Legal Tender

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LEGAL TENDER is anything that, by law, a debtor may require his creditor to receive in payment of a debt in the absence of the appearance in the contract itself of an agreement for payment in some other manner. The tender is an admission of the debt and, in some jurisdictions, if refused, discharges the debt.

There were two periods of American history when the question of legal tender was an important political issue. Between 1776 and 1789, during and after the turmoil of the Revolution, the question was whether the states should be permitted to print Currency and require its acceptance by creditors regardless of its severe depreciation in value. Later, in the years following the Civil War, the question was whether Congress had power, under the Constitution, to cause the issuance of paper Money (greenbacks) that would be legal tender in payment of private debts.

The amount of circulating financial medium in the newborn states was insufficient to finance a costly war. Early on, nearly every state had recourse to printing presses to meet its own expenses and the quota levies made by the Continental Congress. At first, these monetary issues were small, and notes passed at their face value. Soon, however, they began to depreciate, and the state legislatures resorted to creating laws requiring acceptance of state bank notes at par. In Connecticut, for example, in 1776 the legislature made both Continental and state notes legal tender and ordered that anyone who tried to depreciate them should forfeit not only the full value of the money they received but also the property they offered for sale. Attempts were made also at price regulation. The South, in particular, went to excess in the abuse of public credit. Virginia, for example, practically repudiated its paper issues at the close of the Revolution.

Leaders in business and finance in the states hoped to avoid a repetition of this financial chaos. Therefore, when the Constitutional Convention met in 1787, there was general agreement on the need for a single national system of currency and for laws prohibiting note issues by the states. Accordingly, Article I, Section 10, of the Constitution contains the following prohibitions: "No state shall … coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any … ex post facto Law or Law impairing the obligation of Contracts."

The question raised after the Civil War related to the constitutionality of the Legal Tender Act passed by Congress in 1862. It was alleged that Congress, in requiring the acceptance of greenbacks at face value, was violating the Fifth Amendment, which forbade the deprivation of property without due process of law. However, the Supreme Court had the power to make paper money legal tender, since the Constitution clearly denied such powers to the states.


Ferguson, E. James. The Power of the Purse: A History of American Public Finance, 1776–1790. Chapel Hill: University of North Carolina Press, 1961.

HarveyWalker/a. r.

See alsoGreenbacks ; Legal Tender Act ; Revolution, American: Financial Aspects .

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All U.S. coins and currencies—regardless of when coined or issued—including (in terms of thefederal reserveSystem) Federal Reserve notes and circulating notes of Federal Reserve banks and national banking associations that are used for all debts, public and private, public charges, taxes, duties, and dues.

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le·gal ten·der • n. coins or banknotes that must be accepted if offered in payment of a debt.