What is Legal Tender?

September 21, 2010 at 5:49 pm • Posted in ALL POSTS, Business, Economy, Federal Reserve141 Comments

Can businesses refuse to accept cash for payment?

Under 31 US Code, Section 5103, all coins and currency of the United States, including Federal Reserve notes, are legal tender “for all debts, public charges, taxes and dues.”

If a debtor makes an attempt to pay his debt by offering to his creditor legal-tender currency or coin in the amount of the debt (such an attempt to pay is termed a “tender of payment”), then the creditor cannot afterward complain that the debtor was unwilling to pay, unless the contract between them provided for some other means of payment.  That is what “legal tender” means.  The debtor has made a valid and legal offer of payment.  If the creditor were to sue the debtor for non-payment of the debt, the debtor would have a complete defense.

At the present time, Federal law does not make it illegal for the seller of goods or services to prescribe another form of payment before there has been a final contractual agreement.   Nothing in the Federal law prohibits a conract for the sale of property to specify that payment is to be made by certified check or money order.  Similarly, Federal law does not prohibit bus lines from refusing to accept payment in pennies or dollar bills, and movie theaters and gas stations from declining to accept Federal Reserve notes in large denominations as a matter of policy.  However, state law may restrict the right of a service provider to specify the form of payment which it will accept.   In Pennsylvania, the Cash Consumer Protection Act makes it illegal for service providers to refuse to rent or sell property or services to individuals who do not possess or utilize credit cards.  73 PS Section 204-3.  Other states may have similar statutes on their books.