Justice Souter announced the judgment of the Court and delivered an opinion, in which Justice Stevens and Justice Breyer join, and in which Justice O'Connor joins except as to Parts IV—A and IV—B.
The issue in this case is the enforce ability of contracts between the Government and participants in a regulated industry, to accord them particular regulatory treatment in exchange for their assumption of liabilities that threatened to produce claims against the Government as insurer. Although Congress subsequently changed the relevant law, and thereby barred the Government from specifically honoring its agreements, we hold that the terms assigning the risk of regulatory change to the Government are enforceable, and that the Government is therefore liable in damages for breach.
We said in Fahey v. Mallonee, 332 U.S. 245, 250 (1947), that "[b]anking is one of the longest regulated and most closely supervised of public callings." That is particularly true of the savings and loan, or "thrift," industry, which has been described as "a federally-conceived and assisted system to provide citizens with affordable housing funds." H. R. Rep. No. 101-54, pt. 1, p. 292 (1989) (House Report). Because the contracts at issue in today's case arise out of the National Government's efforts over the last decade and a half to preserve that system from collapse, we begin with an overview of the history of federal savings and loan regulation.
The modern savings and loan industry traces its origins to the Great Depression, which brought default on 40 percent of the Nation's $20 billion in home mortgages and the failure of some 1,700 of the Nation's approximately 12,000 savings institutions. Id., at 292-293. In the course of the debacle, Congress passed three statutes meant to stabilize the thrift industry. The Federal Home Loan Bank Act created the Federal Home Loan Bank Board (Bank Board), which was authorized to channel funds to thrifts for loans on houses and for preventing foreclosures on them. Ch. 522, 47 Stat. 725 (1932) (codified, as amended, at 12 U. S. C. §§ 1421-1449 (1988 ed.)); see also House Report, at 292. Next, the Home Owners' Loan Act of 1933 authorized the Bank Board to charter and regulate federal savings and loan associations. Ch. 64, 48 Stat. 128 (1933) (codified, as amended, at 12 U. S. C. §§ 1461-1468 (1988 ed.)). Finally, the National Housing Act created the Federal Savings and Loan Insurance Corporation (FSLIC), under the Bank Board's authority, with responsibility to insure thrift deposits and regulate all federally insured thrifts. Ch. 847, 48 Stat. 1246 (1934) (codified, as amended, at 12 U. S. C. §§ 1701-1750g (1988 ed.)).
The first federal response to the rising tide of thrift failures was "extensive deregulation," including "a rapid expansion in the scope of permissible thrift investment powers and a similar expansion in a thrift's ability to compete for funds with other financial services providers." House Report, at 291; see also id., at 295-297; Breeden, Thumbs on the Scale: The Role that Accounting Practices Played in the Savings and Loan Crisis, 59 Ford. L. Rev. S71, S72—S74 (1991) (describing legislation permitting nonresidential real estate lending by thrifts and deregulating interest rates paid to thrift depositors).
While the regulators tried to mitigate the squeeze on the thrift industry generally through deregulation, the multitude of already-failed savings and loans confronted FSLIC with deposit insurance liabilities that threatened to exhaust its insurance fund. See Olympic Federal Savings and Loan Assn. v. Director, Office of Thrift Supervision, 732 F.Supp. 1183,
Realizing that FSLIC lacked the funds to liquidate all of the failing thrifts, the Bank Board chose to avoid the insurance liability by encouraging healthy thrifts and outside investors to take over ailing institutions in a series of "supervisory mergers." See GAO, Solutions to the Thrift Industry Problem 52; L. White, The S&L Debacle: Public Policy Lessons for Bank and Thrift Regulation 157 (1991) (White).
Under GAAP there are circumstances in which a business combination may be dealt with by the "purchase method" of accounting. See generally R. Kay & D. Searfoss, Handbook of Accounting and Auditing 23-21 to 23-40 (2d ed. 1989) (describing the purchase method); Accounting Principles Board Opinion No. 16 (1970) (establishing rules as to what method must be applied to particular transactions). The critical aspect of that method for our purposes is that it permits the acquiring entity to designate the excess of the purchase price
Recognition of goodwill under the purchase method was essential to supervisory merger transactions of the type at issue in this case. Because FSLIC had insufficient funds to
Supervisory goodwill was attractive to healthy thrifts for at least two reasons. First, thrift regulators let the acquiring institutions count supervisory goodwill toward their reserve requirements under 12 CFR § 563.13 (1981). This treatment was, of course, critical to make the transaction possible in the first place, because in most cases the institution resulting from the transaction would immediately have been insolvent under federal standards if goodwill had not counted toward regulatory net worth. From the acquiring
A second and more complicated incentive arose from the decision by regulators to let acquiring institutions amortize the goodwill asset over long periods, up to the 40-year maximum permitted by GAAP, see Accounting Principles Board Opinion No. 17, ¶ 29, p. 340 (1970). Amortization recognizes that intangible assets such as goodwill are useful for just so long; accordingly, a business must "write down" the value of the asset each year to reflect its waning worth. See Kay & Searfoss, Handbook of Accounting and Auditing, at 15-36 to 15-37; Accounting Principles Board Opinion No. 17, supra, ¶ 27, at 339-340.
The advantage in all this to an acquiring thrift depends upon the fact that accretion of discount is the mirror image of amortization of goodwill. In the typical case, a failed thrift's primary assets were long-term mortgage loans that earned low rates of interest and therefore had declined in value to the point that the thrift's assets no longer exceeded its liabilities to depositors. In such a case, the disparity between assets and liabilities from which the accounting goodwill was derived was virtually equal to the value of the discount from face value of the thrift's outstanding loans. See Black, 2 Stan. L. & Policy Rev., at 104-105. Thrift regulators, however, typically agreed to supervisory merger terms that allowed acquiring thrifts to accrete the discount over the average life of the loans (approximately seven years), see id., at 105, while permitting amortization of the goodwill asset over a much longer period. Given that goodwill and discount were substantially equal in overall values, the more rapid
Some transactions included yet a further inducement, described as a "capital credit." Such credits arose when FSLIC itself contributed cash to further a supervisory merger and permitted the acquiring institution to count the FSLIC contribution as a permanent credit to regulatory capital. By failing to require the thrift to subtract this FSLIC contribution from the amount of supervisory goodwill generated by the merger, regulators effectively permitted double counting of the cash as both a tangible and an intangible asset. See, e. g., Transohio Savings Bank v. Director, Office of Thrift Supervision, 967 F.2d 598, 604 (CADC 1992). Capital credits thus inflated the acquiring thrift's regulatory capital and permitted lever aging of more and more loans.
As we describe in more detail below, the accounting treatment to be accorded supervisory goodwill and capital credits was the subject of express arrangements between the regulators and the acquiring institutions. While the extent to which these arrangements constituted a departure from prior norms is less clear, an acquiring institution would reasonably
The advantageous treatment of amortization schedules and capital credits in supervisory mergers amounted to more clear-cut departures from GAAP and, hence, subjects worthy of agreement by those banking on such treatment. In 1983, the Financial Accounting Standards Board (the font of GAAP) promulgated Statement of Financial Accounting Standards No. 72 (SFAS 72), which applied specifically to the acquisition of a savings and loan association. SFAS 72 provided that "[i]f, and to the extent that, the fair value of liabilities assumed exceeds the fair value of identifiable assets acquired in the acquisition of a banking or thrift institution, the unidentifiable intangible asset recognized generally shall be amortized to expense by the interest method over a period no longer than the discount on the long-term interest-bearing assets acquired is to be recognized as interest income." Accounting Standards, Original Pronouncements (July 1973—June 1, 1989), p. 725. In other words, SFAS 72 eliminated any doubt that the differential amortization periods on which acquiring thrifts relied to produce paper profits in supervisory mergers were inconsistent with GAAP. SFAS 72 also barred double counting of capital credits by requiring that financial assistance from regulatory authorities must be deducted from the cost of the acquisition before the amount of goodwill is determined. SFAS 72, ¶ 9.
Although the results of the forbearance policy, including the departures from GAAP, appear to have been mixed, see GAO, Forbearance for Troubled Institutions 4, it is relatively clear that the overall regulatory response of the early and mid-1980's was unsuccessful in resolving the crisis in the thrift industry. See, e. g., Transohio Savings Bank, 967 F. 2d, at 602 (concluding that regulatory measures "actually aggravat[ed] the decline"). As a result, Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Pub. L. 101-73, 103 Stat. 183, with the objects of preventing the collapse of the industry, attacking the root causes of the crisis, and restoring public confidence.
FIRREA made enormous changes in the structure of federal thrift regulation by (1) abolishing FSLIC and transferring its functions to other agencies; (2) creating a new thrift deposit insurance fund under the Federal Deposit Insurance Corporation; (3) replacing the Bank Board with the Office of Thrift Supervision (OTS), a Treasury Department office with responsibility for the regulation of all federally insured savings associations; and (4) establishing the Resolution Trust Corporation to liquidate or otherwise dispose of certain closed thrifts and their assets. See note following 12 U. S. C. § 1437, §§ 1441a, 1821. More importantly for the present case, FIRREA also obligated OTS to "prescribe and maintain uniformly applicable capital standards for savings associations" in accord with strict statutory requirements.
