Legal Tender Cases
The Legal Tender Cases refer to a series of significant Supreme Court decisions in the United States concerning the constitutionality of the Legal Tender Act of 1862, which mandated that paper money, known as "greenbacks," be accepted for the payment of debts during the Civil War. Initially, in the case of Hepburn v. Griswold, the Court ruled by a narrow margin that the Act violated the Fifth Amendment's due process clause and the "spirit" of the contract clause, thus rejecting the requirement to accept paper money. This decision was influenced by the political and economic context of the Civil War and was rendered by a Court that was not fully constituted. However, following changes in the Court's composition under President Ulysses S. Grant, subsequent cases, Parker v. Davis and Knox v. Lee, reversed the earlier ruling. In these later decisions, the Court upheld the constitutionality of the Legal Tender Act, affirming Congress's authority to control currency as an implied power under the Constitution. This shift illustrated the tension between economic realities and constitutional principles during a tumultuous period in American history.
Legal Tender Cases
Hepburn v. Griswold; Parker v. Davis, and Knox v. Lee
Date: February 7, 1870; May 1, 1871
Citation: 75 U.S. 603; 79 U.S. 457
Issues: Freedom of contract; fiscal and monetary powers
Significance: With its decisions in these three cases, the Supreme Court clearly established the right of the U.S. government to pay its debts in paper money.
After a long tradition of rejecting the use of paper money as legal tender, the United States including former secretary of the treasury and later chief justice Salmon P. Chase found it necessary to use paper money temporarily during the Civil War. The Legal Tender Act of 1862 meant the paper money, called “greenbacks” had to be accepted in payment of debt, or debts could be forfeited. However, the paper currency depreciated compared with gold coins. In Hepburn v. Griswold, the Supreme Court, by a 4-3 vote, overturned the 1862 statute. Chase, who wrote the opinion for the Court, attempted with his decision to return to the earlier sound money era by holding that congressional enactment of the 1862 act violated the Fifth Amendment’s due process clause as a taking and also violated the “spirit” of the contract clause. This case was heard by less than a full Court as the result of the machinations surrounding the Civil War and its aftermath.
After President Ulysses S. Grant was given an opportunity to appoint two members to the Court, the case was reheard. In Parker v. Davis and Knox v. Lee, decided a year later by a 5-4 vote, the Court reversed the Hepburn decision. Justice William Strong wrote the majority opinion with Justices Chase, Nathan Clifford, and Stephen J. Field dissenting. Important practical realities and the principle of avoiding retroactive changes in obligations led Justice Strong to write a decision that upheld congressional control of the currency as a legitimate implied power under the Constitution. Congressional power was upheld but the Court’s prestige suffered.