legal splash

legal splash

Home - Uncategorized - Legal Tender Cases

Legal Tender Cases

Posted on January 1, 2019 in Uncategorized

The Formation of the Legal Tender Acts
In 1862 the American civil war was raging and war time expenditures had depleted the treasury of all its gold and silver. A fight for survival caused a Congressman to deal with the dilemma by suggesting the government print U.S. notes and decree them legal tender, for all debts public and private.

The federal government passed legal tender laws and circulated U.S. notes (greenbacks) to sustain itself during a time of crisis and need. Under the authority of law, these notes were as good as gold and the government became an alchemist.

The Early Effect
As the government used these notes to pay its debts the supply of currency started flooding the market and the notes began to lose their value. In July of 1864, the notes hit a low of $2.85 for one dollar in gold coin, questioning the legitimacy of the legal tender laws.

The First Legal Tender Case
Along came Mrs. Hepburn, who borrowed a whopping $11,250 in gold and silver coin from Mr. Griswold. When it came time to pay up, Mrs. Hepburn offered Mr. Griswold greenbacks. Not being a fool, Mr. Griswold rejected Mrs. Hepburn’s tender and demanded gold and silver coin.

A lawsuit was filed and the two started battling it out in courts, where Mr. Griswold claimed the government had no constitutional authority to decree paper money legal tender and Mrs. Hepburn the opposite. The case went all the way up to the Supreme Court where a decision had to be made; did Congress have the power to decree paper money payment for all debts public and private?

The Court hemmed and hawed, analyzed it this way, and analyzed it that way, but eventually Chief Justice Chase held with the majority of the Court and decided the answer was NO, Congress did not have the constitutional authority for such a law. Mr. Griswold won, and Mrs. Hepburn had to pay in gold and silver coin. Was justice done?

Revisiting Legal Tender Laws
A year later, another Supreme Court case was heard where Mrs. Lee wanted to be paid back for a wrong committed against her by Mr. Knox, who unlawfully took her sheep. The composition of the Court had changed as President Ulysses Grant had appointed two new justices on the day that Hepburn v. Griswold was decided. This time, the answer was different. The Court ruled that Mr. Knox was entitled to pay Mrs. Lee in greenbacks, as surely the government had the power to decree paper money payment for all debts public and private under the authority to carry on war.

Legal Tender during Peace Time
For quite some time there was peace, and the government had no war it needed to fight. So a question arose; could Congress continue to compel creditors to accept paper money under the authority to carry on war when none existed?

Julliard sold bales of cotton to Greenman and wanted to paid in gold and silver coin. No said Greenman, I will pay you in U.S. notes. Back to the Supreme Court went the legal tender laws, but this time the question was did the government have the authority to decree paper money legal tender in times of peace?

On this occasion, the case barely made a splash, and the Court ruled 8 to 1 that during war, or peace, the federal government had the authority to decree paper money legal tender. Why? Well surely the authority to borrow coupled with the authority to coin money provided the government with such a right.

So Now we Have Paper Currency
From 1884 when Julliard v. Greenman was decided until today the courts have ruled that the national government has the authority to decree paper payment for all debts public and private. The fact that today’s paper money is issued by the Federal Reserve and not Congress, is cause for a different discussion.