Gold Clause: A Comprehensive Guide to Its Legal Implications
Definition & Meaning
A gold clause is a provision in a financial obligation that grants the creditor the right to demand payment in gold, a specific U.S. coin, or currency equivalent to gold. This type of clause is designed to protect creditors against potential declines in the value of currency due to inflation, war, or political instability. Although these clauses were common in the early twentieth century, their use was largely invalidated by the Gold Reserve Act of 1934. However, they were reinstated for obligations issued after 1977 under 31 U.S.C. § 5118.
Legal Use & context
Gold clauses are primarily used in contracts involving long-term financial obligations, such as loans or leases. They serve to protect creditors' interests in the face of economic uncertainties. Legal professionals may encounter gold clauses in various areas, including finance and contract law. Users can manage these agreements themselves with the right tools, such as templates provided by US Legal Forms, which are drafted by qualified attorneys.
Real-world examples
Here are a couple of examples of abatement:
- Example 1: A business enters into a ten-year loan agreement that includes a gold clause, allowing the lender to demand repayment in gold if the value of the dollar decreases significantly.
- Example 2: An investor includes a gold clause in a lease agreement for a commercial property, ensuring that rent payments can be made in gold if inflation rises sharply. (hypothetical example)
Relevant laws & statutes
Key legislation related to gold clauses includes:
- Gold Reserve Act of 1934: This act invalidated existing gold clauses in contracts.
- 31 U.S.C. § 5118: This statute reinstated the use of gold clauses for obligations issued after 1977.