Legal Tender Cases in United States

In American finance, the Legal Tender Cases were a series of cases before the United States Supreme Court, involving the question whether certain acts of Congress declaring United States notes a legal tender in payment of all debts, public and private, were constitutional. The cases were first argued in December 1867 and decided in November 1869, by a divided court. Five members of the court decided in the affirmative and three dissented. In 1871 after a reorganization of the Supreme Court, the cases were again brought up for argument. Again the court divided, five judges upholding the constitutionally of the act and four dissenting. All the judges agreed that Congress had full power to direct issues of paper money. In 1878 Congress decreed that legal tender notes which had been redeemed or received in the Treasury from any source should be reissued and kept in circulation. This latter act was assailed in the courts and the Supreme Court decided, with but one dissenting voice, that Congress had full power to make United States notes a legal tender in the payment of private debts in times of peace as well as in times of war. This decision closed all judicial action upon the subject.

Legal Tender Cases

United States Constitution

According to the Encyclopedia of the American Constitution, about its article titled LEGAL TENDER CASESThe Legal Tender Cases include the decisions in Hepburn v. Griswold (1870) , invalidating civil war legislation authorizing paper money, and Knox v. Lee (1871) and Parker v. Davis (1871) , sustaining postwar legal tender legislation. The various decisions reflect important
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United States Notes. Legal-Tender Cases-Decisions of the Supreme Court of the United States. in 1899 (United States)

The following information about United States Notes. Legal-Tender Cases-Decisions of the Supreme Court of the United States. is from the Cyclopaedia of Political Science, Political Economy, and the Political History of the United States by the Best American and European Writers.

UNITED STATES NOTES. Legal-Tender Cases-Decisions of the Supreme Court of the United States. On April 30, 1866, the legislature of New York provided by law for refunding to the banks and other corporations in like condition, the taxes of 1863 and 1864 collected upon that part of their capital invested in securities of the United States exempt by law from taxation. The board of supervisors of the county of New York was charged with the duty of auditing and allowing, with the approval of the mayor of the city and the corporation counsel, the amount collected from each corporation for taxes on the exempt portion of its capital, together with costs, damages and interest. This act was passed in conformity with the decision of the United States supreme court in the Bank Tax Case (reported in 2d Wallace, 200), which decided that a tax on the obligations of the United States by state authority was void. The bank of New York presented a claim to the said board of supervisors for the refunding of those taxes which the bank had paid on the United States notes, commonly called “greenbacks,” during the years aforesaid. The board refused the application on the ground that “greenbacks” were not “securities” of the United States government, but were practically and in effect “money,” taxable as cash. The court of appeals of the state of New York sustained the action of the board, but on appeal to the United States supreme court (Bank vs. The Supervisors, 7 Wallace, 26), that court, at its December term, 1868, reversed the opinion of the state court. The court said: “The act of February, 1862, declares that ‘All United States bonds and other securities of the United States held by individuals, associations or corporations within the United States, shall be exempt from taxation by or under state authority.’ We have already said that these notes are obligations. They bind the national faith. They are, therefore, strictly securities. They secure the payment stipulated to the holders by the pledge of the national faith, the only ultimate security of all national obligations, whatever form they may assume.”