The impact of FIRREA's new capital requirements upon institutions that had acquired failed thrifts in exchange for supervisory goodwill was swift and severe. OTS promptly issued regulations implementing the new capital standards along with a bulletin noting that FIRREA "eliminates [capital and accounting] forbearances" previously granted to certain thrifts. Office of Thrift Supervision, Capital Adequacy: Guidance on the Status of Capital and Accounting Forbearances and Capital Instruments held by a Deposit Insurance Fund, Thrift Bulletin No. 38-2, Jan. 9, 1990. OTS accordingly directed that "[a]ll savings associations presently operating with these forbearances . . . should eliminate them in determining whether or not they comply with the new minimum regulatory capital standards." Ibid. Despite the statute's limited exception intended to moderate transitional
This case is about the impact of FIRREA's tightened capital requirements on three thrift institutions created by way of supervisory mergers. Respondents Glendale Federal Bank, FSB, Winstar Corporation, and The Statesman Group, Inc., acquired failed thrifts in 1981, 1984, and 1988, respectively. After the passage of FIRREA, federal regulators seized and liquidated the Winstar and Statesman thrifts for failure to meet the new capital requirements. Although the Glendale thrift also fell out of regulatory capital compliance as a result of the new rules, it managed to avoid seizure through a massive private recapitalization. Believing that the Bank Board and FSLIC had promised them that the supervisory goodwill created in their merger transactions could be counted toward regulatory capital requirements, respondents each filed suit against the United States in the Court of Federal Claims, seeking monetary damages on both contractual and constitutional theories. That court granted respondents' motions for partial summary judgment on contract liability, finding in each case that the Government had breached contractual obligations to permit respondents to count supervisory goodwill and capital credits toward their regulatory capital requirements. See Winstar Corp. v. United States, 21 Cl. Ct. 112 (1990) (Winstar I) (finding an implied-in-fact contract but requesting further briefing on contract issues); 25 Cl. Ct. 541 (1992) (Winstar II) (finding contract breached and entering summary judgment on liability); Statesman Savings Holding Corp. v. United States, 26 Cl. Ct. 904 (1992) (granting summary judgment on liability
A divided panel of the Federal Circuit reversed, holding that the parties did not allocate to the Government, in an unmistakably clear manner, the risk of a subsequent change in the regulatory capital requirements. Winstar Corp. v. United States, 994 F.2d 797, 811-813 (1993). The full court, however, vacated this decision and agreed to rehear the case en banc. After rebriefing and reargument, the en banc court reversed the panel decision and affirmed the Court of Federal Claims' rulings on liability. Winstar Corp. v. United States, 64 F.3d 1531 (1995). The Federal Circuit found that FSLIC had made express contracts with respondents, including a promise that supervisory goodwill and capital credits could be counted toward satisfaction of the regulatory capital requirements. Id., at 1540, 1542-1543. The court rejected the Government's unmistakability argument, agreeing with the Court of Federal Claims that that doctrine had no application in a suit for money damages. Id., at 1545-1548. Finally, the en banc majority found that FIRREA's new capital requirements "single[d] out supervisory goodwill for special treatment" and therefore could not be said to be a "public" and "general act" within the meaning of the sovereign acts doctrine. Id., at 1548-1551. Judge Nies dissented, essentially repeating the arguments in her
We took this case to consider the extent to which special rules, not generally applicable to private contracts, govern enforcement of the governmental contracts at issue here. We decide whether the Government may assert four special defenses to respondents' claims for breach: the canon of contract construction that surrenders of sovereign authority must appear in unmistakable terms, Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U.S. 41, 52 (1986); the rule that an agent's authority to make such surrenders must be delegated in express terms, Home Telephone & Telegraph Co. v. Los Angeles, 211 U.S. 265 (1908); the doctrine that a government may not, in any event, contract to surrender certain reserved powers, Stone v. Mississippi, 101 U.S. 814 (1880); and, finally, the principle that a Government's sovereign acts do not give rise to a claim for breach of contract, Horowitz v. United States, 267 U.S. 458, 460 (1925).
The anterior question whether there were contracts at all between the Government and respondents dealing with regulatory treatment of supervisory goodwill and capital credits, although briefed and argued by the parties in this Court, is not strictly before us. See Yee v. Escondido, 503 U.S. 519, 535 (1992) (noting that "we ordinarily do not consider questions outside those presented in the petition for certiorari"); this Court's Rule 14.1(a). And although we may review the Court of Federal Claims' grant of summary judgment de novo, Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 465, n. 10 (1992), we are in no better position than the Federal Circuit and the Court of Federal Claims to evaluate the documentary records of
The Federal Circuit found that "[t]he three plaintiff thrifts negotiated contracts with the bank regulatory agencies that allowed them to include supervisory goodwill (and capital credits) as assets for regulatory capital purposes and to amortize that supervisory goodwill over extended periods of time." 64 F. 3d, at 1545. Although each of these transactions was fundamentally similar, the relevant circumstances and documents vary somewhat from case to case.
In September 1981, Glendale was approached about a possible merger by the First Federal Savings and Loan Association of Broward County, which then had liabilities exceeding the fair value of its assets by over $734 million. At the time, Glendale's accountants estimated that FSLIC would have needed approximately $1.8 billion to liquidate Broward, only about $1 billion of which could be recouped through the sale of Broward's assets. Glendale, on the other hand, was both profitable and well capitalized, with a net worth of $277 million.
The SAA thereby incorporated Bank Board Resolution No. 81-710, by which the Board had ratified the SAA. That resolution referred to two additional documents: a letter to be furnished by Glendale's independent accountant identifying and supporting the use of any goodwill to be recorded on Glendale's books, as well as the resulting amortization periods; and "a stipulation that any goodwill arising from this transaction shall be determined and amortized in accordance with [Bank Board] Memorandum R-31b." Id., at 607. Memorandum R-31b, finally, permitted Glendale to use the purchase method of accounting and to recognize goodwill as an asset subject to amortization. See id., at 571-574.
The Government does not seriously contest this evidence that the parties understood that goodwill arising from these transactions would be treated as satisfying regulatory requirements; it insists, however, that these documents simply reflect statements of then-current federal regulatory policy rather than contractual undertakings. Neither the Court of Federal Claims nor the Federal Circuit so read the record, however, and we agree with those courts that the Government's interpretation of the relevant documents is fundamentally implausible. The integration clause in Glendale's SAA with FSLIC, which is similar in all relevant respects to the analogous provisions in the Winstar and Statesman contracts, provides that the SAA supersedes "all prior agreements and understandings . . . excepting only . . . any resolutions or letters issued contemporaneously" by the Board, id.,
To the extent that the integration clause leaves any ambiguity, the other courts that construed the documents found that the realities of the transaction favored reading those documents as contractual commitments, not mere statements of policy, see Restatement (Second) of Contracts § 202(1) (1981) ("Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight"), and we see no reason to disagree. As the Federal Circuit noted, "[i]t is not disputed that if supervisory goodwill had not been available for purposes of meeting regulatory capital requirements, the merged thrift would have been subject to regulatory noncompliance and penalties from the moment of its creation." 64 F. 3d, at 1542. Indeed, the assumption of Broward's liabilities would have rendered Glendale immediately insolvent by approximately $460 million, but for Glendale's right to count goodwill as regulatory capital. Although one can imagine cases in which the potential gain might induce a party to assume a substantial risk that the gain might be wiped out by a change in the law, it would have been irrational in this case for Glendale to stake its very existence upon continuation of current policies without seeking to embody those policies in some sort of contractual commitment. This conclusion is obvious from both the dollar amounts at stake and the regulators' proven propensity to make changes in the relevant requirements. See Brief for United States 26 ("[I]n light of the frequency with which federal capital requirements had changed in the past . . . , it would have been unreasonable for Glendale, FSLIC, or the Bank Board to expect or rely upon the fact that those requirements would remain unchanged"); see also infra, at 909-910. Under the circumstances, we have no doubt that
In 1983, FSLIC solicited bids for the acquisition of Windom Federal Savings and Loan Association, a Minnesotabased thrift in danger of failing. At that time, the estimated cost to the Government of liquidating Windom was approximately $12 million. A group of private investors formed Winstar Corporation for the purpose of acquiring Windom and submitted a merger plan to FSLIC; it called for capital contributions of $2.8 million from Winstar and $5.6 million from FSLIC, as well as for recognition of supervisory goodwill to be amortized over a period of 35 years.
The Bank Board accepted the Winstar proposal and made an Assistance Agreement that incorporated, by an integration clause much like Glendale's, both the Board's resolution approving the merger and a forbearance letter issued on the date of the agreement. See App. 112. The forbearance letter provided that "[f]or purposes of reporting to the Board, the value of any intangible assets resulting from accounting for the merger in accordance with the purchase method may be amortized by [Winstar] over a period not to exceed 35
The Government emphasizes the last sentence of this clause, which provides that the relevant accounting principles may be "subsequently clarified . . . or amended," as barring any inference that the Government assumed the risk of regulatory change. Its argument, however, ignores the preceding sentence providing that the Bank Board's resolutions and actions in connection with the merger must prevail over contrary regulations. If anything, then, the accounting principles clause tilts in favor of interpreting the contract to lock in the then-current regulatory treatment of supervisory goodwill.
In any event, we do not doubt the soundness of the Federal Circuit's finding that the overall "documentation in the Winstar
Statesman, another non thrift entity, approached FSLIC in 1987 about acquiring a subsidiary of First Federated Savings Bank, an insolvent Florida thrift. FSLIC responded that if Statesman wanted Government assistance in the acquisition it would have to acquire all of First Federated as well as three shaky thrifts in Iowa. Statesman and FSLIC ultimately agreed on a complex plan for acquiring the four thrifts; the agreement involved application of the purchase method of accounting, a $21 million cash contribution from Statesman to be accompanied by $60 million from FSLIC, and (unlike the Glendale and Winstar plans) treatment of $26 million of FSLIC's contribution as a permanent capital credit to Statesman's regulatory capital.
