MORE ON THE LEGAL TENDER STATUS OF U.S. COINS

What is a legal tender coin or piece of paper money, and what does it mean? Essentially that it must be accepted by the population for a debt (i.e., a coin or paper money or similar that is a substitute for evidence of debt, public and private;

Two recent events bring this to the forefront.

First is a letter to the Huntsville (Alabama) Times on March 8, 2006 which recites how a person “was recently purchasing gas at Kroger on Hughes Road in Madison when I noticed a sign on the pump notifying customers that "rolled coins" and "loose change" could not be accepted as payment. Isn't a business required to accept any form of legal U.S. currency as payment, or can it set its own guidelines for what can be used for payment?”

The answer provided by the newspaper said “No, there is no law that says a merchant must take any particular kind of currency, said Michael White, spokesman for the U.S. Mint. Businesses are free to set their own guidelines as to what they accept as payment, he said.”

There’s an amplification on the Treasury Department’s web site. They as the question a different way, but point to the same answers. ON the web site, the parry says “I thought that United States currency was legal tender for all debts. Some businesses or governmental agencies say that they will only accept checks, money orders or credit cards as payment, and others will only accept currency notes in denominations of $20 or smaller. Isn't this illegal?”

Responding, Treasury says “The pertinent portion of law that applies to your question is the Coinage Act of 1965, specifically Section 31 U.S.C. 5103, entitled "Legal tender," which states: "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues."”

They go on to explain that “This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services.”

Summarizing its position. Treasury goes on to say that “Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise. For example, a bus line may prohibit payment of fares in pennies or dollar bills. In addition, movie theaters, convenience stores and gas stations may refuse to accept large denomination currency (usually notes above $20) as a matter of policy.”

Actually, the citations to federal statutory sources are correct, and so are the examples cited – because they are examples of real-life cases that have been decided for the propositions stated. But they ignore the history of what legal tender mans, what in fact “legal tender” really means, and why laws about them were created in the first place.

There are two constitutional issues that are useful to discuss what the words mean. First, is Article I, Section 8 of the Constitution, which provides "The Congress shall have Power ... To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures...."

Next is from Article I, section 10, which reads, "No state shall ... coin Money' emit bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts...."

Courts have consistently held that neither of these provisions of the Constitution renders the country's current money system unconstitutional, staring with the Legal Tender Cases in 1884.

Those cases involved the ultimate political gamble: creation of paper currency at the height of the Civil War, designed to fund the effort. Its inventor: Salmon P. Chase, Secretary of the Treasury. When accomplished, the federal government reportedly had three days in funding in its vaults; thereafter, it printed what it needed.

Not without critics in its time, Lincoln knew that there was an ultimate Supreme Court battle shaping up; so, too, was there a battle over his Emancipation Proclamation. The legacy of his presidency depended on both being sustained, and when Chief Justice Roger Taney died, Lincoln nominated a known abolitionist, Chase, to both sustain the Emancipation and the greenbacks.

In its original appearance before the Court, Chase prevailed in his view; the surprise is that he found his actions unconstitutional and in a close 5-4 vote, the Court agreed. By now it was the Grant administration, and he persuaded two justices to retire; their replacements switched votes on the reargued case, and the power to declare paper money a legal tender was sustained.

Legal tender ultimately is the power of compulsion. It means that the government can require you, willingly or not, to accept a type of money that is tendered. That’s why state-authorized private banknotes were an ultimate failure and sold at discounted prices that were disparate.

Over the years, there have been many challenges to what legal tender means; few recall that prior to 1857, foreign coins circulated freely in the United States. The act of Feb. 21, 1857, (ch. 56, 11 Stat. 163 ) determined that the legal tender of the Spanish pillar dollar continued but for other foreign coins, legal tender status was denied.

Over the years, even recently, there have continued to be legal challenges to what constitutes a legal tender. In Foret v. Wilson, 725 F.2d 254 (5th Cir.1984), the Court dismissed the plaintiff's argument that only gold and silver coin may be constituted legal tender by the United States.

