Guaranty Trust Co. v. Henwood

Background

Bondholders submitted claims in the bankruptcy of the St. Louis Southwestern Railway Company, a Missouri railroad. The bonds, issued in the United States in 1912 and secured by a mortgage, gave holders an option to demand payment in dollars, guilders, pounds, marks, or francs. The bondholders asked to be paid based on guilder value; the trustee and lower courts applied the Joint Resolution of June 5, 1933, and allowed claims at the dollar face amount.

Reasoning

The central question was whether these bonds were “obligations payable in money of the United States” under the 1933 Joint Resolution so that payment in current U.S. legal tender discharges them dollar for dollar. The Court majority explained that the mortgage and bonds are domestic obligations, enforceable in the United States through a New York trustee, and that the bond issued one single monetary obligation with alternative currency options, not five separate contracts. The Court held the Resolution covers such obligations and rejected the claim that applying the Resolution violated the Fifth Amendment because Congress has broad constitutional power over the currency.

Real world impact

As a practical matter, issuers of similar domestic bonds may satisfy dollar-denominated obligations by paying current U.S. legal tender, even when bond instruments offer an option for payment in specified foreign currencies. Holders cannot insist on converted foreign‑currency equivalents in these circumstances. The decision enforces the 1933 policy closing legal loopholes tied to gold- and fixed‑value clauses.

Dissents or concurrances

Justice Stone dissented, arguing the foreign‑currency option was an independent promise and that the Resolution was aimed only at gold‑value clauses, a view joined by three other Justices.