Gold clause
Encyclopedia
Gold clauses specified within business contract
s allow the creditor
the option to receive payment in gold or gold equivalent. A gold clause may prove valuable to the creditor in long term contracts, wherein questions may arise as to whether a currency in use at the time the contract was entered into would still have the same value when payment is due. Creditor concerns in respect to inflation
, war
, changes in government, and any other uncertainty about the future value of currency would be common reasons for adopting a gold clause within a contract.
These clauses were common at the beginning of the twentieth century. However, their use in the United States
was invalidated by the Gold Reserve Act
of 1934. Congress later reinstated their use for obligations (new contracts) issued after October 1977 in accordance with (d)(2).
On August 27, 2008, the United States Court of Appeals for the Sixth Circuit
affirmed the enforceability of such clauses in the decision Jamaica Avenue, LLC vs S&R Playhouse Realty Co..
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
s allow the creditor
Creditor
A creditor is a party that has a claim to the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property or...
the option to receive payment in gold or gold equivalent. A gold clause may prove valuable to the creditor in long term contracts, wherein questions may arise as to whether a currency in use at the time the contract was entered into would still have the same value when payment is due. Creditor concerns in respect to inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
, war
War
War is a state of organized, armed, and often prolonged conflict carried on between states, nations, or other parties typified by extreme aggression, social disruption, and usually high mortality. War should be understood as an actual, intentional and widespread armed conflict between political...
, changes in government, and any other uncertainty about the future value of currency would be common reasons for adopting a gold clause within a contract.
These clauses were common at the beginning of the twentieth century. However, their use in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
was invalidated by the Gold Reserve Act
Gold Reserve Act
The United States Gold Reserve Act of January 30, 1934 required that all gold and gold certificates held by the Federal Reserve be surrendered and vested in the sole title of the United States Department of the Treasury....
of 1934. Congress later reinstated their use for obligations (new contracts) issued after October 1977 in accordance with (d)(2).
On August 27, 2008, the United States Court of Appeals for the Sixth Circuit
United States Court of Appeals for the Sixth Circuit
The United States Court of Appeals for the Sixth Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:* Eastern District of Kentucky* Western District of Kentucky...
affirmed the enforceability of such clauses in the decision Jamaica Avenue, LLC vs S&R Playhouse Realty Co..