Does legal tender really matter?

[taotree]

Is the legal tender law it really any significant barrier to use of precious metal use?

X writes up promissory note to Y that X will pay Y 10 grams of gold each month for the next year.

Now, for whatever reason, Y comes back and says that because of legal tender laws, he can just pay in USD instead. So he does so. However, wouldn't X have to pay the amount of USD equivalent to 10 grams of gold at the time of payment? So, Y could immediately take the payment, convert it to gold, and he has his gold just as if X had given him gold in the first place.

I have heard it said that legal tender laws are a barrier to using gold, but given the above, why?

Questions:

1) What is the legal required calculation of how much "legal tender" must be paid for a debt denominated in a different measure?

2) Could one also put in the original contract that if the debtor elects to pay in "legal tender", they must pay sufficient for the actual purchase of the required amount of gold (and specific place could be specified). That way it would include the premium to purchase the physical gold and the lender is completely covered.

 

[Zippyjuan]

You can enter into barter agreements between people. If you agreed with someone to exchange whatever you had for a certain amount of gold, you can. If you decide to insist on cash instead of gold, the agreement can be voided if the other party does not agree. If you do agree to convert the gold into case, what value of the gold do you use? The price of gold at the start of the contract? The price of gold when the payment is due? That is for the parties to work out. Based on your example, that would seem to require the price of gold at the time payment is due.

 

[taotree]

You can enter into barter agreements between people. If you agreed with someone to exchange whatever you had for a certain amount of gold, you can. If you decide to insist on cash instead of gold, the agreement can be voided if the other party does not agree.

From what I understand, legal tender says this:

Let's say a debtor comes to a lender and offers legal tender for the debt but the lender refuses stating that the contract was in gold and so gold must be given. The lender takes the debtor to court demanding payment. The debtor tells the court that he offered legal tender for the debt. The lender WILL LOSE the case. The lender must accept the legal tender for the debt.

Barter arrangements are fine--there is no debt involved. Legal tender is generally only an issue regarding taxes and debt. But what I'm asking in this thread, is--why is it an issue with debt?

If you do agree to convert the gold into case, what value of the gold do you use? The price of gold at the start of the contract? The price of gold when the payment is due?

Right, that's a very important question. I don't know where to find the answer. Legal tender says that it must be accepted, but it doesn't say HOW MUCH of it must be paid.

 

[Zippyjuan]

Gold is not considered legal tender just as rocks are not consider legal tender. If the contract specifies legal tender, the other party has the right not accept gold as payment. If you want to use gold then you must enter a barter agreement.

 

[taotree]

Gold is not considered legal tender just as rocks are not consider legal tender. If the contract specifies legal tender, the other party has the right not accept gold as payment. If you want to use gold then you must enter a barter agreement.

That's not the problem, nor why Ron Paul has introduced a bill to get rid of legal tender laws.

The problem is that if you enter into a contract that specifies gold as payment, the debtor can pay by legal tender (FRN for example) and not gold. In spite of the contract explicitly specifying only gold for payment, you as the lender are REQUIRED by law to accept FRNs in payment if the debtor offers it.

 

[Zippyjuan]

If the contract specifed gold and you want to pay in cash, you are not honoring your side of the contract and the other party does not have to honor theirs.

 

[taotree]

If the contract specifed gold and you want to pay in cash, you are not honoring your side of the contract and the other party does not have to honor theirs.

There are many laws that supersede contracts. Legal tender is one of them. If there is a debt involved and legal tender is offered in payment, it must be accepted. That's why many people don't like legal tender laws.

 

[Zippyjuan]

Would you like to be able to pay your debts with whatever you want?

 

[Dr.3D]

Would you like to be able to pay your debts with whatever you want?

If I owe somebody ten ounces of gold and i give them paper, then they should be able to object. The debt was ten ounces of gold... not paper.

 

[taotree]

If I owe somebody ten ounces of gold and i give them paper, then they should be able to object. The debt was ten ounces of gold... not paper.

