Legal Tender cases

Collective name for three cases of the 1870s: Hepburn v. Griswold, 75 U.S. 603 (1870), argued 10 Dec. 1869, decided 7 Feb. 1870 by vote of 4 to 3; Chase for the Court, Miller in dissent; and Knox v. Lee and Parker v. Davis, 79 U.S. 457 (1871), argued 23 Feb. and 18 Apr. 1871, decided 1 May 1871 by vote of 5 to 4; Strong for the Court, Chase, Clifford, and Field in dissent. The Legal Tender Cases stand for the proposition that the United States can compel creditors to receive its paper money in payment of debt. These cases also raised the issue of whether the Constitution is to be applied pursuant to the original understanding or judicially amended for unforeseen exigencies (see Original Intent). The cases also illustrate that whenever a Supreme Court decision is at odds with the Constitution, the result may well be irreversible and beyond judicial overruling, legislative recall, or possibly formal constitutional amendment (see Constitutional Amending Process).

The legal tender controversy resulted from the decision of Secretary of Treasury (later Chief Justice) Salmon P. Chase to help finance the Civil War by issuing paper money not redeemable in species. Such money was popularly known as greenbacks. The bulk of subsequent monetary transactions—borrowing, lending, investment came to be conducted in paper currency rather than by gold coin, which also remained lawful money. To ensure the acceptance of greenback dollars, it was proposed in Congress that they be made legal tender for debts and taxes. This meant that creditors were compelled to accept greenbacks when offered or forfeit further interest on their debt, or possibly, the debt itself. Chase reluctantly went along, and Congress enacted the Legal Tender Act of 1862. Greenback dollars, however, rapidly depreciated in value.

Historically, legal tender had been the hallmark of an irredeemable, deteriorating paper money. The framers of the Constitution clearly intended to banish it from the American scene. Reflecting this view, Chief Justice John Marshall excoriated legal tender. In 1862, the legal tender statute was seen as a temporary, if unfortunate, expedient.

The doctrine of implied powers, derived from the war and borrowing authority, was repeatedly invoked in Congress to justify the legal tender quality of greenback dollars. The validity of the Legal Tender Act was challenged in Hepburn v. Griswold. Chief Justice Chase, with the support of three colleagues, reverted to his original reluctance and overturned the statute. Speaking for the Court, Chase found that the law was unconstitutional as applied to contracts made before its passage. He concluded that the act violated the Due Process Clause of the Fifth Amendment and impaired the obligation of contract contrary to the spirit of the Constitution.

Chase's judgment was flawed in two particulars. First was the sheer subjectivity of an appeal to an amorphous “spirit” of the Constitution, particularly when a substantial part of the Court, the Congress, and the presidency found that spirit quite compatible with what was done. Second, Hepburn was decided without a full bench. In 1863, the Court had been enlarged to ten, but sectional tension and reconstruction politics resulted in a fluctuating membership between seven (1866) and nine (1869). (See Judiciary Act of 1866; Judiciary Act of 1869.) In consequence, Hepburn was decided by a narrow 4‐to‐3 margin. The one existing vacancy was enlarged to two by the resignation of the venerable Justice Robert C. Grier between the decisional conference and the formal entry of judgment.

President Ulysses S. Grant promptly appointed two Republican stalwarts to bring the Court to its reconstituted strength of nine. The new tribunal almost immediately heard reargument on the constitutionality of legal tender. Grant's action aroused controversy, but it does not appear that he consciously packed the Court. The Legal Tender Act had become a party‐line issue, and Hepburn had been foredoomed by the obvious reaction of debtors, fearful of having to repay in gold what had been borrowed in paper.

The stark fact of practical irreversibility was evident in the opening lines of Justice William Strong's opinion in Knox v. Lee. This case involved debts contracted after the passage of the Legal Tender Act. Such ex post facto obligations, noted Strong, constituted the greater part of the indebtedness of the country. He observed that the injustice of voiding retroactive application alone would be compounded by holding the act invalid across the board. Accordingly, the Court by a vote of 5 to 4 overruled Hepburn and sustained the constitutionality of the Legal Tender Act. Although the Legal Tender Cases upheld broad congressional power over the currency, they impaired the Court's reputation for political independence and consistency.

See also Contracts Clause; Judicial Review; Judicial Power and Jurisdiction.

— Gerald T. Dunne

Legal Tender Cases involved the question of the constitutionality of the measures enacted by the U.S. Congress during the Civil War for the issue of treasury notes to circulate as money without provision for redemption. The constitutional question hinged not on the power of the government to issue the notes, but on its power to make them Legal Tender for the payment of debts, particularly debts contracted before the legislation. The Supreme Court first ruled on the question on 7 February 1870 in the case of Hepburn v. Griswold (8 Wallace 603). The majority held that Congress had no power to enact the legal-tender provisions. The vote of the Court members was five to three, with the obvious senility of Justice Robert C. Grier, one of the majority, casting doubt on the weight of his opinion. He retired before the Court announced the decision, which left the alignment four to three. Chief Justice Salmon P. Chase, who, as the secretary of the Treasury had shared responsibility for the original enactments, wrote the opinion against the constitutionality of the legislation.

Nominations of two new members of the Supreme Court arrived in the Senate on the day on which the Court announced the decision. At the ensuing term, the Court heard the reargument of the constitutional question in another case. On 1 May 1871, the Court reversed the Hepburn decision in Knox v. Lee and Parker v. Davis (12 Wallace 457). The question of whether President Ulysses S. Grant deliberately packed the Court to bring about a reversal of the original decision is still a matter of debate.

The Treasury withdrew some of the notes but reissued others under a later statute enacted without reference to wartime conditions. The Supreme Court upheld this statute on 3 March 1884, in Juilliard v. Greenman.

Bibliography

Dunne, Gerald T. Monetary Decisions of the Supreme Court. New Brunswick, N.J.: Rutgers University Press, 1960.

Kutler, Stanley I. Judicial Power and Reconstruction Politics. Chicago: University of Chicago Press, 1968.

Niven, John. Salmon P. Chase: A Biography. New York: Oxford University Press, 1995.

Schwartz, Bernard. A History of the Supreme Court. New York: Oxford University Press, 1993.