I've gotten a flood of e-mail about legal tender. Some people pointed to a Department of the Treasury FAQ, which confirmed that a vendor who operates on a pay-first system can refuse to do business with people who offer bills that it dislikes, but wasn't completely clear whether a vendor on a pay-after system has to take any bills in discharge of a debt. Others asked what the vendor's obligation with regard to change might be; can it just refuse to give change? Can it take the large bill and promise to send the change later, when it has it? I don't know the answers to that, except I do know that I'm glad I mentioned up front that my sense was "more an educated guess than the product of real research" (especially since the item below suggests I was at least partly requested).

     However, let me close this topic with a message from someone I know who's actually a lawyer with the Federal Reserve Bank, and knows his money law very well:
You're right on the "pay up front" part of your answer. A person can always turn down a legal tender, that comes in as an offer. There's a recent case cite for this: Nemser v. New York City Transit Authority, 530 NYS 493 (Sup. Ct. 1988). Some cranky soul tried to get on a bus with a dollar, rather than a token that cost a dollar. He lost.

You're wrong on the "then pay" part of your answer. A legal tender may be rejected even after the payee has performed, and a rejected legal tender does not discharge the obligation. All that happens with a rejected legal tender is that "interest . . . ceases to accumulate . . . parties secondarily liable are discharged and securities on property
are lost." Herman Oliphant, the Theory of Money in the Law of Commercial Instruments, 29 Yale LJ 606, 609 (1920).

Corbin on Contracts has some pretty good background on all this, when he discusses discharge of contractual obligations. Hayek had a pretty good appreciation of what was going on, in his "Denationalisation of Money" book. So did J. Willard Hurst, in his book on money. The key to this all is that the US law of legal tender is private law, not public law. People are free to do what they want, as long as they face the consequences. Ultimately, an aggrieved party in only has a right to a judgment and subsequent enforcement. (This wasn't the case for Continental currency, but I digress).

There was an awful lot of serious commercial litigation on legal tender in the 19th century, when our monetary system wasn't all that well established. The Oliphant article is at the tail end of this. But then again, there were a lot of TV repair shops in the 1960's. Once the systems became sufficiently reliable, the legal tender cases dropped out of the courts, apart from the Nemsers and gold bugs of the world. And we take our TVs for granted these days.

There is one fascinating constitutional nexus here. Read UCC 4A-406(b). Try to reconcile this with Article 1, Section 10, cl. 1. Well--it's fascinating for money nerds, at least.
I haven't read 4A-406, and still have some questions: The chief, I take it, is that failure to pay in a casual retail transaction is often enforced not through threat of lawsuit, but through threat of arrest. If you don't pay for your meal at a restaurant, the owner may call the police to arrest you, or in theory may even try a citizen's arrest himself. What if you offer to pay with a $100, and then when the restaurant balks, say, "OK, if you won't take my money, I'm leaving, though here's my address in case you want to sue me for the rest"? (Or is this where the restaurant's legal right -- if it has this right -- to take the cash and promise to give me the change later kicks in?)

     In any event, I think I have to quit this topic; need to do some real work. Still, this is a reminder of how some even very simple-seeming legal concepts ("cash is legal tender") can end up being quite complicated -- sometimes because the law is needlessly complex, but sometimes because the world itself is pretty complex.

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Posted by Eugene Volokh to The Volokh Conspiracy at 8/7/2003 08:47:09 AM

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