Thursday, March 21, 2013

Upholding monetary obligations through the times of change - from 1796 to 2001

I had an assignment to find citations to the cases, which deal with the problem of conflicting loan papers: if there is a conflict between a note and a deed of trust, whose terms prevail.

As it usually goes, I went too far with it too soon, quickly finding myself in the 19th century territory. There, I came across a case, Gavinzel v. Crump, 89 U.S. 308 (U.S. 1875). While the case had little to do with my research subject, it caught my eye for its rich story, a real-life adventure (even within the original meaning of the word), where the backdrop was the Civil War, and where two residents of a rebellion state (Virginia) made a deal, one borrowing from another a certain sum in Confederacy notes. The lender then "got out of Richmond and went to Europe; his escape through the rebel lines having been, according to his own account, almost impossible; attended with greater difficulties than anything which he had ever in his life done." (Id. at 5)

The issue before the court was of an ordinary kindto determine the validity of the contract. However, the circumstances were extraordinary, and that reflected on the found different "states of mind" of the parties:

The lender thought that the Confederacy will fail, and that he will be able to escape the war and sit it out in Europe, and then return safely back. (Id. at 13);

The borrower was less certain about the war's outcome, but he "rather thought ... [t]hat Gavinzel would not be able to get through the rebel lines out of Richmond before that time."(Id. at 13-14) What a sneaky thought.

The court did not hide the smile: "[t]he only difficulty with the case of Crump is, that like many other people in the Southern Confederacy, he did not judge the signs of the times, and the state of things around him, aright; while his opponent, Gavinzel, a cool, observing, and sagacious Swiss, who saw things as a looker on, and without prepossessions or political aspirations, did."

Nonetheless, the court did uphold the contract in Confederacy currency. It appears to be a common issue at the time, as the court has cited its holding as a matter of an established rule: "The transaction is not void because based on Confederate money. Such transactions have been sustained in this court in more cases than one, their purposes not having in any way been to promote the rebellion." (Id. at 12).

The court found for the lender and with that remanded the case to the trial court. Compare this case with a seemingly opposite result in Austin v. United States, 155 U.S. 417 (U.S. 1894), where the court declined a claim for recovery from US Government for cotton, provided to US during the war. The provider had first to prove his loyalty during the war, and this particular one failed the test.

A similar problem was before the same Court 79 years earlier: in Ware v. Hylton, 3 U.S. 199 (U.S. 1796), there was an obligation of American citizen to pay debt back to an Englishman, and, during the Revolutionary War, American paid the debt to the State's treasury. While the Court in Ware upheld this method of payment based on the finding that the State was at war, and the paid money was a proper, de facto, confiscation of UK property as an enemy, the Court also held that now, during the piece time after the treaty is made with England, all debts shall be enforced, citing the Treaty in support: "The 4th article of the treaty of 1783 is in these words: It is agreed that creditors, on either side, shall meet with no lawful impediment to the recovery of the full value, in sterling money, of all bona fide debts, heretofore contracted."

A discussion about proper currency was continued into the 20th century, when in 1916 Oregon court ruled that the term "dollar" has to be interpreted as U.S. dollar by default:"The laws of this country at one time recognized the Mexican dollar and made it current, but that law is now repealed and we recognize but one kind of dollar, the American dollar, which, considered either as a single coin or as a unit of value, is current for 100 cents and represents 100 cents of the currency of the United States." State v. Mishler, 81 Ore. 548, 551, 160 P. 382 (Or. 1916).

21st century brought a new horizon in considering what money isvirtual currencies used in computer games and online "worlds." One of such games was offering its players to invest in a virtual corporation's stock, promising (also virtual) returns. Not everyone saw it as a joke, SEC didn't, and sued, alleging violation of securities laws. In order to get to the finding of such violations, the court first had to find if the subject contract is an "investment contract," where is the first element, under the "Howey test," was to find, if there was "the investment of money." The court held that it was. SeeSEC v. Sg Ltd., 265 F.3d 42, 49 (1st Cir. Mass. 2001).

So the money was, once more, found and upheld in yet another form. The principles of Ware and Gavinzel remained enforced.

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1 comment:

  1. Very interesting. I never though about the history aspect of the precedent cases. Looking forward to your posts. Thanks!

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