The Assistance Agreement between Statesman and FSLIC included an "accounting principles" clause virtually identical to Winstar's, see App. 402-403, as well as a specific provision for the capital credit:
As with Glendale and Winstar, the agreement had an integration clause incorporating contemporaneous resolutions and letters issued by the Board. Id., at 407-408. The Board's resolution explicitly acknowledged both the capital credits and the creation of supervisory goodwill to be amortized over 25 years, id., at 458-459, and the Forbearance Letter likewise recognized the capital credit provided for in the agreement. Id., at 476. Finally, the parties executed a separate Regulatory Capital Maintenance Agreement stating that, "[i]n consideration of the mutual promises contained [t]herein," id., at 418, Statesman would be obligated to maintain the regulatory capital of the acquired thrifts "at the level . . . required by § 563.13(b) of the Insurance Regulations. . . or any successor regulation . . . ." The agreement further provided, however, that "[f]or purposes of this Agreement, any determination of [Statesman's] Required Regulatory Capital . . . shall include . . . amounts permitted by the FSLIC in the Assistance Agreement and in the forbearances issued in connection with the transactions discussed herein." Id., at 418-419. Absent those forbearances, Statesman's thrift would have remained insolvent by almost $9 million despite the cash infusions provided by the parties to the transaction.
For the same reasons set out above with respect to the Glendale and Winstar transactions, we accept the Federal Circuit's conclusion that "the government was contractually obligated to recognize the capital credits and the supervisory goodwill generated by the merger as part of the Statesman's regulatory capital requirement and to permit such goodwill to be amortized on a straight line basis over 25 years." 64 F. 3d, at 1543. Indeed, the Government's position is even weaker in Statesman's case because the capital credits portion of the agreement contains an express commitment to include those credits in the calculation of regulatory capital.
It is important to be clear about what these contracts did and did not require of the Government. Nothing in the documentation or the circumstances of these transactions purported to bar the Government from changing the way in which it regulated the thrift industry. Rather, what the Federal Circuit said of the Glendale transaction is true of the Winstar and Statesman deals as well: "the Bank Board and the FSLIC were contractually bound to recognize the supervisory goodwill and the amortization periods reflected" in the agreements between the parties. 64 F. 3d, at 1541-1542. We read this promise as the law of contracts has always treated promises to provide something beyond the promisor's
When the law as to capital requirements changed in the present instance, the Government was unable to perform its promise and, therefore, became liable for breach. We accept the Federal Circuit's conclusion that the Government breached these contracts when, pursuant to the new regulatory capital requirements imposed by FIRREA, 12 U. S. C. § 1464(t), the federal regulatory agencies limited the use of supervisory goodwill and capital credits in calculating respondents' net worth. 64 F. 3d, at 1545. In the case of Winstar and Statesman, the Government exacerbated its breach when it seized and liquidated respondents' thrifts for regulatory noncompliance. Ibid.
In evaluating the relevant documents and circumstances, we have, of course, followed the Federal Circuit in applying
The Government argues for reversal, first, on the principle that "contracts that limit the government's future exercises of regulatory authority are strongly disfavored; such contracts will be recognized only rarely, and then only when the limitation on future regulatory authority is expressed in unmistakable terms." Brief for United States 16. Hence, the Government says, the agreements between the Bank Board, FSLIC, and respondents should not be construed to waive Congress's authority to enact a subsequent bar to using supervisory goodwill and capital credits to meet regulatory capital requirements.
The argument mistakes the scope of the unmistakability doctrine. The thrifts do not claim that the Bank Board and FSLIC purported to bind Congress to ossify the law in conformity to the contracts; they seek no injunction against application of FIRREA's new capital requirements to them and no exemption from FIRREA's terms. They simply claim that the Government assumed the risk that subsequent changes in the law might prevent it from performing, and agreed to pay damages in the event that such failure to perform caused financial injury. The question, then, is not whether Congress could be constrained but whether the doctrine of unmistakability is applicable to any contract claim against the Government for breach occasioned by a subsequent Act of Congress. The answer to this question is no.
The unmistakability doctrine invoked by the Government was stated in Bowen v. Public Agencies Opposed to Social
In his Commentaries, Blackstone stated the centuries-old concept that one legislature may not bind the legislative authority of its successors:
In England, of course, Parliament was historically supreme in the sense that no "higher law" limited the scope of legislative action or provided mechanisms for placing legally enforceable limits upon it in specific instances; the power of American legislative bodies, by contrast, is subject to the overriding dictates of the Constitution and the obligations that it authorizes. See Eule, Temporal Limits on the Legislative Mandate: Entrenchment and Retroactivity, 1987 Am.
The development of this latter, American doctrine in federal litigation began in cases applying limits on state sovereignty imposed by the National Constitution. Thus Chief Justice Marshall's exposition in Fletcher v. Peck, 6 Cranch 87 (1810), where the Court held that the Contract Clause, U. S. Const., Art. I, § 10, cl. 1, barred the State of Georgia's effort to rescind land grants made by a prior state legislature. Marshall acknowledged "that one legislature is competent to repeal any act which a former legislature was competent to pass; and that one legislature cannot abridge the powers of a succeeding legislature." 6 Cranch, at 135. "The correctness of this principle, so far as respects general legislation," he said, "can never be controverted." Ibid. Marshall went on to qualify the principle, however, noting that "if an act be done under a law, a succeeding legislature cannot undo it. The past cannot be recalled by the most absolute power." Ibid. For Marshall, this was true for the two distinct reasons that the intrusion on vested rights by the Georgia Legislature's Act of repeal might well have gone beyond the limits of "the
The impetus for the modern unmistakability doctrine was thus Chief Justice Marshall's application of the Contract Clause to public contracts. Although that Clause made it possible for state legislatures to bind their successors by entering into contracts, it soon became apparent that such contracts could become a threat to the sovereign responsibilities of state governments. Later decisions were accordingly less willing to recognize contractual restraints upon legislative freedom of action, and two distinct limitations developed to protect state regulatory powers. One came to be known as the "reserved powers" doctrine, which held that certain substantive powers of sovereignty could not be contracted away. See West River Bridge Co. v. Dix, 6 How. 507 (1848) (holding that a State's contracts do not surrender its eminent domain power).
The posture of the government in these early unmistakability cases is important. In each, a state or local government entity had made a contract granting a private party some concession (such as a tax exemption or a monopoly), and a subsequent governmental action had abrogated the contractual commitment. In each case, the private party was suing to invalidate the abrogating legislation under the Contract Clause. A requirement that the government's obligation unmistakably appear thus served the dual purposes of limiting contractual incursions on a State's sovereign powers and of avoiding difficult constitutional questions about the extent of state authority to limit the subsequent exercise of legislative power. Cf. Edward J. DeBartolo Corp. v. Florida Gulf Coast Building & Constr. Trades Council, 485 U.S. 568, 575 (1988) ("[W]here an otherwise acceptable construction of a statute would raise serious constitutional problems, the Court will construe the statute to avoid such problems unless such construction is plainly contrary to the intent of Congress"); Ashwander v. TVA, 297 U.S. 288, 348 (1936) (Brandeis, J., concurring) (same).
The same function of constitutional avoidance has marked the expansion of the unmistakability doctrine from its Contract Clause origins dealing with state grants and contracts to those of other governmental sovereigns, including the United States. See Merrion v. Jicarilla Apache Tribe, 455 U. S., at 148 (deriving the unmistakability principle from St. Louis v. United Railways Co., 210 U.S. 266 (1908), a Contract Clause suit against a state government).
First, we applied the doctrine to protect a tribal sovereign in Merrion v. Jicarilla Apache Tribe, supra, which held that long-term oil and gas leases to private parties from an Indian Tribe, providing for specific royalties to be paid to the Tribe, did not limit the Tribe's sovereign prerogative to tax the proceeds from the lessees' drilling activities. Id., at 148.
In Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U.S. 41 (1986), this Court confronted a state claim that § 103 of the Social Security Amendments Act of 1983, 97 Stat. 71, 42 U. S. C. § 418(g) (1982 ed., Supp. II), was unenforceable to the extent it was inconsistent with the terms of a prior agreement with the National Government. Under the law before 1983, a State could agree with the Secretary of Health and Human Services to cover the State's employees under the Social Security scheme subject to a right to withdraw them from coverage later. When the 1983 Act eliminated the right of withdrawal, the State of California and related plaintiffs sought to enjoin application of the new law to them, or to obtain just compensation for loss of the withdrawal right (a remedy which the District Court interpreted as tantamount to the injunction, since it would mandate return of all otherwise required contributions, see 477 U. S., at 51). Although we were able to resolve the case by reading the terms of a state-federal coverage agreement to reserve the Government's right to modify its terms by subsequent legislation, in the alternative we rested the decision on the more general principle that, absent an "unmistakable" provision to the contrary, "contractual arrangements, including those to which a sovereign itself is a party, `remain subject to subsequent legislation' by the sovereign." Id., at 52 (quoting Merrion, supra, at 147). We thus rejected the proposal "to find that a `sovereign forever waives the right to exercise one of its sovereign powers unless it expressly reserves the right to exercise that power in' the contract," Bowen, supra, at 52 (quoting Merrion, supra, at 148), and
Most recently, in United States v. Cherokee Nation of Okla., 480 U.S. 700 (1987), we refused to infer a waiver of federal sovereign power from silence. There, an Indian Tribe with property rights in a riverbed derived from a Government treaty sued for just compensation for damage to its interests caused by the Government's navigational improvements to the Arkansas River. The claim for compensation presupposed, and was understood to presuppose, that the Government had conveyed to the Tribe its easement to control navigation; absent that conveyance, the Tribe's property included no right to be free from the Government's riverbed improvements. Id., at 704. We found, however, that the treaty said nothing about conveying the Government's navigational easement, see id., at 706, which we saw as an aspect of sovereignty. This, we said, could be "`surrendered [only] in unmistakable terms,' " id., at 707 (quoting Bowen, supra, at 52), if indeed it could be waived at all.
