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Section 31 U.S.C. 5103

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.

I find countless examples of people talking about making payments in pennies, only to have it refused. All of the articles I find state that these coins are "legal tender" but no company or individual is actually obliged to accept them. In fact, I have trouble telling whether pennies can be used for taxes or not. Questions like this abound.

What does "legal tender" entail? By that I mean, what is a transaction which either (a) would have failed normally but succeeded because the coin/currency was "legal tender" or (b) would have normally succeeded but failed because the coin/currency was "legal tender." or (c) court proceedings that would have gone one way, but went another because the coin/currency was "legal tender."

In other words, are there actually any circumstances where these magic words actually do anything to affect a transaction, or are they just words we put on our currency? I can find countless references explaining that parties do not have to accept some coins, but nothing offering a case where someone is actually obliged by this law.

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    Wikipedia's definition of "anything which when offered in payment of a debt extinguishes the debt" seems pretty clear to me. Commented Mar 18, 2021 at 5:41
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    In other words, suppose A owes a debt to B, and A offers B the amount owed in currency that is legal tender. If B accepts it, the debt is paid and B may not sue A for non-payment. If B refuses it, then B still may not sue A for non-payment; the idea is that A has done what she should and now B is just being unreasonable. Commented Mar 18, 2021 at 5:45

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Legal tender means that if someone wins a judgment against you in court that they have to accept it as satisfaction of the debt, which they don't for other kinds of property like land and chickens and cows and steaks.

Likewise, the government has to accept it as payment of taxes, while they don't have to accept other kinds of property.

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The details vary between jurisdictions, but in essence "legal tender" is a set of rules to stop people playing silly buggers over debts.

You mention one variety of silly buggers: paying a large debt in small coins, thereby forcing the creditor to waste time sorting and counting, and also setting up for arguments later over how much was actually paid. Other varieties precluded by legal tender rules include:

  1. Payment in kind, including things like cheques and credit cards. The creditor can accept these if they want, but they don't have to.

  2. The creditor refusing to accept payment, and then either taking the debtor to court for non-payment as a form of harassment, or enforcing other penalties such as repossession of property. To prevent this the debtor can pay the money in to a court and then refer to that payment as a defence against any action to recover the debt.

  3. Paying off a small debt with a large banknote, thereby forcing the creditor to keep lots of change on hand against the day someone walks in with a £50 note to pay off £3.52. Most legal tender rules require payment of the exact amount to prevent this. Again, the creditor is free to accept the payment and make change, but they don't have to.

The phrase "legal tender for all debts" means that handing over Federal notes and coins counts as payment whether the recipient wants it to or not. Handing over a cheque or other instrument doesn't count unless the recipient agrees to accept it.

Edit One other wrinkle is that (at least in the UK and US, and probably lots of other places) businesses are not obliged to accept legal tender when doing business. If a business decides that it would rather take credit cards instead of keeping cash on the premises, that is fine, they can simply decline the business of anyone proffering cash.

Edit 2: Here is a real-life example of the kind of silly buggers that legal tender laws are supposed to prevent.

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  • 2 makes sense with interest/penalties. I loan you money with your house as collateral, you don’t pay, I get your house. Or in the days of debtor prisons, I don’t like you and off to jail you go for non-payment.
    – jmoreno
    Commented Mar 18, 2021 at 12:01
  • Do the rules require payment of the exact amount, or do they just say that if the debtor chooses to pay with a larger amount they can't demand that the creditor gives them change after accepting it?
    – bdsl
    Commented Mar 18, 2021 at 13:53
  • @jmoreno Good point. Answer updated. Commented Mar 18, 2021 at 14:01
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    @bdsl I can't find an actual regulation, but for the UK this page royalmint.com/aboutus/policies-and-guidelines/… says "it is necessary [...] to offer the exact amount due because no change can be demanded". Also refusing a £10 note for a debt of £9.99 definitely counts as playing silly buggers. So I guess you are correct. Commented Mar 18, 2021 at 14:17
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    "If a business decides that it would rather take credit cards instead of keeping cash on the premises" only before a transaction occurs, e.g. no debt to be paid.
    – paulj
    Commented Mar 18, 2021 at 21:19
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Canada has very explicit rules for what is or is not legal tender:

Legal Tender

Legal tender

8 (1) Subject to this section, a tender of payment of money is a legal tender if it is made
(a) in coins that are current under section 7; and
(b) in notes that are current under section 7.1.

Limitation

(2) A tender of payment in coins referred to in subsection (1) is a legal tender for no more than the following amounts for the following denominations of coins:
(a) forty dollars if the denomination is two dollars or greater but does not exceed ten dollars;
(b) twenty-five dollars if the denomination is one dollar;
(c) ten dollars if the denomination is ten cents or greater but less than one dollar;
(d) five dollars if the denomination is five cents; and
(e) twenty-five cents if the denomination is one cent.

Coins of denominations greater than ten dollars

(2.1) In the case of coins of a denomination greater than ten dollars, a tender of payment referred to in subsection (1) may consist of not more than one coin, and the tender of payment is a legal tender for no more than the value of a single coin of that denomination.

Currency Act

So for instance, no one has to accept more than 25 once cent coins (not that they have circulated here for years), or a total amount of more than $10 (unless using a single gold coin, which is now worth more than face value to collectors, so no one would).


Some paper money was recently declared to be no longer legal tender:

Parliament announced in 2018 that Canadian $1, $2, $25, $500, and $1000 banknotes would be no longer accepted in commercial transactions, i.e. as legal tender, as of January 1, this year.

Old Canadian banknotes lose legal tender status – RCI | English

The only paper (actually plastic) banknotes that are still legal tender are the $5, $10, $20, $50, and $100 denominations.

And even they are being used less and less frequently. I personally haven't spent any coins for several years, and no paper money for more than a year. (One good thing about COVID-19 is that American chain stores in Canada (e.g. Walmart, The Home Depot) have finally started accepting RFID credit and debit cards.)

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