much of the money then in circulation consisted of paper promises to pay, issued by so-called state banks. See Bronson v. Rodes, 7 Wall. 229, 19 L. Ed. 141. These were notorious for the ease with which they failed. It is not surprising, then, that the payee in an obligation should have endeavored to guard against payment in possibly worthless paper money.

In the fifteen-year period following the Civil War, and until the so-called resumption of specie payment in 1879, provisos for the payment in specie became fewer. There were probably two reasons for this: First, the enaction by the Congress of the Legal Tender Acts, and the decision of the Supreme Court in the Legal Tender Cases, 12 Wall. 457, 20 L. Ed. 287; and, second, because few men were so simple as to contract for payment in gold or specie, which reached at one time in the fifteen-year period a premium, over the greenbacks of the era, of $2.85, or a little more. That is, it took $2.85 in the so-called legal tender money or "greenbacks" to buy a single dollar in gold.

Again, after gold and silver had become either directly or indirectly the monetary backing of well-nigh all of the paper money in circulation, and due it may be to that "prophetic discernment" mentioned by Mr. Justice Hughes (now Chief Justice) in the Schubert Case, 224 U. S. 603, 32 S. Ct. 589, 56 L. Ed. 911, it became and has continued to be the custom to write into bonds a gold clause of the sort here vexing the court. How much of this custom is due to mere conservatism of the lawyers who prepare these obligations and who are prone to walk in the tracks of those who passed that way before them, it is fruitless to inquire.

As forecast, there was, when the custom latterly began, no particular advantage derivable from the insertion of such a proviso. Ordinarily, gold bore no premium; for so-called gold notes passed and repassed on a parity with other paper money including the outstanding residue of greenbacks, although these gold notes, till recently (see Act of March 9, 1933 12 USCA § 201 et seq.; Gold Reserve Act January 30, 1934 31 USCA §§ 315b, 408a, 408b, 441-446, 821, 821a) could be redeemed on demand for coined gold, dollar for dollar. But this situation did not at all dam the ever-increasing flood of obligations, made payable on their faces in gold. This perhaps in many cases, at least, because the term "payable in gold coin of the United States of the present standard of weight and fineness" is a sonorous and mouth-filling phrase and indubitably it adds a dignity and a glamour of richness to all bonds, particularly to those which the maker had not and never had the remotest intention of ever paying in anything. There is another and political theory, but which, being political, has no place in a judicial opinion. But whether the origin of the custom was fortuitous merely, or considered and sinister, is after all immaterial.

It is of course conceded that the serious question here cannot thus be lightly dismissed, however lightly history may indicate it probably came into the case. For it involves, even though it may have arisen as a mere gesture, a most vital and serious question of constitutional law.

If the above-quoted language of the Congress be valid, then on its face it clearly relieves the debtor from compliance with the provisions of the gold clause of the bonds, and the question is solved; on the other hand, if the Congress had no power under the Constitution to pass Public Resolution 10, the debtor is not relieved from compliance, and the question is largely solved.

Every man of passing intelligence, at all in touch with business, knows that the sum total of bonds and notes in this nation alone, which are "payable in gold coin of the United States of the present standard of weight and fineness," exceeds by many billions the sum of this whole world's existing mined gold. These huge sums are variously estimated at from $90,000,000,000 to $125,000,000,000 of outstanding gold obligations, and $11,000,000,000 of available mined gold, but available only in the sense that it exists in the form of coin or bullion. These facts courts, presumably no less intelligent than mankind in common, may judicially notice. They cannot, of course, notice the exact sum of these extant gold obligations, nor is it important here. All that is relevant are the ultimate facts. When such an ultimate fact, impossible of proof, but known by all men, becomes relevant, especially arguendo as here, a court may take judicial notice of it; because in such case, every man knows it, but no man can prove it accurately, since accurate proof is humanly impossible.

It is, of course, impossible in fact, and it has now become impossible in law, to pay this huge sum of what I may call gold debts out of the world's comparatively meager supply of gold. Learned counsel for the interveners appreciate this impossibility; so they urge upon the court the alternative, not expressly stipulated in the bond, that payment must be made in current paper money, which has the present gold value of the sum agreed to be paid; in short and in effect that the debtor shall be required to pay for each dollar, about 70 cents more in paper money than it agreed to pay in gold.

While the disastrous economic effect of the enforcement of a contract standing alone rarely, if ever, affords a sufficient legal reason against enforcement, it may yet be considered an urgent reason why enforcement should not be decreed, if it is legally possible to avoid it. Germane, at least, if not analogous, is the settled rule in cases for specific performance. So, briefly, let the possible and probable economical effects of the adoption of interveners' contention be considered. It will well-nigh double the sum total of the debts outstanding and now saddled upon transportation and industry, upon states and municipal corporations, and even upon many individuals. For hardly can it be doubted that these, lately staggering toward bankruptcy, under the bare letter of their debts, cannot carry this doubled load and survive. It is scarcely possible that at any time since the so-called depression of 1929 the total fair value of all of the actual wealth in this nation has exceeded the sum of $260,000,000,000. If to the sum of all debts, in whatever medium of exchange payable, there shall be added some $80,000,000,000 more, perforce the enforcement of the alleged alternative of the gold clause, then this country may well be bankrupt, in the sense, at least, that the total sum of its debts exceeds the total fair value of all of its assets. I refer, of course, to debts, both public and private. Concededly, the picture is overdrawn, because, in practice, payment of these vast sums, agreed to be paid in gold, will not contemporaneously be demanded or exacted. But the argument yet discloses a theoretical and perhaps possible situation, which is almost appalling.

So it is obvious, I think, that the upholding of these...