Merrion, Bowen, and Cherokee Nation thus announce no new rule distinct from the canon of construction adopted in Providence Bank and Charles River Bridge; their collective holding is that a contract with a sovereign government will not be read to include an unstated term exempting the other contracting party from the application of a subsequent sovereign act (including an Act of Congress), nor will an ambiguous term of a grant or contract be construed as a conveyance or surrender of sovereign power. The cases extending back into the 19th century thus stand for a rule that applies when the Government is subject either to a claim that its contract has surrendered a sovereign power
Since the criterion looks to the effect of a contract's enforcement, the particular remedy sought is not dispositive and the doctrine is not rendered inapplicable by a request for damages, as distinct from specific performance. The respondents in Cherokee Nation sought nothing beyond damages, but the case still turned on the unmistakability doctrine because there could be no claim to harm unless the right to be free of the sovereign power to control navigation had been conveyed away by the Government.
The application of the doctrine will therefore differ according to the different kinds of obligations the Government may assume and the consequences of enforcing them. At one end of the wide spectrum are claims for enforcement of contractual obligations that could not be recognized without effectively limiting sovereign authority, such as a claim for rebate under an agreement for a tax exemption. Granting a rebate, like enjoining enforcement, would simply block the exercise of the taxing power, cf. Bowen, 477 U. S., at 51, and the unmistakability doctrine would have to be satisfied.
As construed by each of the courts that considered these contracts before they reached us, the agreements do not purport to bind the Congress from enacting regulatory measures, and respondents do not ask the courts to infer from silence any such limit on sovereign power as would violate the holdings of Merrion and Cherokee Nation. The contracts have been read as solely risk-shifting agreements and respondents seek nothing more than the benefit of promises by the Government to insure them against any losses arising from future regulatory change. They seek no injunction against application of the law to them, as the plaintiffs did in Bowen and Merrion, cf. Reichelderfer v. Quinn, 287 U.S. 315 (1932), and they acknowledge that the Bank Board and FSLIC could not bind Congress (and possibly could not even bind their future selves) not to change regulatory policy.
Nor do the damages respondents seek amount to exemption from the new law, in the manner of the compensation sought in Bowen, see 477 U. S., at 51. Once general jurisdiction to make an award against the Government is conceded, a requirement to pay money supposes no surrender of sovereign power by a sovereign with the power to contract. See, e. g., Amino Bros. Co. v. United States, 178 Ct. Cl. 515, 525, 372 F.2d 485, 491 ("The Government cannot make a binding contract that it will not exercise a sovereign power, but it can agree in a contract that if it does so, it will pay the other
We recognize, of course, that while agreements to insure private parties against the costs of subsequent regulatory change do not directly impede the exercise of sovereign power, they may indirectly deter needed governmental regulation by raising its costs. But all regulations have their costs, and Congress itself expressed a willingness to bear the costs at issue here when it authorized FSLIC to "guarantee [acquiring thrifts] against loss" that might occur as a result of a supervisory merger. 12 U. S. C. § 1729(f)(2) (1988 ed.) (repealed 1989). Just as we have long recognized that the Constitution "`bar[s] Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole,' " Dolan v. City of Tigard, 512 U.S. 374, 384 (1994) (quoting Armstrong v. United States, 364 U.S. 40, 49 (1960)), so we must reject the suggestion that the Government may simply shift costs of legislation onto its contractual partners who are adversely affected by the change in the law, when the Government has assumed the risk of such change.
The Government's position would not only thus represent a conceptual expansion of the unmistakability doctrine beyond its historical and practical warrant, but would place the doctrine at odds with the Government's own long-run interest as a reliable contracting partner in the myriad workaday transaction of its agencies. Consider the procurement contracts
The dissent's only answer to our concern is to recognize that "Congress may not simply abrogate a statutory provision obligating performance without breaching the contract and rendering itself liable for damages." Post, at 929 (citing Lynch, supra, at 580). Yet the only grounds that statement suggests for distinguishing Lynch from the present case is that there the contractual obligation was embodied in a statute. Putting aside the question why this distinction should make any difference, we note that the dissent seemingly does not deny that its view would apply the unmistakability doctrine to the vast majority of governmental contracts, which would be subject to abrogation arguments based on subsequent sovereign acts. Indeed, the dissent goes so far as to argue that our conclusion that damages are available for breach even where the parties did not specify a remedy in the contract depends upon "reading of additional terms into the contract." Post, at 930. That, of course, is not the law; damages are always the default remedy for breach of contract.
Nor can the dissenting view be confined to those contracts that are "regulatory" in nature. Such a distinction would raise enormous analytical difficulties; one could ask in this case whether the Government as contractor was regulating or insuring. The dissent understandably does not advocate such a distinction, but its failure to advance any limiting principle at all would effectively compromise the Government's capacity as a reliable, straightforward contractor whenever the subject matter of a contract might be subject to subsequent regulation, which is most if not all of the time.
In any event, we think the dissent goes fundamentally wrong when it concludes that "the issue of remedy for . . . breach" can arise only "[i]f the sovereign did surrender its power unequivocally." Post, at 929. This view ignores the
The answer to the Government's unmistakability argument also meets its two related contentions on the score of ultra vires: that the Bank Board and FSLIC had no authority to bargain away Congress's power to change the law in the future, and that we should in any event find no such authority conferred without an express delegation to that effect. The first of these positions rests on the reserved powers doctrine, developed in the course of litigating claims that States had violated the Contract Clause. See supra, at 874. It holds that a state government may not contract away "an essential attribute of its sovereignty," United States Trust, 431 U. S., at 23, with the classic example of its limitation on the scope of the Contract Clause being found in Stone v. Mississippi, 101 U.S. 814 (1880). There a corporation bargained for and received a state legislative charter to conduct lotteries, only to have them outlawed by statute a year later. This Court rejected the argument that the charter immunized the corporation from the operation of the statute, holding that "the legislature cannot bargain away the police power of a State." Id., at 817.
The Government says that "[t]he logic of the doctrine . . . applies equally to contracts alleged to have been made by the federal government." Brief for United States 38. This
The same response answers the Government's demand for express delegation of any purported authority to fetter the exercise of sovereign power. It is true, of course, that in Home Telephone & Telegraph Co. v. Los Angeles, 211 U. S., at 273, we said that "[t]he surrender, by contract, of a power of government, though in certain well-defined cases it may be made by legislative authority, is a very grave act, and the surrender itself, as well as the authority to make it, must be closely scrutinized." Hence, where "a contract has the effect of extinguishing pro tan to an undoubted power of government," we have insisted that "both [the contract's] existence and the authority to make it must clearly and unmistakably appear, and all doubts must be resolved in favor of the continuance of the power." Ibid. But Home Telephone & Telegraph simply has no application to the present
There is no question, conversely, that the Bank Board and FSLIC had ample statutory authority to do what the Court of Federal Claims and the Federal Circuit found they did do, that is, promise to permit respondents to count supervisory goodwill and capital credits toward regulatory capital and to pay respondents' damages if that performance became impossible. The organic statute creating FSLIC as an arm of the Bank Board, 12 U. S. C. § 1725(c) (1988 ed.) (repealed 1989), generally empowered it"[t]o make contracts,"
Nor is there any reason to suppose that the breadth of this authority was not meant to extend to contracts governing treatment of regulatory capital. Congress specifically recognized
See also S. Rep. No. 100-19, p. 55 (1987) ("It is expected . . . that the [Bank Board] will retain its own authority to determine . . . the components and level of capital to be required of FSLIC-insured institutions"); NLRB v. Bell Aerospace Co., 416 U.S. 267, 275 (1974) ("[S]ubsequent legislation declaring the intent of an earlier statute is entitled to significant weight"). There is no serious question that FSLIC (and the Bank Board acting through it) was authorized to make the contracts in issue.
The Government's final line of defense is the sovereign acts doctrine, to the effect that "`[w]hatever acts the government may do, be they legislative or executive, so long as they be public and general, cannot be deemed specially to alter, modify, obstruct or violate the particular contracts into which it enters with private persons.' " Horowitz v. United States, 267 U. S., at 461 (quoting Jones v. United States, 1 Ct. Cl. 383, 384 (1865)). Because FIRREA's alteration of the regulatory capital requirements was a "public and general act," the Government says, that act could not amount to a breach of the Government's contract with respondents.
The Government's position cannot prevail, however, for two independent reasons. The facts of this case do not warrant application of the doctrine, and even if that were otherwise the doctrine would not suffice to excuse liability under this governmental contract allocating risks of regulatory change in a highly regulated industry.