Common sense would agree. Unfortunately, the law says otherwise. The law says that if he took you to court to make you pay and you told the court you offered him sufficient paper, the court would not make you pay the ten ounces of gold, you could just give the paper and would be legal.

 

[efiniti]

That's not the problem, nor why Ron Paul has introduced a bill to get rid of legal tender laws.

The problem is that if you enter into a contract that specifies gold as payment, the debtor can pay by legal tender (FRN for example) and not gold. In spite of the contract explicitly specifying only gold for payment, you as the lender are REQUIRED by law to accept FRNs in payment if the debtor offers it.

No this is not right. Legal tender laws only apply to public debts and services (ie if you deal with the State). You can't force legal tender for private transactions. This is why sometimes businesses can refuse bills larger than $20 and this is also why you're legally allowed to pay any state service with pennies if you wish.

 

[efiniti]

Is the legal tender law it really any significant barrier to use of precious metal use?

Yes and no. Anyone is free to use whatever currency they want for private transactions. However, in most cases people prefer a uniform and consistent currency.

Remember, money is a commodity. Its only worth what others are willing to pay for it. If everyone else accepts a Federal Reserve Note and only a few people accept the Liberty Dollar which one are you more inclined to accept during a transaction?

X writes up promissory note to Y that X will pay Y 10 grams of gold each month for the next year.

Ok.

Now, for whatever reason, Y comes back and says that because of legal tender laws, he can just pay in USD instead.

You mean X, not Y. X is paying Y in gold grams through the promissory note. If X comes back and says he's only going to pay in USD then X broke the contract.

So he does so. However, wouldn't X have to pay the amount of USD equivalent to 10 grams of gold at the time of payment?

If Y agrees then that's fine. Otherwise, X must pay Y in gold grams as it stands in his/her contract.

So, Y could immediately take the payment, convert it to gold, and he has his gold just as if X had given him gold in the first place.

Y could, but Y doesn't have to.

I have heard it said that legal tender laws are a barrier to using gold, but given the above, why?

I explained this above. I think once the dollars plummets beyond salvation then we'll use real money. The real money will hopefully be all the gold everyone is buying before the dollar collapses. However, the State will probably implement another monetary scheme so the people has to make sure that doesn't happen.

 

[taotree]

No this is not right. Legal tender laws only apply to public debts and services (ie if you deal with the State). You can't force legal tender for private transactions. This is why sometimes businesses can refuse bills larger than $20 and this is also why you're legally allowed to pay any state service with pennies if you wish.

Sorry, everything I have read so far says this is not true.

http://www.law.cornell.edu/uscode/31/5103.html

It says "all debts". Nothing about just public debts. The refusal of bills you refer to is allowed because there is no debt involved. When you pay for a good or service, you are paying up front, so there is no debt, and thus legal tender law does not apply.

 

[taotree]

You mean X, not Y. X is paying Y in gold grams through the promissory note. If X comes back and says he's only going to pay in USD then X broke the contract.

Not according to what I've read about legal tender law. It says that if you took them to court to make them pay the gold, you would lose because the court would say that they offered to pay you and so are not in default. I've read this several places. If not true, then legal tender has virtually no meaning.

I think once the dollars plummets beyond salvation then we'll use real money.

Why should we wait until the dollar plummets? Why not starting using it right now? That seems rather silly and irresponsible. That's what I've been trying to establish through a few threads and inquiries. Why are good honest citizens like you and I not already doing as many transactions as we can using gold/silver?

 

[Gilby]

From the US Treasury:

The pertinent portion of law that applies to your question is the Coinage Act of 1965, specifically Section 31 U.S.C. 5103, entitled "Legal tender," which states: "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."

This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. 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.

Other revealing information on that page:

[Federal Reserve] notes have no value for themselves...

In other words, they are not dollars. They are just "legal tender" in which in a court of correct jurisdiction must recognize them as satisfying debt when given to a creditor.