You recently posted a "legal tender" story about Canadian coins hard on the heels of a story of a man who paid his last mortgage installment in "pennies" or one cent coins. The bank could have refused to accept the cent (which has been legal tender to the nominal value of 25 cents since passage of the Coinage Act of 1873 - the 1982 amendment left it out but claimed to be making no substantive difference), but chose not to.

What this really asks is, "what is a legal tender coin or piece of paper money, and what does the term really mean?"

Two recent events bring this to the forefront.

Back in 2006, a letter to the editor in the Huntsville (Alabama) Times recited how a person "was recently purchasing gas at Kroger on Hughes Road in Madison when I noticed a sign on the pump notifying customers that "rolled coins" and "loose change" could not be accepted as payment. Isn't a business required to accept any form of legal U.S. currency as payment, or can it set its own guidelines for what can be used for payment?"

The answer provided by the newspaper said "No, there is no law that says a merchant must take any particular kind of currency, said Michael White, spokesman for the U.S. Mint. Businesses are free to set their own guidelines as to what they accept as payment, he said." There's an amplification on the Treasury Department's web site. They as the question a different way, but point to the same answers.

On the web site, the party says "I thought that United States currency was legal tender for all debts. Some businesses or governmental agencies say that they will only accept checks, money orders or credit cards as payment, and others will only accept currency notes in denominations of $20 or smaller. Isn't this illegal?"

Responding, Treasury says "The pertinent portion of law that applies to your question is the Coinage Act of 1965, specifically Section 31 U.S.C. 5103, entitled "Legal tender," which states: "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.""

They go on to explain that "This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services."

Summarizing its position. Treasury goes on to say that "Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise. For example, a bus line may prohibit payment of fares in pennies or dollar bills. In addition, movie theaters, convenience stores and gas stations may refuse to accept large denomination currency (usually notes above $20) as a matter of policy."

Actually, the citations to federal statutory sources are correct, and so are the examples cited - because they are examples of real-life cases that have been decided for the propositions stated. But they ignore the history of what legal tender mans, what in fact "legal tender" really means, and why laws about them were created in the first place.

There are two constitutional issues that are useful to discuss what the words mean. First, is Article I, Section 8 of the Constitution, which provides "The Congress shall have Power ... To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures...."

Next is from Article I, section 10, which reads, "No state shall ... coin Money' emit bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts...." Courts have consistently held that neither of these provisions of the Constitution renders the country's current money system unconstitutional, staring with the Legal Tender Cases in 1884.

Those cases involved the ultimate political gamble: creation of paper currency at the height of the Civil War, designed to fund the effort. Its inventor: Salmon P. Chase, Secretary of the Treasury. When accomplished, the federal government reportedly had three days in funding in its vaults; thereafter, it printed what it needed.

Not without critics in its time, Lincoln knew that there was an ultimate Supreme Court battle shaping up; so, too, was there a battle over his Emancipation Proclamation. The legacy of his presidency depended on both being sustained, and when Chief Justice Roger Taney died, Lincoln nominated a known abolitionist, Chase, to both sustain the Emancipation and the greenbacks.

In its original appearance before the Court, Chase prevailed in his view; the surprise is that he found his own actions unconstitutional and in a close 5-4 vote, the Court agreed. By now it was the Grant administration; two justices retired; their replacements switched votes on the reargued case, and the power to declare paper money a legal tender was sustained. Legal tender ultimately is the power of compulsion. It means that the government can require you, willingly or not, to accept a type of money that is tendered. That's why state-authorized private banknotes were an ultimate failure and sold at discounted prices that were disparate.

Over the years, there have been many challenges to what legal tender means; few recall that prior to 1857, foreign coins circulated freely in the United States. The act of Feb. 21, 1857, (ch. 56, 11 Stat. 163 ) determined that the legal tender of the Spanish pillar dollar continued but for other foreign coins, legal tender status was denied.

Over the years, even recently, there have continued to be legal challenges to what constitutes a legal tender. In Foret v. Wilson, 725 F.2d 254 (5th Cir.1984), the Court dismissed the plaintiff's argument that only gold and silver coin may be constituted legal tender by the United States.

In another case, Edgar v. Inland Steel Co., 744 F.2d 1276, 1277 (7th Cir.1984) the Court rejected as untenable plaintiff's argument that federal reserve notes were not "money" because they are not backed by gold and silver specie.