The early Court of Claims cases upon which Horowitz relied anticipated the Court's emphasis on the Government's dual and distinguishable capacities and on the need to treat the Government-as-contractor the same as a private party. In Deming v. United States, 1 Ct. Cl. 190 (1865), the Court of Claims rejected a suit by a supplier of army rations whose costs increased as a result of Congress's passage of the Legal Tender Act. The Deming court thought it "grave error" to suppose that "general enactments of Congress are to be construed as evasions of [the plaintiff's] particular contract." Id., at 191. "The United States as a contractor are not responsible for the United States as a lawgiver," the court said. "In this court the United States can be held to no greater liability than other contractors in other courts." Ibid. Similarly, Jones v. United States, supra, refused a suit by surveyors employed by the Commissioner of Indian Affairs, whose performance had been hindered by the United States's withdrawal of troops from Indian country. "The United States as a contractor," the Claims Court concluded, "cannot be held liable directly or indirectly for the public acts of the United States as a sovereign." Id., at 385.
The Government argues that "[t]he relevant question [under these cases] is whether the impact [of governmental action] . . . is caused by a law enacted to govern regulatory policy and to advance the general welfare." Brief for United States 45. This understanding assumes that the dual characters of Government as contractor and legislator are never "fused" (within the meaning of Horowitz ) so long as the object of the statute is regulatory and meant to accomplish some public good. That is, on the Government's reading, a regulatory object is proof against treating the legislature as having acted to avoid the Government's contractual obligations, in which event the sovereign acts defense would
As an initial matter, we have already expressed our doubt that a workable line can be drawn between the Government's "regulatory" and "non regulatory" capacities. In the present case, the Government chose to regulate capital reserves to protect FSLIC's insurance fund, much as any insurer might impose restrictions on an insured as a condition of the policy. The regulation thus protected the Government in its capacity analogous to a private insurer, the same capacity in which it entered into supervisory merger agreements to convert some of its financial insurance obligations into responsibilities of private entrepreneurs. In this respect, the supervisory mergers bear some analogy to private contracts for reinsurance.
If the Government is to be treated like other contractors, some line has to be drawn in situations like the one before us between regulatory legislation that is relatively free of Government self-interest and therefore cognizable for the purpose of a legal impossibility defense and, on the other hand, statutes tainted by a governmental object of self-relief. Such an object is not necessarily inconsistent with a public purpose, of course, and when we speak of governmental "self-interest," we simply mean to identify instances in which the Government seeks to shift the costs of meeting its legitimate public responsibilities to private parties. Cf. Armstrong v. United States, 364 U. S., at 49 (The Government may not "forc[e] some people alone to bear public burdens
Horowitz `s criterion of "public and general act" thus reflects the traditional "rule of law" assumption that generality in the terms by which the use of power is authorized will tend to guard against its misuse to burden or benefit the few unjustifiably.
In the present case, it is impossible to attribute the exculpatory "public and general" character to FIRREA. Although we have not been told the dollar value of the relief the Government would obtain if insulated from liability under contracts such as these, the attention given to the regulatory contracts prior to passage of FIRREA shows that a substantial effect on governmental contracts is certain. The statute not only had the purpose of eliminating the very accounting gimmicks that acquiring thrifts had been promised, but the specific object of abrogating enough of the acquisition contracts as to make that consequence of the legislation a focal point of the congressional debate.
This evidence of intense concern with contracts like the ones before us suffices to show that FIRREA had the substantial effect of releasing the Government from its own contractual obligations. Congress obviously expected FIRREA to have such an effect, and in the absence of any evidence to the contrary we accept its factual judgment that this would be so.
Even if FIRREA were to qualify as "public and general," however, other fundamental reasons would leave the sovereign acts doctrine inadequate to excuse the Government's breach of these contracts. As Horowitz makes clear, that defense simply relieves the Government as contractor from the traditional blanket rule that a contracting party may not obtain discharge if its own act rendered performance impossible. But even if the Government stands in the place of a private party with respect to "public and general" sovereign acts, it does not follow that discharge will always be available, for the common-law doctrine of impossibility imposes additional requirements before a party may avoid liability for breach. As the Restatement puts it,
See also 2 Farnsworth on Contracts § 9.6, at 543-544 (listing four elements of the impossibility defense). Thus, since the object of the sovereign acts defense is to place the Government as contractor on par with a private contractor in the same circumstances, Horowitz, 267 U. S., at 461, the Government, like any other defending party in a contract action, must show that the passage of the statute rendering its performance impossible was an event contrary to the basic assumptions on which the parties agreed, and must ultimately show that the language or circumstances do not indicate that the Government should be liable in any case. While we do not say that these conditions can never be satisfied when the Government contracts with participants in a regulated industry for particular regulatory treatment, we find that
For a successful impossibility defense the Government would have to show that the nonoccurrence of regulatory amendment was a basic assumption of these contracts. See, e. g., Restatement (Second) of Contracts § 261; 2 Farnsworth, supra, § 9.6, at 549-550. The premise of this requirement is that the parties will have bargained with respect to any risks that are both within their contemplation and central to the substance of the contract; as Justice Traynor said, "[i]f [the risk] was foreseeable there should have been provision for it in the contract, and the absence of such a provision gives rise to the inference that the risk was assumed." Lloyd v. Murphy, 25 Cal.2d 48, 54, 153 P.2d 47, 50 (1944).
Finally, any governmental contract that not only deals with regulatory change but allocates the risk of its occurrence will, by definition, fail the further condition of a successful impossibility defense, for it will indeed indicate that the parties' agreement was not meant to be rendered nugatory by a change in the regulatory law. See Restatement
As to each of the contracts before us, our agreement with the conclusions of the Court of Federal Claims and the Federal Circuit forecloses any defense of legal impossibility, for those courts found that the Bank Board resolutions, Forbearance Letters, and other documents setting forth the accounting treatment to be accorded supervisory goodwill generated by the transactions were not mere statements of thencurrent regulatory policy, but in each instance were terms in an allocation of risk of regulatory change that was essential to the contract between the parties. See supra, at 861-864. Given that the parties went to considerable lengths in procuring necessary documents and drafting broad integration clauses to incorporate their terms into the contract itself, the Government's suggestion that the parties meant to say only that the regulatory treatment laid out in these documents
* * *
We affirm the Federal Circuit's ruling that the United States is liable to respondents for breach of contract. Because the Court of Federal Claims has not yet determined the appropriate measure or amount of damages in this case, we remand for further proceedings.
It is so ordered.
Justice Breyer, concurring.
I join the principal opinion because, in my view, that opinion is basically consistent with the following understanding of what the dissent and the Government call the "unmistakability doctrine." The doctrine appears in the language of earlier cases, where the Court states that
See also United States v. Cherokee Nation of Okla., 480 U.S. 700, 706-707 (1987); Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U.S. 41, 52-53 (1986). The Government and the dissent believe that this language normally shields the Government from contract liability where a change in the law prevents it from carrying out its side of the bargain. In my view, however, this language,
Both common sense and precedent make clear that an "unmistakable" promise to bear the risk of a change in the law is not required in every circumstance in which a private party seeks contract damages from the Government. Imagine, for example, that the General Services Administration or the Department of Defense were to enter into a garden variety contract to sell a surplus commodity such as oil, under circumstances where (1) the time of shipment is critically important, (2) the parties are aware that pending environmental legislation could prevent the shipment, and (3) the fair inference from the circumstances is that if the environmental legislation occurs and prevents shipment, a private seller would incur liability for failure to ship on time.
Under ordinary principles of contract law, one would construe the contract in terms of the parties' intent, as revealed by language and circumstance. See The Binghamton Bridge, 3 Wall. 51, 74 (1866) ("All contracts are to be construed to accomplish the intention of the parties"); Restatement (Second) of Contracts § 202(1) (1979) ("Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight"). If the language and circumstances showed that the parties intended the seller to bear the risk of a performance-defeating change in the law, the seller would have to pay damages. See id., § 261 (no liability where "a party's performance is made impracticable without his fault by the occurrence of an event [i. e., the new environmental regulation] the non-occurrence of which was a basic assumption on which the contract was made . . . unless the
The Court has often said, as a general matter, that the "rights and duties" contained in a Government contract "are governed generally by the law applicable to contracts between private individuals." Lynch v. United States, 292 U.S. 571, 579 (1934); see Perry v. United States, 294 U.S. 330, 352 (1935) (same); Sinking Fund Cases, 99 U.S. 700, 719 (1879) ("The United States are as much bound by their contracts as are individuals. If they repudiate their obligations, it is as much repudiation, with all the wrong and reproach that term implies, as it would be if the repudiator had been a State or a municipality or a citizen"); United States v. Klein, 13 Wall. 128, 144 (1872) (same); United States v. Gibbons, 109 U.S. 200, 203-204 (1883) (where contract language "susceptible of two meanings," Government's broader obligation was "sufficiently plain" from "the circumstances attending the transaction"); see also, e. g., Russell v. Sebastian, 233 U.S. 195, 205 (1914) (public grants to be given a "fair and reasonable" interpretation that gives effect to what it "satisfactorily appears" the government intended to convey).
The Court has also indicated that similar principles apply in certain cases where courts have had to determine whether or not a government seller is liable involving contracts resembling the ones before us. In Lynch , supra, for example, the Court held that the Federal Government must compensate holders of "war risk insurance" contracts, the promises of which it had abrogated through post contract legislation. In the "gold clause" case, Perry , supra, the Court held that subsequent legislation could not abrogate a Government bond's promises to pay principal and interest in gold. In neither case did the Court suggest that an "unmistakable" promise, beyond that discernible using ordinary principles of contract interpretation, was necessary before liability could be imposed on the Government.
