Hepburn v. Griswold, (1870)

This is a summary of Hepburn v. Griswold, 75 U.S. 603 (1870)
Written by Joel A. Sumner, Esq., LL.M. 

FACTS

Hepburn v. Griswold, is a United States Supreme Court decision that has since been overruled by Knox v. Lee (and later Julliard v. Greenman), where the Court held that it would be unconstitutional for Congress to enact a law that would make United States notes legal tender in payment of pre-existing debts.

The facts are quite simple.  In June of 1860, Mrs. Hepburn executed a promissory note where she agreed to pay Mr. Griswold eleven thousand two hundred and fifty dollars.  When making the promissory note there was no lawful money in the United States, just gold and silver coin.  It was universally understood that all contracts calling for the payment of money were calling for the payment of gold and silver coin.

There was an armed rebellion of vast magnitude (civil war) and Congress wanted to put down the rebellion, so to repel this rebellion the Congress issued $150,000,000 of U.S. notes.  Legislative acts of 1862 and 1863 made United States notes legal tender in payments of debts, public and private, and applied to all debts incurred both before and after the enactment.  The U.S. notes hit their lowest value of two dollars and eighty-five cents for a dollar of gold coin in July of 1864.

In March of 1864, Mrs. Hepburn tendered to Mr. Griswold $12,720 in United States notes as the amount included principal, interest, and some costs.  The tender was refused by Mr. Griswold as he demanded coin.

ISSUE

Is a payee obligated by law to accept payment in the form of United States notes, equal in nominal amount, to the sum due according to the terms of a contract that was executed before the Congressional enactment declaring United States notes legal tender in payment of debts?

LAW AND ANALYSIS

The CHIEF JUSTICE issued the opinion of the Court.

The Court noted that coins have intrinsic value, whereas United States notes do not.  However, both derive a certain value from their circulation and from acts making them legal tender. 

There is a well-known law of currency, that notes or promises to pay, unless made conveniently and promptly convertible into coin at the will of the holder, can never, except under unusual and abnormal conditions, be at par in circulation with coin.  It is an equally well-known law, that depreciation of notes must increase with the increase of the quantity put in circulation and the diminution of confidence in the ability or disposition to redeem. Their appreciation follows the reversal of these conditions. No act making them a legal tender can change materially the operation of these laws.

The constitution is the highest law of the land and the Government is powerless to do something that was not delegated to it by the people.  The tenth amendment says "[t]he powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."  Therefore, the Congress does not have legislative power where the constitution does not grant it.

The Constitution was designed to establish a government that was competent to direct and administer the affairs of a nation.  To this end, the constitution only needs "to make express grants of general powers, coupled with a further grant of such incidental and auxiliary powers as might be required."  In other words, Congress has constitutional authority to create laws that are incidental to a power specifically granted to the national government under the constitution.

Power to Coin Money

The Constitution specifically grants Congress the power to coin money and establish the value thereof.  The Court found that having the power to coin money is distinctly different than the power to make paper legal tender, as the term coining money means to impress metallic objects with a government stamp. The Court also exclaimed that the power to make paper legal tender is not incidental to the power to coin money.

Carrying on War

The Court examined whether Congress had the power to make paper currency legal tender under the authority to carry on war. After all, the U.S. notes were issued so that the Congress could repel an armed uprising.  However, the Court rejected this argument as it stated it was “not that the issue of notes was an appropriate and plainly adapted means for carrying on the war, for that is admitted: but that the making of them a legal tender to the extent mentioned was such a means.”  Strictly speaking, the Court found that making notes legal tender was not necessary to carry on war.

Impairment of Contractual Obligations

In order to comply with fundamental justice there is a safeguard found within the constitution that says "no State shall ... [pass any] law impairing the obligation of contracts." The Court provided that compelling a creditor to accept something other than what was stipulated to in satisfaction of debt, arbitrarily alters the terms of the contract and impairs its obligation.  By compelling a creditor by law to accept paper U.S. notes instead of coin would be to impair contractual obligations as the parties expected to pay in coin.  It is true that only the States are barred from impairing contractual obligations, but the Court doubted that a law that impairs the obligation of contracts is consistent with the spirit of the Constitution.

Takings Clause

The Fifth Amendment provides, in part, that private property shall not be taken for public use without just compensation.  The Court stated that this clause is kindred in spirit to the legislation forbidding impairing contracts, but this clause is directly applicable to the U.S. Government.  Nothing in this clause prohibits the taking of private property from one class of citizens and giving it to another.  But the Court believed that if such property cannot be taken for the benefit of all, without compensation, it is difficult to understand how it could be taken for the benefit of a part without violating the spirit of the prohibition.

Due Process Clause

The Fifth Amendment also provides that ‘no person shall be deprived of life, liberty, or property, without due process of law.’  The Court pointed out that a very large portion of property of civilized men exists in the form of contracts and these contracts usually stipulate for the payment of money.   Before these enactments by Congress, money was for the payment of coin, and therefore these enactments clearly deprive citizens of property without due process of the law.

The Court added an analogy where it offered that if the holders of stock were required by law to transfer stock for half its value, it would be clear that this case falls within the due process clause.  Since paper money always trades at less than coin, the case is similar. “It is difficult to conceive what act would take private property without [due] process of law if such an act would not.”

CONCLUSION

The Court concluded “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.”

Dissent:
The constitution expressly forbids the states from emitting bills of credit or making anything other than gold or silver coin legal tender.  There is nothing in the constitution that forbids the U.S. government from such acts.  Furthermore, the U.S. government is expressly authorized to coin money and regulate the value thereof.  The U.S. treasury was stretched thin and soldiers in the field would not get paid if U.S. notes were not legal tender.  If Congress did not pass the acts of 1862 and 1863, it is doubtful that the United States would have won the war and therefore there would be no constitution for the Court to analyze.