-On June 20, 1860, a certain Mrs. Hepburn made a promissory [987] note, by which she promised to pay to Henry Griswold on Feb. 20, 1862, eleven thousand two hundred and fifty “dollars.” At the time when the note was made, and also at the time when it fell due, there was, confessedly, no lawful money of the United States, or money which could be lawfully tendered in payment of private debts, but gold and silver coin. Five days after the day when the note by its terms fell due, that is to say, on Feb. 25, 1862, congress passed the first legal tender act, commonly so called, by which the United States notes issued thereunder were made a legal tender for “all debts, public and private, within the United States,” except certain public debts. In March, 1864, Mrs. Hepburn tendered payment of the debt, principal and interest, in the United States notes issued under this act. The amount tendered, $11,250 in legal-tender notes, at that time was worth only about $7,000 in coin. The tender was refused. She was sued in the Louisville chancery court in the state of Kentucky. She tendered and paid the same money into court. It was declared by the chancellor to be a satisfaction of the debt. The case was appealed to the court of errors of Kentucky. That court reversed the chancellor’s decision, and ordered a contrary judgment to be entered. Whereupon Mrs. Hepburn took the case to the United States supreme court, where it was argued by very numerous and able counsel at the December term, 1868, but not decided until the December term, 1869. (Hepburn vs. Griswold, 8 Wallace, 603.) The court was comprised of Mr. Chief Justice Chase, and Associate Justices Nelson, Clifford, Field, Grier, Davis, Miller and Swayne. Mr. Justice Grier resigned before the opinion of the court was announced, but agreed with the majority in the consultation room, as was announced by the chief justice. The chief justice delivered the opinion of the court. In this opinion Justices Nelson, Clifford and Field concurred. The court held that the language of the act of Feb. 25, 1862, making the United States notes issued thereunder “a legal tender in payment of all debts, public and private, within the United States,” included pre-existing debts as well as debts which should be incurred after the passage of the act, and while it might be an exercise of rightful power in congress under those powers granted it by the constitution to declare war, suppress insurrection, raise and support armies and navies, borrow money on the credit of the United States to pay the debts of the Union, and to provide for the common defense and general welfare, to emit bills of credit or United States notes intended to circulate as money, and make the same legal tender for debts to be incurred after the passage of the act, yet inasmuch, as the act by construction declared these notes to be legal tender in payment of pre-existing debts, that the act was inconsistent with the spirit of the constitution, and was not a law “necessary and proper” for carrying into execution the powers vested by the constitution in congress or in the government of the United States. The constitution reads that congress shall have, besides certain powers granted in express terms, “power to make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this constitution in the government of the United States or in any department or offices thereof.” The court held that the legal-tender clause was unnecessary and improper. That the notes would have maintained themselves equally well without it. The chief justice quoted the fact that the three hundred million of dollars in notes issued by the national banking associations under the act of February, 1863, and the fifty millions of fractional currency issued under the act of March, 1863, were not made a legal tender, and argue
d that it was the quality of receivability for public dues, and not the quality of legal tender, which made these United States notes circulate as freely as they did. The chief justice declared that the act was obnoxious to those clauses of the constitution, also, which forbade the impairment of the obligations of contracts, the taking of private property for public use without compensation, and the deprivation of any person of his property without due process of law. And that the constitution was ordained to “establish justice,” which this act did not do, so far as regards pre-existing debts. For all of which reasons elaborately stated, the court held the act unconstitutional and therefore void. Mr. Justice Miller, with whom concurred Justices Davis and Swayne, delivered a dissenting opinion. He held that what was “necessary and proper” to carry into execution the powers vested by the constitution in the government of the United States, can not rightfully be construed to mean only such legislation as is indispensably necessary, but that congress has the choice of means, and is empowered to use any means, which are, in fact, conducive to the exercise of the power granted or calculated to produce the end desired. He fortified this position by the clear, strong decisions of the court delivered by Chief Justice Marshall, who announced this exposition of the constitution in United States vs. Fisher, 2 Cranch, 358, and in McCulloch vs. The State of Maryland, 4 Wheaton, 316. He further said, that, while the constitution forbade any state from impairing the obligation of a contract, it said nothing about the power of congress in the premises. And that the provision that private property should not be taken for public use without due compensation, nor any person be deprived of his property without due course of law, had no application to the indirect effect of great public measures whereby lands, stocks, contracts etc., might depreciate in value, because, for instance, such an effect would doubtless succeed an immediate abolition of the tariff on iron by depreciating the value of furnaces and the capital employed in its manufacture, and yet no one would claim that such a repeal was therefore unconstitutional and void. That the whole argument of the injustice of the law and of its being opposed to the spirit of the constitution, was too [988] abstract and intangible for application to courts of justice. That the act was passed to save the life of the government, to pay its soldiers and sailors and other public debts. That the legal-tender clause was considered “necessary and proper” by congress, and that the courts had no right to interfere with that discretion. “It would authorize this court to enforce theoretical views of the genius of the government, or vague notions of the spirit of the constitution and of abstract justice, by declaring void laws which did not square with those views. It substitutes our ideas of policy for judicial construction, an undefined code of ethics for the constitution, and a court of justice for the national legislature.”

