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. 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.
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 insure 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 green-backs 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). 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.