In another case, Edgar v. Inland Steel Co., 744 F.2d 1276, 1277 (7th Cir.1984) the Court rejected as untenable plaintiff's argument that federal reserve notes were not "money" because they are not backed by gold and silver specie.

The L.R. Nixon v. Phillipoff case (615 F.Supp. 890 (N.D.Ind.1985)) found that plaintiff's misinterpreted the Constitution, and held that the organic document acts only to "remove from the states the inherent sovereign power to declare currency, thus leaving Congress the sole declarant of what constitutes legal tender").

In another case, Baird v. Cty. Assessors of Salt Lake & Utah Ctys., 779 P.2d 676 (Utah 1989) the Court found that the Constitution is not a directive to states to use only gold or silver coins, but is "merely a restriction preventing states from establishing their own legal tender other than gold or silver coins".

A more current and definitive case is Nemser v N.Y Transit Authority (530 NYS2d 493)(NY Co. 1988), where two public spirited bus riders in NEW York City brought a proceeding seeking a declaratory judgment that the policy of the Transit authority in refusing to accept dollar bills as bus fare violates federal and state law. (They lost that argument, too).

The Judge, a respected jurist, did some research and found a 1911 Rhode Island case involving a street car conductor who refused to accept a $5 bill for a five cent fare. “That Court cited the "incidental power of a common carrier to establish reasonable rules regulating the time, place, and mode for payment of its reasonable charges",” Judge David B. Saxe wrote in his 1989 opinion.

That misses the real point, though.

The compulsion of legal tender is not that you get change – just that you have to accept what is tendered, and for a Court to hold to the contrary, I submit, is simply erroneous and ignores both the history of legal tender and its purpose. I made those arguments when the Nemser case hit the appellate courts (it didn’t do any good, two other courts affirmed the decision) in a friend of the Court brief that two large non-profit organizations filed.

When the Coinage Act of 1965 was passed, it had an important clause that ratified the legal tender status of all American coins and currency previously produced (thus finally legalizing the trade dollar).

In the hearing held June 4, 1965, Rep. Wright Patman, chair of the House Banking & Currency Committee, asked Treasury secretary Henry Fowler whether the coins being authorized “will have the stamp of the United States recognizing that ea coin is legal tender for all debts, public and private” to which Fowler replied in the affirmative.

On page 20-21 of the hearing, Fowler was asked “if they have something owing to them, they are compelled by law to accept these coins” to which Fowler answered “Correct”. Money becomes a commodity; paper currency a medium of exchange. Chairman Patman clarifies “two points on the record” on page 32 of the same hearing. “all coins, all paper money are all of equal value as legal tender. You can pay a million dollar debt with copper cents if you want to. That has not always been true. You can pay any debt with 5-cent pieces or 25 cent pieces, and it makes no difference. It is all acceptable legal tender”.

Secretary Fowler than acknowledges that some vending machines don’t accept half dollars ands that some coin-operated vending machines are limited. On the floor debates, it is further clarified that this is nothing “more than a restatement of existing law.”

Congress and the drafters of the Coinage act of 1965 knew the history– Wright Patman, that old populist, certainly did – of how there were different rate and value for different coins – how prices were quoting gold coin, silver coin, federal currency, and local paper money. That’s what they wanted to avoid.

Just by way of simple example, the New York Commercial Advertiser of July 10, 1863 reported that gold coin was at a 17 percent premium in paper, silver at 10 percent, and nickel at four percent. In “History of the Greenbacks” (1903)100 one cent coins (Copper) had a value of 55 cents in gold; in July, 1862, the paper value of dollars was 86.6 cents in gold, and the metal in 100 nickel cents was quoted at 63.5 cents in paper.

To read the earlier E-Sylum article, see: NOTES FROM E-SYLUM READERS: SEPTEMBER 1, 2013 : The Legal Tender Status of U.S. Coins (www.coinbooks.org/esylum_v16n36a16.html)

Wayne Homren, Editor

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