This approach is also consistent with congressional intent, as revealed in Congress' determination to permit, under the Tucker Act, awards of damages and other relief against the United States for "any claim . . . founded . . . upon any express or implied contract." 28 U. S. C. § 1491(a)(1). The thrifts invoked this provision in their complaints as the basis for jurisdiction to adjudicate their claims in the lower courts, see App. 8 (Winstar), 137 (Statesman), and 546 (Glendale); and, as the principal opinion explains, ante, at 858-859, the lower courts held that each proved the existence of an express promise by the Government to grant them particular regulatory treatment for a period of years. For my purposes, the provision is relevant only to show that Congress
There are, moreover, at least two good reasons to think that the cases containing special language of "unmistakability" do not, as the Government suggests, impose an additional "clear-statement" rule, see Brief for United States 19, that shields the Government from liability here. First, it is not clear that the "unmistakability" language was determinative of the outcome in those cases. In two of the three cases in which that language appears (and several of the older cases from which it is derived), the private parties claimed that the sovereign had effectively promised not to change the law in an area of law not mentioned in the contract at issue. In Merrion v. Jicarilla Apache Tribe, 455 U. S., at 148, for example, the contracts were leases by a sovereign Indian Tribe to private parties of rights to extract oil and gas from tribal lands. The private party claimed that the leases contained an implicit waiver of the power to impose a severance tax on the oil and gas. The Court pointed out that the leases said nothing about taxes, thereby requiring an inference of intent from "silence." Ibid. Though the
The Court in Merrion cited Home Building & Loan Assn. v. Blaisdell, 290 U.S. 398 (1934), and St. Louis v. United Railways Co., 210 U.S. 266 (1908), which in turn referred to a line of cases in which the Court held that a government's grant of a bank charter did not carry with it a promise not to tax the bank unless expressed "in terms too plain to be mistaken." Jefferson Branch Bank v. Skelly, 1 Black 436, 446 (1862). These cases illustrate the same point made above: Where a state-granted charter, or franchise agreement, did not implicate a promise not to tax, the Court held that no such promise was made. See Providence Bank v. Billings, 4 Pet. 514, 560, 561 (1830) (promise not to tax "ought not to be presumed" where "deliberate purpose of the state to abandon" power to tax "does not appear"); St. Louis , supra, at 274 (right to tax "still exists unless there is a distinct agreement, clearly expressed, that the sums to be paid are in lieu of all such exactions"). But, where the sovereign had made an express promise not to tax, the Court gave that promise its intended effect. See Jefferson, supra, at 450; Piqua Branch of State Bank of Ohio v. Knoop, 16 How. 369, 378 (1854) (same); New Jersey v. Yard, supra, at 115-117 (same).
Similarly, in the second "unmistakability" case, United States v. Cherokee Nation of Okla., 480 U. S., at 706-707, a Government treaty granted the Tribe title to a riverbed, but it said nothing about the Government's pre-existing right to navigate the river. The Court held that it was most unlikely that a treaty silent on the matter would have conveyed the Government's navigational rights to the Tribe, particularly
The remaining case, Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U.S. 41 (1986), concerned an alleged promise closely related to the subject matter of the contract. A State and several state agencies claimed that Congress, in enacting a statute that gave States flexibility to include or withdraw certain employees from a federal social security program, promised not to change that "withdrawal" flexibility. But in Bowen, the statute itself expressly reserved to Congress the right to "alter, amend, or repeal" any of the statute's provisions. See id., at 55. Hence, it is not surprising to find language in Bowen to the effect that other circumstances would have to be "unmistakable" before the Court could find a congressional promise to the contrary.
A second reason to doubt the Government's interpretation of the "unmistakability" language is that, in all these cases, the language was directed at the claim that the sovereign had made a broad promise not to legislate, or otherwise to exercise its sovereign powers. Even in the cases in which damages were sought (e. g., Bowen, Cherokee Nation), the Court treated the claimed promise as a promise not to change the law, rather than as the kind of promise more normally at issue in contract cases, including this one—namely, a promise that obliges the government to hold a party harmless from a change in the law that the government remains free to make. See, e. g., Bowen, supra, at 52 (lower court decision "effectively . . . forbid[s] Congress to amend a provision of the Social Security Act"); Cherokee Nation, supra, at 707 (refusing to conclude that the Tribe "gained an exemption from the [Government's navigational] servitude simply because it received title to the riverbed interests"). It is difficult to believe that the Court intended its "unmistakability"
The Government attempts to answer this objection to its reading of the "unmistakability" language by arguing that any award of "substantial damages" against the government for breach of contract through a change in the law "unquestionably carries the danger that needed future regulatory action will be deterred," and thus amounts to an infringement on sovereignty requiring an "unmistakable" promise. Brief for Petitioner 21. But this rationale has no logical stopping point. See, e. g., United States Trust Co. of N. Y. v. New Jersey, 431 U.S. 1, 24 (1977) ("Any financial obligation could be regarded in theory as a relinquishment of the State's spending power, since money spent to repay debts is not available for other purposes. . . . Notwithstanding these effects, the Court has regularly held that the States are bound by their debt contracts"). It is difficult to see how the Court could, in a principled fashion, apply the Government's rule in this case without also making it applicable to the ordinary contract case (like the hypothetical sale of oil) which, for the reasons explained above, are properly governed by ordinary principles of contract law. To draw the line—i. e., to apply a more stringent rule of contract interpretation—based only on the amount of money at stake, and therefore (in the Government's terms) the degree to which future exercises of sovereign authority may be deterred, seems unsatisfactory. As the Government acknowledges, see Brief for United States 41, n. 34, this Court has previously rejected the argument that Congress has "the power to repudiate its own debts, which constitute `property' to the lender, simply in order to save money." Bowen, supra, at
In sum, these two factors, along with the general principle that the government is ordinarily treated like a private party when it enters into contracts, means that the "unmistakability" language might simply have underscored the special circumstances that would have been required to convince the Court of the existence of the claimed promise in the cases before it. At most, the language might have grown out of unique features of sovereignty, believed present in those cases, which, for reasons of policy, might have made appropriate a special caution in implying the claimed promise. But, I do not believe that language was meant to establish an "unmistakability" rule that controls more ordinary contracts, or that controls the outcome here.
The Government attempts to show that such special circumstances, warranting application of an unmistakability principle, are present in this case. To be sure, it might seem unlikely, in the abstract, that the Government would have intended to make a binding promise that would oblige it to hold the thrifts harmless from the effects of future regulation (or legislation) in such a high-risk, highly regulated context as the accounting practices of failing savings and loans. But, as the principal opinion's careful examination of the circumstances reveals, that is exactly what the Government did. The thrifts demonstrate that specific promises were made to accord them particular regulatory treatment for a period of years, which, when abrogated by subsequent legislation, rendered the Government liable for breach of contract. These promises affect only those thrifts with preexisting contracts of a certain kind. They are promises that the banks seek to infer from the explicit language of the contracts, not ones they read into contracts silent on the matter. And, there is no special policy reason related to sovereignty which would justify applying an "unmistakability" principle here. For these reasons, I join the principal opinion.
I agree with the principal opinion that the contracts at issue in this case gave rise to an obligation on the part of the Government to afford respondents favorable accounting treatment, and that the contracts were broken by the Government's discontinuation of that favorable treatment, as required by FIRREA, 12 U. S. C. § 1464(t). My reasons for rejecting the Government's defenses to this contract action are, however, quite different from the principal opinion's, so I must write separately to state briefly the basis for my vote.
The principal opinion dispenses with three of the four "sovereign" defenses raised by the Government simply by characterizing the contracts at issue as "risk-shifting agreements" that amount to nothing more than "promises by the Government to insure [respondents] against any losses arising from future regulatory change." Ante, at 881. Thus understood, the principal opinion explains, the contracts purport, not to constrain the exercise of sovereign power, but only to make the exercise of that power an event resulting in liability for the Government—with the consequence that the peculiarly sovereign defenses raised by the Government are simply inapplicable. This approach has several difficulties, the first being that it has no basis in our cases, which have not made the availability of these sovereign defenses (as opposed to their validity on the merits) depend upon the nature of the contract at issue. But in any event, it is questionable whether, even as a matter of normal contract law, the exercise in contract characterization in which the principal opinion engages is really valid. Virtually every contract operates, not as a guarantee of particular future conduct, but as an assumption of liability in the event of nonperformance: "The duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it,— and nothing else." Holmes, The Path of the Law (1897), in 3 The Collected Works of Justice Holmes 391, 394 (S. Novick
In this case, it was an unquestionably sovereign act of government—enactment and implementation of provisions of FIRREA regarding treatment of regulatory capital—that gave rise to respondents' claims of breach of contract. Those claims were premised on the assertion that, in the course of entering into various agreements with respondents, the Government had undertaken to continue certain regulatory policies with respect to respondents' recently acquired thrifts; and the Government countered that assertion, in classic fashion, with the primary defense that contractual restrictions on sovereign authority will be recognized only where unmistakably expressed. The "unmistakability" doctrine has been applied to precisely this sort of situation— where a sovereign act is claimed to deprive a party of the benefits of a prior bargain with the government. See, e. g., Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 135-136, 145-148 (1982).
