Multiple Currency and Index Clauses

March, r936 University of Pennsylvania Law Review And American Law Register FOUNDED 1852 Copyright 1936, by the University of Pennsylvania VOLUME 84 MARCH, 1936 No. 5 MULTIPLE CURRENCY AND INDEX CLAUSES ARTUR NUSSBAUMf THE PROBLEM After the Joint Resolution of June 5, 1933, abrogating the gold clause,' had definitely been held constitutional, 2 questions concerned with its con- struction came into the foreground. Among them the problem of the so- called multiple currency clauses is of particular importance. Such provisions, which are to be found in many American bonds and coupons, give the creditor an option to receive payment at a fixed ratio, in one of several currencies. The following coupon, detached from a 1912 bond, may be quoted as an example: "Bethlehem Steel Company will pay to bearer at its office or agency in the City of New York, U. S. A., Twenty-five Dollars United States Gold Coin, or in London, England, Five Pounds, Two Shillings, Ten Pence, or in Amsterdam, Holland, Sixty-two Guilders, Twenty- five Cents, being six months' interest then due on its First Lien and Refunding Mortgage Five Per Cent. Thirty-Year Gold Bonds, Series A, No.-." The question has arisen whether under the Joint Resolution an Ameri- can holder of such a coupon, upon tendering it in Amsterdam, is entitled to the guilder amount specified therein. A claim for the dollar equivalent of the guilder amount was dismissed in City Bank Farmers Trust Co. v. Bethlehem Steel Co., Justice Merrell dissenting.3 No appeal was taken. The contrary has been held, in a declaratory judgment, by a California t Visiting Professor of Law, Columbia Law School; formerly Professor of Law, Uni- versity of Berlin; lecturer at the Academie du Droit International de la Hague, i933; author of numerous treatises, monographs, and articles in legal periodicals. I. 48 STAT. 113 (1933), 31 U. S. C. A. §463 (1935). 2. Norman v. Baltimore & Ohio R. R., 294 U. S. 24o (935). 3. 244 App. Div. 634, 28o N. Y. Supp. 494 (ist Dep't 1935). (569) UNIVERSITY OF PENNSYLVANIA LAW REVIEW district court in McAdoo v. Southern Pac. Co.,4 and, with regard to the rights of a foreign holder of such coupons, quite recently by the Circuit Court of Appeals for the Second Circuit in Anglo-Continental Treu- hand A. G. v. St. Louis S. W. Ry., in an opinion by judge Learned Hand.5 Further litigation centered on the question is pending.6 Since for all practical purposes application of American law seems to be certain, 7 the discussion of the legal situation has to be based primarily on the text of the Joint Resolution, the preamble of which enunciates: "Whereas the existing emergency has disclosed that provisions of obligations which purport to give the obligee a right to require payment in gold or a particular kind of coin or currency of the United States, or in an amount of money of the United States measured thereby, obstruct the power of the Congress to regulate the value of the money of the United States, and are inconsistent with the declared policy of the Congress to maintain at all times the equal power of every dollar, coined or issued by the United States, in the markets and in the payment of debts." 8 And on this ground the Resolution does away with "obligations purporting 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. As used in this resolution, the term 'obligation' means an obligation payable in money of the United States; and the term 'coin or currency' means coin or currency 4. IO F. Supp. 953 (N. D. Cal. 1935). 5. N. Y. L. J., Jan. 20, 1936, at 339, (1936) 84 U. OF PA. L. REV. 661. This decision was handed down while this article was on the way to the printer and therefore it could not be discussed fully. The writer is satisfied to find his views, as to important points, supported by the authority of Judge Hand's opinion. 6. According to the N. Y. Times, Nov. 1,1935, at 33, two European banks, the N. V. Anglo-Continentale Trust Maatschapij of Rotterdam and the Mondiale Handels- und Ver- waltunga A. G. in Lichtenstein brought suit, in the Philadelphia federal district court, against the Bethlehem Steel Co. for payment of the guilder value. 