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I hear this claim every now and then. That US currency is legal tender and that it is illegal to not accept it.

The most recent example of this was on an old episode of 30 Rock: The head and the hair.

I was not able to find a clip online, however I did find this transcript.

Cashier: No $100s, Small bills.

Liz: Oh, I knew this was gonna happen.

Cashier: Store policy.

Liz: Yeah, Well, That's an illegal policy. You have to take this.

Cashier: No, I don't

Gray: Yeah sir you do, it says "legal tender for all debts, public and private."

Cashier: Does it say anything about $100 for a bottle of water?

Gray: You can't decide what money you'll accept. That's illegal.

Is this claim accurate?

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@PeterK. Very interesting! It's a great way to prevent wheelbarrows of pocket change being given as payment out of spite. –  Sonny Ordell Jan 27 '12 at 16:04
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Also see this question: money.stackexchange.com/questions/482/… –  Ian Clelland Jan 27 '12 at 17:43
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@PeterK: the legal tender laws in the UK are also weird - Bank of England notes are only legal tender in England and Wales, while Scottish and Northern Irish notes aren't legal tender anywhere (see here). –  James Jan 27 '12 at 18:49
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No. It's worth looking up what 'legal tender' actually means. It's a technical term relating to debt. Unless that transaction involving water also involved a debt then the term is simply irrelevant in that context. –  Poldie Jan 27 '12 at 23:57

3 Answers 3

up vote 95 down vote accepted

This is one of the more irritating claims I hear repeated. It's not specific to the US either.

The answer is no, merchants have no obligation to accept money for a purchase.

The simple reason is that US currency is only legal tender for debts. It is illegal to refuse legal tender for a debt. When you make a purchase at a store, there is no debt.

Rather, you and the merchant are agreeing to enter into a (very brief) contract. If the merchant doesn't agree to the terms of that contract, i.e. the currency denominations someone wants to pay with, he has no obligation to enter into that contract.

This is based on Federal law which states that legal tender must be accepted for all debts. There is no law stating that legal tender must be accepted for other purposes.

The U.S. Treasury states quite clearly:

There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services. Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise. For example, a bus line may prohibit payment of fares in pennies or dollar bills. In addition, movie theaters, convenience stores and gas stations may refuse to accept large denomination currency (usually notes above $20) as a matter of policy.

Coinage Act of 1965, 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. Foreign gold or silver coins are not legal tender for debts.

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How does it work when you pay afterward, like at a restaurant (as you have already eaten the food so there is no possibility to cancel the sale)? –  Random832 Jan 27 '12 at 15:08
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@Random832 It's my understanding that in that case, they would have to specify their payment policies before hand. In practice I don't think too many people go to restaurants and try to pay with small change. Accepting larger denominations is not as much of an issue. –  Sonny Ordell Jan 27 '12 at 15:13
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It's also worth noting that in those cases where "legal tender" has real meaning (payment of a debt in court), not all denominations will be considered legal tender for all amounts in some jurisdictions (no paying them a truckload of pennies out of spite) and also, you cannot demand change and must give exact payment (so in the 30 Rock episode, if they insisted the shop-keep could have taken then whole $100 for the bottle). –  Jon Hanna Jan 27 '12 at 15:59
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@DanNeely - Many convenience stores in the US banned them after a rash of counterfeit 50 and 100's were accepted. You could go in buy a 50 cent candy bar leave with 99.50 in real money and leave the fake bill. That is much less of an issue today with new anti counterfeit and detection techniques. –  Chad Jan 27 '12 at 17:31
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It is illegal to refuse legal tender for a debt. >> I think it is important to call out that refusing currency for a debt is not illegal in the sense that you will be fined or imprisoned. If legal currency was refused, a judge can (and most likely will) wipe the dept clean. –  Joe Jul 11 '12 at 15:39

Just want to point out that while Sonny Ordell said that it is not specific to the U.S... here in Canada, we have a law regarding what has legal tender or not and in what context.

Under the Canadian Currency Act (R.S.C., 1985, c. C-52), there is a limit to the value of a transaction for which one can use only coins to pay for a product or service: A 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:

  1. forty dollars if the denomination is two dollars or greater but does not exceed ten dollars; (20 two dollar coins (toonies))
  2. twenty-five dollars if the denomination is one dollar; (25 one dollar coins (loonies))
  3. ten dollars if the denomination is ten cents or greater but less than one dollar; (100 dimes)
  4. five dollars if the denomination is five cents; and (100 nickels)
  5. twenty-five cents if the denomination is one cent. (25 pennies)

source: http://laws-lois.justice.gc.ca/eng/acts/C-52/page-1.html

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While the accepted answer is accurate for US currency, different laws exist in different countries. In Norway, cash is considered legal tender and a merchant is therefore required to always accept it. The only limitations are that the merchant can deny more than 25 coins of a single unit, and can deny damaged or torn money. This is regulated by the §14 of the central banking law and §38 of the financial agreement law.

§ 14 states that the coins and bills of the Norwegian Bank are legal tender in Norway.

§ 38 states that a consumer always has the right to perform a payment using legal tender with the payment receiver.

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I would reckon that in Norway there is no legal obligation to accept US currency, which the question is about. :) –  Kit Sunde Jul 9 '12 at 3:12
    
I don't read Norwegian, but it seems very clear from § 1 that this law applies to financial contracts, ie debts, not to merchants. –  Evan Harper Aug 21 '12 at 18:34
    
It is correct that the financial agreement law mostly applies to financial institutions, with some exceptions regulated by the law itself, e.g. § 9. I am not a lawyer, but the way I understand it, § 14 of the central banking law in itself is sufficient to force a merchant to accept cash. For an informal discussion, again in Norwegian, see desk.no/b/150/…. (@jcelden, John Christian Elden, is one of Norway's best lawyers.) –  Lstor Aug 22 '12 at 12:33
    
You are not a lawyer, and the question is whether (1) the merchant has to accept you as a customer, and what was only mentioned in passing, whether (2) the merchant has to give you large amounts of change for a small purchase. Fear of being handed fake money, and the inconvenience of their till emptied of cash. –  gnasher729 Sep 29 at 7:09
    
@gnasher729 What an amazingly unconstructive comment. My occupation does not affect the correctness of my answer. The answer highlights that countries other than the US might have different legislation, since Sonny Ordell states that his answer is "not specific to the US". "Legal tender" means, at least here in Norway, that the merchant can't deny you as a customer based on how you want to pay. In other words, my answer answers the original question (but for a different country). Please try to understand before making unconstructive, ad-hominem and simply wrong comments in the future. –  Lstor Sep 29 at 10:32

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