Define: Legal Tender

In law, legal tender is a payment that by statute must be accepted in payment of a debt. In the US, federal law declares that all US currency coins and notes are legal tender. Even the $1,000 note, which has been withdrawn from circulation for many years, is still considered legal tender. The meaning of legal tender is sometimes misunderstood as obligating a merchant to accept payment in as a form of legal tender. However, a grocer may refuse payment for a pack of gum with a $100 bill, which is legal tender, and a jeweller could refuse to sell a gold ring for payment in pennies, also legal tender. Checks, charge cards, and other payment mechanisms are not legal tender.

Legal tender or forced tender is a payment that, by law, cannot be refused in settlement of a debt denominated in the same currency.

Legal tender is a status which may be conferred on certain examples of money, which may depend on circumstances including the amount of money. The term “legal tender” is also sometimes used to refer to the money or currency itself holding that status (see below).

Legal tender is a concept that is frequently misunderstood: this is often a result of differing legal definitions in different jurisdictions. Cheques, credit cards, debit cards and similar non-cash methods of payment are not generally defined as legal tender. Only specific coin and note examples of cash money are usually defined as legal tender. Some jurisdictions may, by law, forbid or otherwise restrict payment made other than by legal tender. For example, such a law might outlaw the use of foreign coins and banknotes or require a licence to perform financial transactions in a foreign currency.

In some jurisdictions, a currency holding the status of legal tender can be refused as payment if no debt exists prior to the time of payment (for example, where the obligation to pay arises substantially contemporaneously with the offer of payment). Consequently, vending machines and transport staff do not have to accept the largest denomination of banknote for a single bus fare or bar of chocolate. Shopkeepers can reject large banknotes — this is covered by the legal concept known as an invitation to treat. However, restaurants that do not collect money until after a meal is served would have to accept that legal tender for payment of the debt incurred in purchasing the meal.

The right, in many jurisdictions, of a trader to refuse to do business with any person means a purchaser cannot demand to make a purchase, and so declaring a legal tender other than for debts would not be effective.

This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 29th March 2024.