Legal Tender Cases
The U.S. federal government had issued paper money known as United States Notes during the American Civil War, pursuant to the terms of the Legal Tender Act of 1862.
In the 1869 case of Hepburn v. Griswold, the Court had held that parts of the Legal Tender Act violated the Due Process Clause of the Fifth Amendment to the United States Constitution.
In his majority opinion, Chief Justice Salmon P. Chase did not hold that Congress lacked the power to issue paper money, but rather ruled that the notes could not be used as legal tender for pre-existing debts.
The Supreme Court overruled Hepburn v. Griswold in the Legal Tender Cases, holding that United States Notes could be used to repay preexisting debts.
[1] The paper money depreciated in terms of gold and became the subject of controversy, particularly because debts contracted earlier could be paid in this cheaper currency.
In July and August, 1861, and February, 1862, the issue of sixty millions of dollars in United States notes, payable on demand, was authorized.
They were made receivable in payments, but were not declared a legal tender until March, 1862, when the amount in circulation had been greatly reduced by receipt and cancellation.
[5]We are obliged to conclude that an act making mere promises to pay dollars a legal tender in payment of debts previously contracted, is not a means appropriate, plainly adapted, really calculated to carry into effect any express power vested in Congress; that such an act is inconsistent with the spirit of the Constitution; and that it is prohibited by the Constitution.
[6]Ironically, Chief Justice Chase had played a role in formulating the Legal Tender Act of 1862, in his previous position as Secretary of the Treasury.
[9] Article I, Section 10 of the Constitution explicitly forbids the states from issuing "bills of credit" (promissory notes) or making anything but gold and silver coin legal "tender".
44 (assumed to be authored by Madison) said that prohibiting states from emitting "bills of credit must give pleasure to every citizen, in proportion to his love of justice and his knowledge of the true springs of public prosperity."