7. In comments on the New York decision, doubts have been raised as to whether Dutch law should control the situation, Amsterdam being the place of the exercise of the bond (or coupon) holder's option. See (1935) 35 CoL. L. REv. 1132; (1935)' 49 Hv. L. Ray. 152. There is indeed some foreign authority for this view: 126 Entscheidungen des Reichsgerichts in Zivilsachen 196 (1929), analyzed in Nussbaum, Comparative and International Aspects of American Gold Clause Abrogation (1934) 44 YALE L. J.53, 70, and possibly the opinion of Lord Warrington of Clyffe, concurring, in Adelaide Electric Supply Co. v. Prudential As- surance Co. [1934] A. C. 122, 136. The theory of the Permanent Court of International Justice in the cases of Serbian and Brazilian Loans, P. C. I. J.Series A, Nos. 20-21 (1929) seems dubious. See Nussbaum, supra, at 67, 69. RESTATEMENT, CoNFicr OF LAWS (1934) § 356, referred to in the comments, holds the law of the place where the option is exercised governing as to the "manner of performance" and some other matters likewise connected with the performance. However, the validity of the contract or of a part thereof, presup- posing the exercise of the option, is not within the scope of this rule; it depends rather on the law of the country with which the contract has its most contacts; see Nussbaum, Mpra at 72. This would be in the United States inasmuch as the bonds and coupons are issued in America by an American corporation in the customary form of such bonds and coupons. Under the Restatement's "place of contracting" doctrine (§§ 314, 332) probably the same result would be reached. As to Compania de Inversiones Internacionales v. Industrial Mort- gage Bank of Finland, 269 N. Y. 22 (1935), see infra note 28. 8. 48 STAT. 112 (1933). Italics added. MULTIPLE CURRENCY AND INDEX CLAUSES of the United States, including Federal Reserve notes and circulating notes of Federal Reserve banks and national banking associations." 9 The Bethlehem Steel coupon, referred to above, gives the holder an alternative right to a specified amount of "dollars United States gold coin", and the same is true for practically all multiple currency bonds and coupons floated in this country. In a certain sense, therefore, those bonds and coupons doubtless are reached by the Joint Resolution. They probably were included in the "seventy-five billion dollars or more of gold obligations" contemplated by Congress as the subject of the legislative action. 10 In the Bethlehem Steel case the defendant corporation seems to have inferred there- from that the multiple currency bonds, being at the same time gold obligations, have to be debased to the face dollar amount like all other gold obligations. But this argument obviously is fallacious. The Joint Resolution struck the words "gold coin", attached to the dollar amount, from the bond, the reference to foreign currency remaining intact. It is unthinkable that the New York court should have overlooked this simple counter-argument. Nevertheless, the court referred to the fact that the coupons sued upon were "obligations payable in the money of the Urfited States." "While they pro- vide for payment in sterling or guilders, they are, hevertheless, within the spirit and intent of the Joint Resolution." 11 The court is not explicit as to this line of reasoning. A possible theory would be to the effect that we are faced with a dollar debt fortified by the guilder option in the same manner as by a gold clause. Such an assumption, likewise, would be erroneous. As soon as the guilder option is exercised, no dollar claim is left.12 The debtor then has to pay Dutch currency in Amsterdam, and conversion into dollars can result only from the well-known Anglo-American rule according to which money judgments are to be decreed only in the currency of the forum.13 The right to a definite amount of dollars as existing prior to the exercise of the choice is irrelevant in this situation. The adjudication can not be different if exclusively foreign currencies are put at the holder's option. The fact that the American holder, in addition to his right to take guilders or pounds, is entitled to dollars cannot be detrimental to him. Moreover "guilder" is not the same as "gold",14 nor is guilder 9. 48 STAT. 113 (1933), 31 U. S. C. A. §463 (1935). Italics added. io. Norman v. Baltimore & Ohio R. R., 294 U. S. 240, 313 (935). 1I. 244 App. Div. at 636, 28o N. Y. Supp. at 496. 12. On the effect of the exercise of an option, see Layton v. Pearce, i Doug. I5 (K. B. 1778), cited in Dinsmore v. Duncan, 57 N. Y. 573, 58o (1874). 13. The cases are collected in Fraenkel, Foreign Moneys in Domestic Courts (1935) 35 Cor. L. REv. 36o. By virtue of this rule, every debt stipulated to be paid in foreign money "may possibly be paid in dollars!' 1(1935) 49 HARv. L. REv. 152, '531, but this, of course, is not intended by the Joint Resolution when it refers to "obligations payable in money of the United States." 14.

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