This is a summary of Knox v. Lee, 79 U.S. 457 (1871)
Written by Joel A. Sumner, Esq., LL.M.
FACTS
Knox v. Lee, and Parker v. Davis, are companion United States Supreme Court cases that overruled Hepburn v. Griswold, and held that acts of Congress declaring United States notes legal tender are constitutional when applied to contracts executed both before and after the enactment of the legal tender laws.
Knox v. Lee is a case set after the American civil war where Mrs. Lee who was a loyal citizen of the United States owned a flock of sheep in Texas. The Confederate army considered Mrs. Lee an ‘alien enemy’ so they confiscated the sheep and sold them to Mr. Knox for $10.87 ½ apiece. After the war, Mrs. Lee brought suit against Mr. Knox alleging that since the Confederate army had no right to her property, neither did Mr. Knox.
The Court agreed with Mrs. Lee and instructed the Jury that whatever amount they awarded could be paid with United States notes. Mr. Knox appealed contending that this instruction was equivalent to telling the Jury to add a premium to the actual damages in order to compensate for the discount of paper currency.
In Parker v. Davis, Davis and Parker entered into an agreement before the passage of the legal tender laws where Parker agreed to convey a lot of land to Davis in return for the payment of money. The Court ruled that Davis should pay money into the Court and that Parker should execute a deed to Davis. Pursuant to the Court order, Davis paid United States notes into the Court, however Parker refused to execute a deed based upon the grounds that he was entitled to receive coin instead of United States notes. This appeal to the Supreme Court followed.
ISSUES
(1) Is the Congressional legal tender act constitutional as applied to contracts made before its passage?
(2) Is the legal tender act applicable to transactions made since its passage?
LAW AND ANALYSIS
Mr. Justice STRONG delivered the opinion of the court.
The constitution provides that Congress may ‘make all laws which shall be necessary and proper for carrying into execution the specified powers vested in Congress.” This provision was certainly “intended to confer upon the government the power of self-preservation.” It would be a most unreasonable interpretation of the constitution if the government were denied the necessary powers to sustain itself and fulfill “its acknowledged duties.”
When the first ten amendments were added to the constitution it was expressed that ‘in order to prevent misconstruction or abuse of its powers, that further declaratory restrictive clauses should be added.’ The Court explained that this tends to plainly “show that, in the judgment of those who adopted the Constitution, there were powers created by it, neither expressly specified nor deducible from any one specified power … but which grew out of the aggregate of powers conferred upon the government.” This brought the court to inquire whether the legal tender acts were an appropriate instrument for carrying out an enumerated power.
War Powers
When the Congress enacted the legal tender laws civil war was raging and the government and constitution itself were threatened. To survive, the government needed equipment, large armies, and navies. The public treasury was nearly empty and government credit was stretched thin. Taxation was insufficient to even pay the interest on the debt as the government was spending over one million dollars per day.
The government was called upon to devise a means for maintaining the army, navy, itself and the very constitution now being used to try to deny the government this power. “It was at such a time and in such an emergency that the legal tender acts were passed.”
Nine years later the opponents to the legal tender laws urged that Congress may have been able to accomplish their goal without the legal tender acts and therefore the necessities of government may have been supplied by other means. The Courts providence is to “decide that the means selected were beyond the constitutional power of Congress,” not that other means may have been more appropriate and equally effective? For the judiciary to make such a determination would be to usurp legislative power and to disregard the rules of constitutional interpretation.
Bills of Credit
Article I section 10 the constitution forbids states from emitting bills of credit. Nowhere does the constitution bar Congress from emitting such bills. In Veazie Bank v. Fenno, the Supreme Court avowed that “it is the constitutional right of Congress to provide a currency for the whole country, that this might be done by coin, or United States notes.” This makes it clear that Congress has the power to emit bills of credit and to make them receivable in payment of debts to itself, and to make them fit for use for those who choose to use them for commercial purposes.
Power to Coin Money
Under the constitution, Congress expressly received the power to coin money and regulate the value thereof. Opponents to the legal tender act claim that by implication Congress cannot make anything legal tender but that which is subject to coinage, i.e. precious metals. However, the Supreme Court previously held that Congress may enact a law that is auxiliary to an express power. It has generally been believed that Congress had the power over currency in the same manner as every other sovereign government in civilized nations.
The power to coin money was designed to provide the same currency throughout all the states. That is why the states are expressly forbidden from coining money or emitting bills of credit, whereas Congress is not. Generally when a power was expressly denied to the states, but not denied to the Federal government, it was for the purpose of making the Federal power “more complete and exclusive.” The constitution does not provide what metals are to be coined, or that when coined, they shall correspond to their intrinsic value.
Impairment of Contractual Obligations
The constitution forbids the states from impairing contractual obligations. It is contended that compelling a creditor to accept U.S. notes in satisfaction of debt instead of coin impairs contractual obligations. However, if a contract does not call for the payment of gold or silver, but for the payment of money, then that which the law recognizes as money at the time of payment can fairly satisfy the debt.