Like The Chief Justice, see post, at 924-931, I believe that the unmistakability doctrine applies here, but unlike him I do not think it forecloses respondents' claims. In my view, the doctrine has little if any independent legal force beyond what would be dictated by normal principles of contract interpretation. It is simply a rule of presumed (or implied-in-fact) intent. Generally, contract law imposes upon a party to a contract liability for any impossibility of performance that is attributable to that party's own actions. That is a reasonable estimation of what the parties intend. When I promise to do x in exchange for your doing y, I impliedly promise not to do anything that will disable me from doing x, or disable you from doing y —so that if either of our performances is rendered impossible by such an act on my part, I am not excused from my obligation. When the contracting party is the government, however, it is simply not reasonable to presume an intent of that sort. To the contrary,
Here, however, respondents contend that they have overcome this reverse presumption that the Government remains free to make its own performance impossible through its manner of regulation. Their claim is that the Government quite plainly promised to regulate them in a particular fashion, into the future. They say that the very subject matter of these agreements, an essential part of the quid pro quo, was Government regulation; unless the Government is bound as to that regulation, an aspect of the transactions that reasonably must be viewed as a sine qua non of their assent becomes illusory. I think they are correct. If, as the dissent believes, the Government committed only "to provide [certain] treatment unless and until there is subsequent action," post, at 935, then the Government in effect said "we promise to regulate in this fashion for as long as we choose to regulate in this fashion"—which is an absolutely classic description of an illusory promise. See 1 R. Lord, Williston on Contracts § 1:2, p. 11 (4th ed. 1990). In these circumstances, it is unmistakably clear that the promise to accord favorable regulatory treatment must be understood as (unsurprisingly) a promise to accord favorable regulatory treatment. I do not accept that unmistakability demands that there be a further promise not to go back on the promise to accord favorable regulatory treatment.
The dissent says that if the Government agreed to accord the favorable regulatory treatment "in the short term, but
In sum, the special role of the agencies, and the terms and circumstances of the transactions, provide an adequate basis for saying that the promises that the trial court and the Court of Appeals for the Federal Circuit found to have been made in these cases were unmistakable ones. To be sure, those courts were not looking for "unmistakable" promises, see post, at 936, but unmistakability is an issue of law that we can determine here. It was found below that the Government had plainly made promises to regulate in a certain fashion, into the future; I agree with those findings, and I would conclude, for the reasons set forth above, that the promises were unmistakable. Indeed, it is hard to imagine what additional assurance that the course of regulation would not change could have been demanded—other than, perhaps, the Government's promise to keep its promise. That is not what the doctrine of unmistakability requires. While it is true enough, as the dissent points out, that one who deals with the Government may need to "`turn square corners,' " post, at 937 (quoting Rock Island, A. & L. R. Co. v. United States, 254 U.S. 141, 143 (1920)), he need not turn them twice.
The Government's remaining arguments are, I think, readily rejected. The scope and force of the "reserved powers" and "express delegation" defenses—which the principal opinion thinks inapplicable based on its view of the nature of the contracts at issue here, see ante, at 888-890—have not been well defined by our prior cases. The notion of "reserved powers" seems to stand principally for the proposition
Finally, in my view the Government cannot escape its obligations by appeal to the so-called "sovereign acts" doctrine. That doctrine was first articulated in Court of Claims cases, and has apparently been applied by this Court in only a single case, our 3-page opinion in Horowitz v. United States, 267 U.S. 458, decided in 1925 and cited only once since, in a passing reference, see Nortz v. United States, 294 U.S. 317, 327 (1935). Horowitz holds that "the United States when sued as a contractor cannot be held liable for an obstruction to the performance of [a] particular contract resulting from its public and general acts as a sovereign." 267 U. S., at 461. In my view the "sovereign acts" doctrine adds little, if anything at all, to the "unmistakability" doctrine, and is avoided whenever that one would be—i. e., whenever it is clear from the contract in question that the Government was committing itself not to rely upon its sovereign acts in asserting (or defending against) the doctrine of impossibility,
The principal opinion works sweeping changes in two related areas of the law dealing with government contracts. It drastically reduces the scope of the unmistakability doctrine, shrouding the residue with clouds of uncertainty, and it limits the sovereign acts doctrine so that it will have virtually no future application. I respectfully dissent.
The principal opinion properly recognizes that the unmistakability doctrine is a "special rule" of government contracting which provides, in essence, a "canon of contract construction that surrenders of sovereign authority must appear in unmistakable terms." Ante, at 860. Exercises of the sovereign authority include of course the power to tax and, relevant to this case, the authority to regulate.
The most recent opinion of this Court dealing with the unmistakability doctrine is United States v. Cherokee Nation of Okla., 480 U.S. 700 (1987). That case quoted language from Bowen v. Public Agencies Opposed to Social Security
Merrion, supra, was similar, but involved the sovereignty of an Indian Tribe. The Tribe had allowed oil companies to extract oil and natural gas deposits on the reservation land in exchange for the usual cash bonus, royalties, and rents to the Tribe. The Court found that, in so contracting, the Tribe had not surrendered its power to impose subsequently a severance tax on that production. Merrion explains that "[w]ithout regard to its source[—be it federal, state, local government, or Indian—]sovereign power, even when unexercised, is an enduring presence that governs all contracts subject to the sovereign's jurisdiction, and will remain intact unless surrendered in unmistakable terms." 455 U. S., at 148.
Next, Bowen, supra, addressed Congress' repeal of a law that had once allowed States which contracted to bring their employees into the Federal Social Security System, to terminate that agreement and their participation upon due notice. Bowen, therefore, considered not the imposition of a tax as St. Louis and Merrion, but an amendment to a statutory provision that existed as a background rule when and under
Finally, we have Cherokee Nation, supra, in which the Court applied the unmistakability doctrine to a treaty, rather than a typical contract. Under the treaty the United States had granted to an Indian Tribe fee simple title to a riverbed. The Tribe claimed that the United States had not reserved its navigational servitude and hence that the Government's construction of a navigational channel that destroyed the riverbed's mineral interests was a taking under the Fifth Amendment without just compensation. The Court ruled that the treaty had not provided the Tribe an exemption from the navigational servitude, quoting from Bowen and Merrion the statement that "[s]uch a waiver of sovereign authority will not be implied, but instead must be ` "surrendered in unmistakable terms."` " Id., at 707.
These cases have stood until now for the well-understood proposition just quoted above—a waiver of sovereign authority will not be implied, but instead must be surrendered in unmistakable terms. Today, however, the principal opinion drastically limits the circumstances under which the doctrine will apply by drawing a distinction never before seen in our case law. The principal opinion tells us the unmistakability doctrine will apply where a plaintiff either seeks injunctive relief to hold the Government to its alleged surrender of sovereign authority (which generally means granting the plaintiff an exemption to the changed law), or seeks a damages award which would be "the equivalent of" such an injunction or exemption. Ante, at 879-880. But the doctrine will not apply where a plaintiff seeks an award for damages caused by the exercise of that sovereign authority. We are told that if the alleged agreement is not one to bind the Government to
The first problem with the principal opinion's formulation is a practical one. How do we know whether "the award of damages" will be "the equivalent of [an] exemption," ante, at 879-880, before we assess the damages? In this case, for example, "there has been no demonstration that awarding damages for breach would be tantamount" to an exemption to the regulatory change, ante, at 881; and there has been no demonstration to the contrary either. Thus we do not know in this very case whether the award of damages would "amount to" an injunction, ante, at 882. If it did, under the principal opinion's theory, the unmistakability doctrine would apply, and that application may preclude respondents' claim.
But even if we could solve that problem by determining the damages before liability, and by finding the award to be some amount other than the cost of an exemption, we would still be left with a wholly unsatisfactory distinction. Few, if any, of the plaintiffs in the unmistakability-doctrine cases would have insisted on an injunction, exemption, or their damages equivalent if they had known they could have avoided the doctrine by claiming the Government had agreed to assume the risk, and asking for an award of damages for breaching that implied agreement. It is impossible to know the monetary difference between such awards and, as the principal opinion suggests, the award for a breach of the risk-shifting agreement may even be more generous.
The principal opinion's newly minted distinction is not only untenable, but is contrary to our decisions in Cherokee Nation and Bowen. The Cherokee Nation sought damages and compensation for harm resulting from the Government's navigational servitude. Cherokee Nation, 480 U. S., at 701.
Likewise, some of the plaintiffs in Bowen sought damages. They sought just compensation for the revocation of their alleged contractual right to terminate the employees' participation in the Social Security Program. The District Court in the decision which we reviewed in fact commented, as this Court reported, that it found that the "`only rational compensation would be reimbursement by the United States to the State or public agencies, of the amount of money they currently pay to the United States for their participation.' " Bowen, 477 U. S., at 51 (quoting Public Agencies Opposed to Social Security Entrapment v. Heckler, 613 F.Supp. 558, 575 (ED Cal. 1985)). It was only because the District Court concluded that awarding this "measure of damages" was contradictory to the will of Congress that the court refrained from making such an award and instead simply declared the statutory amendment unconstitutional. 477 U. S., at 51. Neither Cherokee Nation nor Bowen hinted that the unmistakability doctrines applied in their case because the damages remedy sought "amount[ed] to" an injunction. Ante, at 882.
In St. Louis v. United Railways Co., 210 U.S. 266 (1908), the plaintiff railway companies did seek to enjoin the enforcement of the tax by the city, and perhaps that case fits neatly within the principal opinion's scaled-down version of the unmistakability doctrine. But sophisticated lawyers in the future, litigating a claim exactly like the one in St. Louis, need only claim that the sovereign implicitly agreed not to change their tax treatment, and request damages for breach of that agreement. There will presumably be no unmistakability doctrine to contend with, and they will be in the same position as if they had successfully enjoined the tax. Such
The principal opinion justifies its novel departure from existing law by noting that the contracts involved in the present case—unlike those in Merrion, Bowen, and Cherokee Nation —"do not purport to bind the Congress from enacting regulatory measures." Ante, at 881. But that is precisely what the unmistakability doctrine, as a canon of construction, is designed to determine: Did the contract surrender the authority to enact or amend regulatory measures as to the contracting party? If the sovereign did surrender its power unequivocally, and the sovereign breached that agreement to surrender, then and only then would the issue of remedy for that breach arise.