The L.R. Nixon v. Phillipoff case (615 F.Supp. 890 (N.D.Ind.1985)) found that plaintiff's misinterpreted the Constitution, and held that the organic document acts only to "remove from the states the inherent sovereign power to declare currency, thus leaving Congress the sole declarant of what constitutes legal tender").

In another case, Baird v. Cty. Assessors of Salt Lake & Utah Ctys., 779 P.2d 676 (Utah 1989) the Court found that the Constitution is not a directive to states to use only gold or silver coins, but is "merely a restriction preventing states from establishing their own legal tender other than gold or silver coins".

A more current and definitive case is Nemser v N.Y Transit Authority (530 NYS2d 493)(NY Co. 1988), where two public spirited bus riders in New York City brought a proceeding seeking a declaratory judgment that the policy of the Transit authority in refusing to accept dollar bills as bus fare violates federal and state law. (They lost that argument, too). The Judge, a respected jurist, did some research and found a 1911 Rhode Island case involving a street car conductor who refused to accept a $5 bill for a five cent fare. "That Court cited the "incidental power of a common carrier to establish reasonable rules regulating the time, place, and mode for payment of its reasonable charges"," Judge David B. Saxe wrote in his 1989 opinion.

That misses the real point, though.

The compulsion of legal tender is not that you get change - just that you have to accept what is tendered, and for a Court to hold to the contrary, I submit, is simply erroneous and ignores both the history of legal tender and its purpose.

I made those arguments when the Nemser case hit the appellate courts (it didn't do any good, two other courts affirmed the decision) in a friend of the Court brief that two large non-profit organizations filed.

When the Coinage Act of 1965 was passed, it had an important clause that ratified the legal tender status of all American coins and currency previously produced (thus finally legalizing the trade dollar).

In the hearing held June 4, 1965, Rep. Wright Patman, chair of the House Banking & Currency Committee, asked Treasury secretary Henry Fowler whether the coins being authorized "will have the stamp of the United States recognizing that each coin is legal tender for all debts, public and private" to which Fowler replied in the affirmative.

On page 20-21 of the hearing, Fowler was asked "if they have something owing to them, they are compelled by law to accept these coins" to which Fowler answered "Correct". Money becomes a commodity; paper currency a medium of exchange.

Chairman Patman clarifies "two points on the record" on page 32 of the same hearing. "all coins, all paper money are all of equal value as legal tender. You can pay a million dollar debt with copper cents if you want to. That has not always been true. You can pay any debt with 5-cent pieces or 25 cent pieces, and it makes no difference. It is all acceptable legal tender". Secretary Fowler than acknowledges that some vending machines don't accept half dollars and that some coin-operated vending machines are limited.

On the floor debates, it is further clarified that this is nothing "more than a restatement of existing law."

Congress and the drafters of the Coinage act of 1965 knew the history- Wright Patman, that old populist, certainly did - of how there were different rate and value for different coins - how prices were quoting gold coin, silver coin, federal currency, and local paper money. That's what they wanted to avoid.

Just by way of simple example, the New York Commercial advertiser of July 10, 1863 reported that gold coin was at a 17 percent premium in paper, silver at 10 percent, and nickel at four percent. In "History of the Greenbacks" (1903)100 one cent coins (Copper) had a value of 55 cents in gold; in July, 1862, the paper value of dollars was 86.6 cents in gold, and the metal in 100 nickel cents was quoted at 63.5 cents in paper.

Well, we can flash forward to the almost-present.

On February 15, 2007, Susan B. Anthony's 187th birthday, the U.S. Mint supplemented the Anthony and Sacagawea small sized dollars in circulation by issuing a golden presidential dollar with the portrait of George Washington, the first of a series of at least 39 coins that will be struck over the next 10 years.

I attended the ceremony at New York's Grand Central Terminal --" once owned by Commodore Vanderbilt --" to watch mint director Edmund Moy introduce the new coin and invite members of the public to step forward and buy them by the roll (limit $250 worth) from six mint employees or per diems at a table-side counter.

Citizens were directed to queue up, advance on line, and then directed to a station numbered 1 through 6 to make the exchange: dollar for dollar. No credit cards or checks accepted, only legal tender money.

I decided two days earlier when learning of the event to have a little fun and experiment with legal tender money. My choice to complete payment: a U.S. trade dollar, made from 1873 to 1885 under authority of the Coinage Act of 1873, the only coin ever struck by the U.S. Mint bearing the stamp "United States of America--" that was a denomination, but not a legal tender.

