What is Legal Tender?

Definition: Legal tender is a legally recognized payment instrument used to fulfill a financial commitment. In other words, it is an economic medium that is accepted by the legal system.

What Does Legal Tender Mean?

The legal tender in any country is the commonly accepted currency, in all its denominations, used to settle economic transactions in the open market. The forms in which this tender is presented and accepted may vary depending on the laws of each country but the concept is essentially the same everywhere. The legal system, as part of its regular procedures, enforces in many cases the obligation of one party to meet a financial obligation that was previously agreed upon.

The fulfillment of this obligation is tied to the financial instruments of exchange available and accepted by the legal system, this being, the legal tender. In the United States, all paper money and coins, in all its denominations, are accepted as legal tender. On the other hand, to facilitate transactions, the way the legal tender is delivered might be negotiated. A business that is fulfilling an obligation of $25,000 might not be able to provide money in cash form but it might agree with the recipient to send the money through a wire transfer or a money order.

Here’s a hypothetical situation where the term might be used.


Mr. Carl had a legal dispute with a local supermarket because of an irregular situation where the store was selling expired canned food. The customer bought the food without noticing the date and got poisoned by it.

Mr. Carl’s legal document contained a financial compensation claim for all the medical expenses he incurred plus a loss & damages compensation for the days he couldn’t work and the sequels his body will experience because of the food. The Court reviewed the case and after the judge analyzed the facts he granted Mr. Carl a financial compensation of $30,000 to cover for medical expenses plus a $75,000 compensation for loss & damages.

This compensation must be paid with legal tender in the next 15 business days. The money will be sent via wire transfer to Mr. Carl’s bank account.

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