In 1860, Susan P. Hepburn executed a promissory note in which she expressly promised to repay a loan of one thousand dollars. When the note came due in 1862, Hepburn tendered to Henry A. Griswold, the owner of the note, United States governmental notes totaling the amount of the debt. Griswold refused the tender and sued Hepburn for his money.
Why in the world would a creditor refuse payment of a debt and then turn around and sue for his money?
Unlike present-day Americans, our ancestors established gold and silver coin — not paper money — as their medium of exchange. When the Constitution was adopted in 1787, the average person was fully aware of what governments historically had done to plunder and loot people through paper money. Thus, the Constitution expressly forbade the state governments from making anything but gold and silver coin legal tender and from emitting bills of credit, i.e., paper money. And in its delegation of limited powers to the national government, the Constitution limited its power to coining money and regulating the value thereof.
Thus, in the 1800s, people were accustomed to carrying with them gold and silver coins in which to transact their business. And their contracts were stipulated either in coinage or in terms of “dollars,” which were predefined in terms of gold or silver coin.
Thus, when Henry Griswold received Susan Hepburn’s note, he fully expected to be repaid one thousand dollars, as dollars were defined in gold or silver coin at the time of the execution of the note.
In order to finance The War of Northern Aggression, President Lincoln persuaded Congress to authorize the borrowing of money through the issuance of governmental notes. Since the notes, however, were expected to depreciate quickly in value, especially with each battle which the Northern armies lost, the Congress ordered that the notes be “legal tender” for all debts, public and private. The legal-tender law, therefore, required people to use the notes as money, whether they wanted to or not.
When Hepburn attempted to pay the debt, she tendered to Griswold one thousand dollars in governmental notes, notes which had depreciated more than fifty percent against gold and silver. Hepbum had borrowed the equivalent of one thousand dollars in gold and was trying to pay back the equivalent of five hundred dollars in gold.
The case reached the U.S. Supreme Court. A majority of the Court held the legal-tender law to be in violation of the Constitution. The Court reasoned that the U.S. government, having only those powers which were enumerated in the Constitution, did not have the power to issue paper money and enact legal-tender laws.
Within less than a year, two new justices were appointed to the Court. In one of the most shameful acts in Supreme Court history, the previous minority, joined now with the two new justices, voted to overrule the decision in Hepburn v. Griswold. In Knox v. Lee and later decisions, it was to become settled law that the U.S. government would have the power to issue paper money and enact legal-tender laws, no matter how destructive of contractual obligations.
One of the most interesting justices in the history of the Court, Stephen J. Field, was the most eloquent of the new dissenters: … The power to commit violence, perpetrate injustice, take private property by force without compensation to the owner, and compel the receipt of promises to pay in place of money, may be exercised, as it often has been, by irresponsible authority, but it cannot be considered as belonging to a government founded upon law…. From the decision of the Court I see only evil likely to follow.”