Congress has the express power under bankruptcy to obliterate contracts and the power to impose embargoes. So, clearly Congress has the power to annul or in some cases impair the obligations of contracts. The prohibition is only directed at the states and not the federal government.
The Takings Clause
The 5th amendment expressly forbids the federal government from taking private property for public use without just compensation. However, that provision has always been understood to only refer to direct appropriation, not to consequential injuries resulting from a lawful power. Congress has previously reduced the weight of gold in coins by about 6 percent thereby subjecting all creditors to a corresponding loss. Yet, nobody claims this was a taking subject to just compensation.
CONCLUSION
This case overrules much of what was decided in Hepburn v. Griswold, as the Court held that the legal tender acts of Congress were constitutional as applied to contracts made both before and after their passage. Hepburn v. Griswold, was decided by less than a full court and by a divided court. It is not unprecedented for a court of last resort to overrule previous decisions.
Mr. Justice BRADLEY, concurring:
Nobody doubts the power of the federal government to emit bills of credit, as this power has been exercised without contention for a large part of history, and once conceded, the incidental power to make bills legal tender follows as a matter of course. The decree of paper as legal tender is not an attempt to coin money out of valueless material, it is a pledge of national credit. “No one supposes that these government certificates are never to be paid-that the day of specie payments is never to return.”
In times of war when specie disappears and business stagnates, the government must have the power to revive drooping energies of the nation and supply it with a circulating medium. Is it worse for the creditor to lose a little through depreciation than everything by the bankruptcy of his debtor? The power to make something legal tender “is nevertheless a power not to be resorted to except upon extraordinary and pressing occasions, such as war or other public exigencies of great gravity and importance; and should be no longer exerted than all the circumstances of the case demand.
The CHIEF JUSTICE, dissenting:
“Was the making of the notes a legal tender necessary to carrying on the war?” Could the national government not have simply made the notes payable for all national taxes? “When the government compels the people to receive its notes … it practically represents itself insolvent.” “The legal tender quality is only valuable for the purposes of dishonesty.”
What connection is there between the power to coin money and the government making its securities perform the same function as coined money? The power to coin money and regulate the value thereof was for the very purpose of “preserving the uniformity and purity of such a standard of value. “ How can one extend the meaning of the power to coin money to making paper legal tender “without doing violence to the very words of the constitution by imposing on them a sense they were never intended to bear.”
Mr. Madison’s account from the convention that framed the constitution plainly said “he acquiesced in the motion to strike out [the words allowing the Federal government to emit bills of credit] because the government would not be disabled thereby from the use of public notes, so far as they would be safe and proper, while it cut off the pretext for a paper currency, and particularly for making the bills a tender either for public or private debts.” Mr. Webster said ‘[m]ost unquestionably there is no legal tender and there can be no legal tender in this country, under the authority of this government or any other, but gold and silver … This is a constitutional principle perfectly plain and of the very highest importance.’
Mr. Justice CLIFFORD, dissenting:
History has taught us that making paper currency a standard of value can never be the equivalent to gold and silver, as all attempts to do so have always failed. The men who framed the constitution experienced the power of paper currency and knew from bitter experience its utter worthlessness. During the constitutional convention “it became apparent that paper money had but few, if any friends.” The reason the framers of the constitution empowered Congress to coin money and regulate the value thereof “was to provide a permanent [and uniform] standard of value which should, at all times and under all circumstances,” prevent the embarrassment of perpetually fluctuating currencies. Mr. Hamilton once commented that paper money is “so liable to abuse and even so certain of being abused that the government ought never to trust itself ‘with the use of so seducing and dangerous an element.'”
“It should never be forgotten that the government ordained and established by the Constitution is a government ‘of limited and enumerated powers,’” and the government cannot take private property without just compensation. No amount of reasoning can show that executing a promissory note and ordering it taken as payment of debts is a species of coining money. The power to make notes legal tender cannot be derived from the power to borrow money as that would nullify the power to coin money. Preparing for war, or actual war, cannot abrogate or supersede restrictions imposed upon the government by the constitution.
Mr. Justice FIELD, dissenting:
The argument that making notes legal tender is an object of borrowing goes like this: parties are more readily going to accept the notes if they can compel others to accept them, therefore the result of acquiring funds is satisfied. But this argument would justify any means of obtaining funds that touched upon the property of third parties. The constitution specifically designated the means by which Congress could raise funds, in war or peace. These are taxation, borrowing, coining, or the sale of public property. The designation of these means is a negation of all others, as otherwise these designations would be unnecessary and absurd.
The majority argue that when a contract is for money and money is paid, the contract is satisfied and the legislation did not impair the obligation of contracts. This is true so long as money represents the same thing in both cases, but it is not true when the terms have different meanings. Eagles, dollars, and cents all equate to different values and are all money, yet one could not satisfy a payment in dollars for an equal number of cents. Contracts are made for things, not names and sounds. Could Congress declare that dollars are now cents, cents are eagles, and eagles dollars? “The natural sense of right which is implanted in every mind would revolt from such supreme injustice.”