-One Parker (Legal Tender Cases, 12 Wallace, 457) was under contract to convey a lot of land to one Davis, upon payment of a certain sum of money. The contract antedated, and suit was brought on the same before, the passage of any of the legal-tender acts. After the passage, to wit, in February, 1867, the supreme court of Massachusetts decreed that Davis should pay into court a certain sum of money, and that Parker should thereupon execute a deed to him for the land in question. Davis accordingly paid into court the given sum in United States notes. Parker refused to execute the deed on the ground that he was entitled to coin; whereupon the court changed the decree, and ordered that Parker should execute the deed upon payment by Davis into court of the specific sum in United States notes. From that decree the case was appealed to the United States supreme court. The case was argued at its December term, 1870, and on Jan. 15, 1872, the opinion of the court was delivered by Justice Strong, who, with Justice Bradley, had been added to the court in 1870 by President Grant, making a full bench of nine. The other justices were the same that sat in the case of Hepburn vs. Griswold. The court overruled the latter case and held the legal-tender acts to be constitutional as respects contracts made before their enactment as well as after. The court said, in reference to the case of Hepburn vs. Griswold: “That case was decided by a divided court and by a court having a less number of judges than the law then in existence provided this court shall have. These cases have been heard before a full court, and they have received our most careful consideration.” And Mr. Justice Bradley, in his separate concurring opinion said: “And in this case, with all deference and respect for the former judgment of the court, I am so fully convinced that it was erroneous and prejudicial to the rights, interest and safety of the general government, that I, for one, have no hesitation in reviewing and overruling it. It should be remembered that this court, at the very term in which, and within a few weeks after, the decision in Hepburn vs. Griswold was delivered, when the vacancies on the bench were filled, determined to hear the question reargued. This fact must necessarily have had the effect of apprising the country that the decision was not fully acquiesced in, and of obviating any injurious consequences to the business of the country by its reversal.” Justice Strong, in delivering the opinion of the court, reiterated and enforced the arguments made by the minority in Hepburn vs. Griswold. He held that the distinction made by the chief justice in regard to the constitutional validity of the act as to debts contracted after its passage and debts contracted before, was not well founded, and that the fundamental question was, Can congress constitutionally give to United States notes the character and quality of money? If they can, then such notes can be made legally available to fulfill all contracts solvable in money, without reference to the time when such contracts were made, unless expressly otherwise provided. “What we do assert is, that congress has power to enact that the government’s promises to pay money shall be, for the time being, equivalent in value to the representative of value determined by the coinage acts, or to multiples thereof.” And that, therefore, all contracts calling for “dollars” simply can be legally fulfilled by a tender of the government’s promises to pay dollars, by force of the legal-tender acts, without regard to date. And on this point Mr. Justice Bradley, in his concurring opinion, says: “So with the power of the government to borrow money, a power to be exercised by the consent of the lender, if possible, but to be exercised without his consent if necessary. And when exercised in the form of legal tender notes or bills of credit, it may operate for the time being to compel the creditor to receive the credit of the government in place of the gold which he expected to receive from his debtor. All these are fundamental political conditions on which life, property and money are respectively held and enjoyed under our system of government, nay, under any system of government. There are times when the exigencies of the state rightly absorb all subordinate considerations of private interest, convenience or feeling; and at such times the temporary, though compulsory, acceptance by a private creditor, of the government credit, in lieu of his debtor’s obligation to pay, is one of the slightest forms in which the necessary burdens of society can be sustained. Instead of being a violation of such obligation, it merely subjects it to one of those conditions under which it is held and enjoyed.” The chief justice, with whom concurred Justices Nelson, Field and Clifford, delivered a dissenting opinion. He strenuously maintained his former views, as did also Justices Field and Clifford, in separate opinions. The burden of their argument was, that the constitution forbade any state to make anyt
hing but gold and silver a legal tender, and granted to the government only the right to coin this gold and silver, and regulate the value thereof and of foreign coin. And while the power to emit treasury notes was conceded as one means of borrowing money, yet that congress had no right to make such notes money, or legal tender as money. Mr. Justice Clifford showed that the [989] words “and emit bills on the credit of the United States” were originally reported in article seven, in the draft of the constitution as submitted to the convention. Mr. Morris moved to strike the clause out on the ground that it was unnecessary, and a vicious suggestion of a power which would be unquestionably used anyhow without it. Mr. Madison thought it would be sufficient to let the clause remain, as it did not contain the hurtful power to make such bills legal tender, but finally voted in favor of striking out the clause entirely, as was done, as eliminating even a “pretext for a paper currency, and particularly for making the bills a tender either for public or private debts,” without disabling the government from the use of treasury notes.

Author of this text: John Jay Knox.

Legal Tender Cases

Legal Tender Cases in United States

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