A DISCUSSION OF LAW AND JOURNALISM

America Runs on Legal Tender

Pile of money

By José I. Ortiz

You know how it goes. You wake up earlier in the morning than you ever had to in undergrad, with barely enough time to hit your local Dunkin Donuts before catching the very last train that will get you to class on time. OK, maybe this is just my morning routine, but many of you might have similar ones and, if you do, you know that any unplanned event can mess up your day.

This time it wasn’t the fact that the trains hardly ever run on schedule or that my Blackberry freezes up so much it throws off the alarm I set the night before. No, this time it was something with legal implications. As I walked into the establishment where I procure what I consider my life’s Number One Essential (caffeine), I noticed that the line wasn’t moving, and that at the front, a man was arguing with the cashier trying to hand him his bagel. “You know it’s illegal, right?”, I heard the man yell. “You can’t do that!” The cashier calmly pointed to the sign below the menu that said “We Cannot Accept Bills Larger Than $20”. Angrily, the customer walked off in a huff, muttering to himself that it was against the law not to take his money.

This made me think of all the times I walked into a fast food restaurant (particularly in shady neighborhoods) with similar policies. The customer had been impolite and needlessly loud. But was he right?

The U.S. Department of the Treasury has an online Resource Center (basically a fancy “FAQ”) and the very first question on the page is the one I just asked.

We’ll answer, with a bit more detail than the U.S. Treasury Department’s Resource Center.

This is the deal: Article I, Section 8 of the U.S. Constitution gives Congress the power to coin money and set its value. In 1965, the Coinage Act was passed, which regulates the creation and use of the U.S. Dollar within the United States. Why the specification? The U.S. Dollar is also the official currency of Panama, El Salvador and Ecuador.

A provision of the Coinage Act (31 U.S.C. § 5103) establishes that the dollar is “legal tender for all debts, public charges, taxes, and dues.” You’ll notice similar language on every bill. The terms “public charges, taxes and dues” refers to payments we, as ordinary citizens, might have to pay the government.

According to the Treasury website’s explanation, the term “debt” refers specifically to money owed to creditors, like your mortgage or car note. Private businesses are free to accept or limit payments made for their goods and services to bills, checks, credit cards, bushels of wheat, or your firstborn. OK, that last one is illegal for other reasons, but I’ve made my point.

While the issue of private parties accepting bills as payment has not been litigated, courts have heard similar issues relating to legal tender as far back as the 19th Century.  Railroad Company v. Johnson is an 1872 U.S. Supreme Court case that upheld the use of legal tender to pay debts. Mr. Johnson wanted to be paid his bond interest in gold and silver coins (probably due to his distrust of the fluctuating value of the U.S. Dollar). The Court held that legal tender is a “good and valid” payment, basing its decision on even older cases. Though the issue has not been litigated much since, lower courts continued to uphold the validity of American currency.

But that’s not to say that a procurer of goods or services can’t refuse some forms of legal tender. In fact, one 2008 U.S. District Court case in New York affirmed a municipal ordinance in the city of Rochester that limited any payments made by junkyard businesses to clients to checks only. A local junkyard sued the city arguing that prohibiting cash payments violated the Coinage Act. The court sided with the city of Rochester, reasoning that checks are considered legal tender, and that therefore, the ordinance was in harmony with federal law.

So, it seems that Dunkin Donuts can proudly reject big bills no matter how much you protest. When making student loan payments after passing the bar and getting that fabulous job with a top firm, though, you can pay in Benjamins if your heart so desires.

Now that you’ve read this article, feel free to step in anytime you hear someone about to lose her cool over not being able to use a $50 bill for two items on a dollar menu. Just find solace in the fact that we’re not the only ones with legal tender issues. From the Eurozone crisis to English cashiers throwing a fit over payments with Scottish pounds – it could be worse than just having to break out your credit card for a whopper with cheese.

Comments

No Comments »

Leave a Reply


× 8 = seventy two