When Genuine $100 Bills Are Rejected: Cash Not Always King, Legal Tender or Not

You're hungry enough to eat a small cow but don't have time for a regular restaurant. You step into a McDonalds or Burger King ready to order a heart attack special. Oops. All you have is a $100 bill and they won't accept anything over a $20 bill. What ever happened to legal tender?

Legal tender - what is it anyway?

The Coinage Act of 1965 states that "United States coins and currency ... are legal tender for all debts, public charges, taxes, and dues." The US Treasury web site explains that this means US currency and coins, including the $100 bill, can legally be tendered as payment for debts.

The federal government is required to accept cash payments as legal tender. Individuals and private businesses and organizations are only required to accept cash as "legal tender" payment for existing debts.

I see you're about to jump up and down and say that your favorite fast food joint has to accept your $100 bill as payment for the debt due to your burger. After all, it says right on the bill that it is legal tender for debts public and private.

This seems reasonable at first but the law doesn't force individuals or businesses to accept cash (let alone the $100 bill specifically) as payment for goods or services, only for existing debt.

As explained in the Wikipedia article on legal tender, fast food places require payment before providing food. As a result, the debt doesn't exist when you try to push your $100 bill on them and legal tender doesn't apply.

Some local laws even give a business the right to refuse to do business with you at all, so you can't force them to sell you anything. This makes the "legal tender" printed on your $100 (or any other) bill moot.

Now that McDonalds, Burger King and many other fast food places accept credit cards this may end up becoming even more of a problem for some.

These businesses see payment cards as a convenient way to speed up transactions, and by the way, tap into our tendency to overspend when we're not handling cash. It may not be too long before they stop taking cash at all, let alone $100 bills.

Why some denominations just don't fit

If you think from the point of view of the business you'll quickly realize some of the problems they face when dealing with your $100 bills, and why legal tender or not, they just don't want them.

When you have to have enough change for all the $100 bills that may come your way you'll run to the bank much more. This takes time (a.k.a. costs money). It also puts you and your employees at higher risk of being mugged or robbed - that's neither legal nor tender.

If you own a vending machine that has to make change for $100 each time your loyal customers buy a bar of Snickers or Kit-Kat, you'd be in and out all the time to refill the machine with change.

Large payments made in small denominations can be a hassle too. Imagine if vending machines were required to accept pennies. As a vending machine operator you might find yourself needing to empty out the coins from each of your machines several times a day.

This kind of hassle was best illustrated by the case of a motorist fined $120 for speeding in 2005. He was so upset over his fine that he paid it all in pennies to punish his tormentors.

Since in this case the payment was to a government entity, legal tender applied. The court was forced to accept that inconvenient form of payment. However, the motorist must have been less than happy with his stroke of genius when he was held until all 12,000 coins were counted.

Cash in all its forms may be "king" in investing, but when buying burgers or candy bars, it may be easier to use a "queen" or "jack." If you only have a $100 bill at a burger joint your legal tender may be rejected, and you may end up hungrier, though probably healthier.