The second reason the principal opinion advances for its limitation on the unmistakability doctrine is that if it were applied to all actions for damages, it would impair the Government's ability to enter into contracts. But the law is well established that Congress may not simply abrogate a statutory provision obligating performance without breaching the contract and rendering itself liable for damages. See Lynch v. United States, 292 U.S. 571, 580 (1934); Bowen, supra, at 52. Equally well established, however, is that the sovereign does not shed its sovereign powers just because it contracts. See Providence Bank v. Billings, 4 Pet. 514, 565 (1830). The Government's contracting authority has survived from the beginning of the Nation with no diminution in bidders, so far as I am aware, without the curtailment of the unmistakability doctrine announced today.
The difficulty caused by the principal opinion's departure from existing law is best shown by its own analysis of the contracts presently before us. The principal opinion tells us first that "[n]othing in the documentation or the circumstances of these transactions purported to bar the Government from changing the way in which it regulated the thrift industry." Ante, at 868. But, it agrees with the finding of
But if there is a "serious contest" about the correctness of their interpretive positions, surely the unmistakability doctrine—a canon of construction—has a role to play in resolving that contest. And the principal opinion's reading of additional terms into the contract so that the contract contains an unstated, additional promise to insure the promisee against loss arising from the promised condition's nonoccurrence seems the very essence of a promise implied in law, which is not even actionable under the Tucker Act, rather than a promise implied in fact, which is. See Hercules, Inc. v. United States, 516 U.S. 417, 423 (1996).
At any rate, the unmistakability doctrine never comes into play, according to the principal opinion, because we cannot know whether the damages which could be recovered in later proceedings would be akin to a rebate of a tax, and therefore the "equivalent of" an injunction. This approach tosses to the winds any idea of the unmistakability doctrine as a canon of construction; if a canon of construction cannot come into play until the contract has first been interpreted as to liability
The principal opinion's search for some unifying theme for somewhat similar cases from Fletcher v. Peck, 6 Cranch 87, in 1810, to the present day is an interesting intellectual exercise, but its practical fruit is inedible.
The principal opinion also makes major changes in the existing sovereign acts doctrine which render the doctrine a shell. The opinion formally acknowledges the classic statement of the doctrine in Horowitz v. United States, 267 U.S. 458 (1925), quoting: "`[i]t has long been held by the Court of Claims that the United States when sued as a contractor cannot be held liable for an obstruction of the performance of the particular contract resulting from its public and general acts as a sovereign.' " Ante, at 892 (quoting 267 U. S., at 461). The principal opinion says that this statement cannot be taken at face value, however, because it reads "the essential point" of Horowitz to be "to put the Government in the same position that it would have enjoyed as a private contractor." Ante, at 892; see also ante, at 893 (Horowitz emphasized "the need to treat the Government-as-contractor the same as a private party"). But neither Horowitz, nor the Court of Claims cases upon which it relies, confine themselves to so narrow a rule. As the quotations from them in the principal opinion show, the early cases emphasized the dual roles of Government, as contractor and as sovereign. See, e. g., Deming v. United States, 1 Ct. Cl. 190, 191 (1865) ("The United States as a contractor are not responsible for the United States as a lawgiver"). By minimizing the role of lawgiver and expanding the role as private contractor, the principal opinion has thus casually, but improperly, reworked the sovereign acts doctrine.
The principal opinion further cuts into the sovereign acts doctrine by defining the "public and general" nature of an
The principal opinion does not tell us, nor do these lofty jurisprudential principles inform us, how we are to decide whether a particular statute is "free of governmental selfinterest," on the one hand, or "tainted by" a government objective of "self-relief," on the other. In the normal sense of the word, any tax reform bill which tightens or closes tax loopholes is directed to "government self-relief," since it is designed to put more money into the public coffers. Be the act ever so general in its reform of the tax laws, it apparently would not be a "sovereign act" allowing the Government to defend against a claim by a taxpayer that he had received an interpretation from the Internal Revenue Service that a particular type of income could continue to be treated in accordance with existing statutes or regulations.
But we are told "self-relief" is not, as one might expect, necessarily determined by whether the Government benefited financially from the legislation. For example, in this case the principal opinion acknowledges that we do not know
Indeed, judging from the principal opinion's use of comments of individual legislators in connection with the enactment of FIRREA, it would appear that the sky is the limit so far as judicial inquiries into the question whether the statute was "free of governmental self-interest" or rather "tainted" by a Government objective of "self-relief." It is difficult to imagine a more unsettling doctrine to insert into the law of Government contracts. By fusing the roles of the Government as lawgiver and as contractor—exactly what Horowitz warned against doing—the principal opinion makes some sort of legislative intent critical in deciding these questions. When it enacted FIRREA was the Government interested in saving its own money, or was it interested in preserving the savings of those who had money invested in the failing thrifts?
I think it preferable, rather than either importing great natural-law principles or probing legislators' intent to modify the sovereign acts doctrine, to leave that law where it is. Lynch stands for the proposition that the congressional repeal of a statute authorizing the payment of money pursuant to a contractual agreement is a breach of that contract. But, as the term "public and general" implies, a more general regulatory enactment—whether it be the Legal Tender Acts involved in Deming, supra, or the embargo on shipments of silk by freight involved in Horowitz —cannot by its enforcement give rise to contractual liability on the part of the Government.
Judged by these standards, FIRREA was a general regulatory enactment. It is entitled "[a]n [a]ct to reform, recapitalize,
Justice Scalia finds that the unmistakability doctrine does apply to the contracts before us. He explains that when the government is a contracting party, "it is reasonable to presume . . . that the sovereign does not promise that none of its multifarious sovereign acts . . . will incidentally disable it or the other party from performing," under the contract, "unless the opposite clearly appears. " Ante, at 921. In other words, the sovereign's right to take subsequent action continues "unless th[e] right has been specifically
But that is hardly what one normally thinks to be "unmistakable terms." Indeed, that promise plus consideration is no different from what Justice Scalia says applies to private parties. Ante, at 920. The Government has "promise[d] to do x in exchange for [respondents] doing y, " and in so doing "impliedly promise[d] not to do anything that [would] disable [the Government] from doing x, or disable [respondents] from doing y —so that if either of [the parties'] performances is rendered impossible by such an act on [the Government's] part, [the Government is] not excused from [its] obligation." Ibid. (emphasis added). But more than this is required for Government contracts, as Justice Scalia had seemed to acknowledge.
His point about quid pro quo adds little, for it necessarily assumes that there has been a promise to provide a particular regulatory treatment which cannot be affected by subsequent action, as opposed to a promise to provide that treatment unless and until there is subsequent action. Ante, at 921. But determining which promise the Government has made is precisely what the unmistakability doctrine is designed to determine. If the Government agreed to treat the losses acquired by respondents as supervisory goodwill in the short term, but made no commitment about their regulatory treatment over the long term, respondents still received consideration. Such consideration would be especially valuable to an unhealthy thrift because it would provide "a number of immediate benefits to the acquiring
In addition, Justice Scalia does not himself make the findings necessary for respondents to prevail, but relies on the findings of the trial court and the Court of Appeals for the Federal Circuit with respect to what the Government actually promised. Ante, at 922. But both the trial court and the Court of Appeals held the unmistakability doctrine did not apply here. Therefore, even under Justice Scalia's own premises, these findings are insufficient because they were made under a mistaken view of the applicable law.
Justice Breyer in his separate concurrence follows a different route to the result reached by the principal opinion. But even under his own view of the law, he omits a necessary step in the reasoning required to hold the Government liable. He says that "the lower courts held that each [respondent] proved the existence of an express promise by the Government to grant them particular regulatory treatment for a period of years." Ante, at 913. But the Government could have made that promise and not made the further promise to pay respondents in the event that the regulatory regime changed. Justice Breyer concludes that second promise did exist as a matter of fact, but he never makes that finding himself. Instead, he says that the "principal opinion's careful examination of the circumstances reveals" that the Government did "inten[d] to make a binding promise . . . to hold the thrifts harmless from the effects of future regulation (or legislation)." Ante, at 918. But the principal opinion does not treat this as a question of fact at all, as Justice Breyer does, but instead as something which occurs by operation of law.
Justice Breyer relies on this illusory factual finding while at the same time commenting how implausible it would be for the Government to have intended to insure against a
The short of the matter is that Justice Breyer and Justice Scalia cannot reach their desired result, any more than the principal opinion can, without changing the status of the Government to just another private party under the law of contracts. But 75 years ago Justice Holmes, speaking for the Court in Rock Island, A. & L. R. Co. v. United States, 254 U.S. 141, 143 (1920), said that "[m]en must turn square corners when they deal with the Government." The statement was repeated in Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 385 (1947). The wisdom of this principle arises, not from any ancient privileges of the sovereign, but from the necessity of protecting the federal fisc—and the taxpayers who foot the bills—from possible improvidence on the part of the countless Government officials who must be authorized to enter into contracts for the Government.
A moment's reflection suggests that the unmistakability doctrine and the sovereign acts doctrine are not entirely separate principles. To the extent that the unmistakability doctrine is faithfully applied, the cases will be rare in which close and debatable situations under the sovereign acts doctrine are presented. I do not believe that respondents met either of these tests, and I would reverse the judgment of the Court of Appeals for the Federal Circuit outright or remand the case to that court for reconsideration in light of these tests as I have enunciated them.