With the help of Scott Travers, a New York City dealer and author, Sal Germano, a Hawthorne, N.J. dealer, and p.r. guru Donn Pearlman, I came up with a plan: to offer to pay for the exchange with currency plus a rare American silver dollar made by the U.S. Mint at San Francisco 130 years ago --" an 1877-S trade dollar in very fine condition.

The trade dollar was authorized by Congress as part of the Coinage Act of 1873. It contains 420 grains of silver weighing 27.22 grams (and containing .7874 troy ounces of silver) compared to the more familiar traditional silver dollar which weighs in at 26.73 grams of silver (.7734 troy ounces).

Trade dollars were used principally for export and were not originally a legal tender. In the mid-1870s, as the price of silver declined, they were worth less than their face value. They had metal value but were not a legal tender.

That all changed with the passage of the Coinage Act of 1965 when Congress decided that "all coins... regardless of when coined or issued--" are legal tender for all debts, public and private. That included the trade dollar, long thought of as America's stepchild coin because of its lack of legal tender status.

The Mint's new presidential coin program is an outstanding one, and the ceremonial exchange of new golden presidential dollars for U.S. coins offers the possibility of redeeming a rare coin's history by exchanging it one-for-one at its stated face value. . The 1877-S trade dollar coin then retailed for about $150 in very fine condition. The presidential golden dollar sold for $1, its face value, and is also legal tender for all debts, public and private.

The components of what constitutes "currency", the beginning point in legal tender definition, is found in Black's Law Dictionary (4th ed) as an item which does "in fact circulate from hand-to-hand as the medium of exchange."

It may include elements such as legal tender status as common usage. The first key factor relates to the legal tender status is that which connotes that a coin (or currency) may be used for all debts, public and private, public charges, duties, taxes and dues.

Congress took this precise position in 1982 when it revised the U.S. Code to make title 31 (coin and currency) positive law. H. Rep. No. 97-651, 97th Cong., 2nd sess. 148 (1982) (31 USCÂ §5103) makes this clear.

It is true for foreign coinage as well. Even Krugerrands --" owned primarily for bullion --" are a legal tender. But this is by virtue of legislative action --" the South African Mint & Coinage Act No. 78 of 1964, as amended by the South African Mint & Coinage Act of 1966, and the South African Mint & Coinage Further Amendment Act. No. 40 of 1966, §§11 through 12. For the same reason, the Canadian Maple Leaf is a legal tender by virtue of the Currency Exchange Act, Canadian revised Chapter C-39 §4, Schedule 1 (1970) (Amended by Order of the Privy Council No. 3048 (1979)).

The "power to 'coin money'... is a prerogative of sovereignty", something that the U.S. Supreme Court enunciated more than 80 years ago in the case of Ling Su Fan v. US, 218 U.S. 302, 310 (1920) .

Thus, Congress could deny the trade dollar legal tender status (1873) and grant it again (1965). The key was whether or not the mint employee would take the tender. There lay the dilemma - but also the story. Pass on the coin and the Mint declines to accept the trade dollar as legal tender. Accept the coin and the Mint has effectively declared the trade dollar a legal tender

As I moved to the front of the line, my heartbeat quickened. I'm a lawyer, and I have all the legal arguments at my command, but I am nervous anyway. I get to the front, remove my wallet rom my pocket, dole out a $20 bill and four singles and then reached into my jacket pocket and take out a circulated trade dollar and pass it along the table, pushing it to the sales agent..

The Mint employee pulls the coin close, appreciating the beauty of its design, picks it up, puts it down, and pushes it back, saying "very nice--", but adding "what's this?--"

I tell him it's an old silver dollar. He tells me it's too valuable to push across the table. I tell him I am giving it for the 25th dollar to exchange for a $25 roll of coins. I add, "it's worth $120--". He looks at the trade dollar again, and accepts it, handing over a roll of uncirculated 2007-P Washington presidential dollars.

Game, set, but not quite match.

"You sure?--" the Mint employee says? "Yup,--": I respond, $119 lighter for the exchange, but confident that the first trade dollar to be exchanged, as legal tender, possibly ever has just taken place --" with the U.S. Mint, to boot!

To read the earlier E-Sylum articles, see:THE DIFFERENCE BETWEEN LEGAL TENDER AND SPENDING MONEY(www.coinbooks.org/esylum_v15n29a22.html)
MAN PAYS OFF MORTGAGE IN CENTS(www.coinbooks.org/esylum_v15n29a23.html)